Yesterday’s revised Budget gave us a much clearer picture of the hammer blow that Covid-19 has dealt to public finances.

An eye-watering $295 million government deficit for the year ended March 31, 2021, is partly the result of ramping up spending to help the laid off, the unemployed, struggling small businesses and a health system dealing with unprecedented challenges.

Even more so, it was the result of a slump in revenues collected from an economy reeling from the effects of the restrictions imposed on the way we live to curb the spread of the virus.

Much of the $125 million of extraordinary government expenses for this year could be considered a good investment, considering the alternatives.

Some $57 million has been paid out in unemployment benefit to more than 10,000 people, for example. For the many in our community who live paycheque to paycheque, the rapid provision of this support was a financial lifeline. Given that most of this aid was most likely spent immediately on essentials, it was also an efficient stimulus for an economy on its knees.

Also, few could argue with the help given to struggling businesses, not only in the form of the $12 million provided to the Bermuda Economic Development Corporation aid programme, but also in the form of payroll tax and duty breaks, which continue for those in the worst-hit sectors. If these measures helped to save businesses, they also saved jobs.

The tax breaks added to revenues projected to fall $208 million short of the original pre-pandemic Budget presented by Curtis Dickinson, the finance minister.

Mr Dickinson said the $295 million deficit was “not only unsustainable but economically and fiscally imprudent”, but that the extra spending had been necessary to protect the vulnerable and contain the virus.

The big question is how many more supersized deficits will be needed to deal with the longer term impact of this pandemic? Few would expect that the next fiscal year will herald a return to normal.

Unemployment levels are likely to remain elevated, particularly while tourism is stuck in the doldrums, meaning the need for a greater social safety net. An unemployment insurance scheme is in the pipeline.

Many in the hospitality industry are eyeing 2022 as the earliest that they could realistically envisage a return to profitability. More tax and duty breaks will be needed to enable those employers to cross that bridge.

But how can the Government, already carrying a $3 billion debt burden hope to pay for all this?

Historically, it has turned to hikes in payroll tax and Customs duties, its two major revenue earners, when in need of extra income. That should be off the table for now. Kicking fragile businesses when they are down risks further increasing joblessness, deterring start-ups and raising the cost of living.

With the Government planning to reconvene the Tax Reform Commission to reconsider ideas on broadening the tax base, it is clear there are no easy options. Any new tax that targets bruised areas of the economy risks causing permanent damage.

In 2018, the TRC’s ideas included a general services tax, but again that would hurt many businesses severely damaged by the pandemic. It also suggested taxing rental income, but this would irk the many families who rely on renting out an apartment to help pay their mortgage, carrying political as well as economic risks for the Government.

The TRC’s suggestion of commercial real estate tax hikes would only help persuade many businesses to reduce their current office space, especially given the work-from-home revolution that has taken place over the past six months. A passed-on increase in rent for the retailers who are fighting to survive could also be an unintended consequence.

Taxes on dividends and interest may upset wealthy job makers who have a choice where in the world to base themselves, just as much as it does retirees who see a bite taken out of their fixed income from investments.

New taxes have the added disadvantage of requiring extra government bureaucracy to collect and enforce them.

Another way to tame a raging deficit is to cut expenses. In his revised Budget, the finance minister identified savings of $73 million, of which $20 million were salary and wage cuts, while suspension of pension and social insurance contributions made up a further $26 million.

More trimming will doubtless be needed as debt servicing and financial aid costs rise. An extension to the temporary pay cuts agreed with public-sector unions is likely to be sought. Looking ahead, the private sector would find it difficult to swallow painful tax increases at the same time that civil servants were being returned to full pay.

Perhaps the least painful road ahead for Mr Dickinson is to find ways to leverage Bermuda’s advantages to stimulate economic growth. Even a small, but bold policy change could have an outsized impact in a country as small as Bermuda.

The hard insurance market is a godsend for the island, with several large start-up reinsurers in the pipeline. To maximise the economic benefits of a favourable trend, the island could use a friendlier immigration policy to tempt companies to build up headcount here.

As this newspaper’s financial columnist Nathan Kowalski has observed, there is an 86 per cent correlation between the number of Bermudian jobs and non-Bermudian jobs. If more expatriates are here, there is more demand in the local economy, more shopping at local stores, more rental opportunities for Bermudian landlords, more fares for taxi drivers, more diners for restaurants and, of course, more government revenues to pay for public services.

It’s an oft-repeated argument and one that the Government appears to appreciate in the case of the digital nomads attracted by the Work From Bermuda certificate.

Mr Dickinson and his government colleagues face some unenviable decisions to ensure that more “unsustainable” deficits do not lie ahead.