Finance Minister Paula Cox took some heat from business people yesterday after a Budget that significantly increased the tax burden on employers.

In a question-and-answer session at the Bermuda Chamber of Commerce Power Breakfast, Ms Cox said that the payroll tax increase had been the only feasible way of raising the revenue Government needed.

Ms Cox announced in last Friday's Budget statement that the rate of payroll tax would rise two percentage points to 16 percent. Half the increase will be borne by employees, whose contribution will rise to 5.75 percent of their pay, from 4.75 percent, while employers will pay the other 10.25 percent.

In the audience at the Fairmont Hamilton Princess was Butterfield & Vallis president Jim Butterfield, who asked Ms Cox how she justified the payroll tax increase and how she thought it would help to boost jobs in Bermuda.

>Ms Cox replied that the bottom line was that the Government had needed extra revenue to meet the public's expectations for increased public services.

"For the last 10 years, we've been very gentle with regard to tax increases," Ms Cox said.

"This is the time when the country needs it and we're seeking to get some more revenue out of the tax base we have."

In the absence of income tax which she stressed there was no plan to introduce Government's options to raise the money it needed were limited, she said.

"You can talk about sin taxes," Ms Cox said, referring to taxes on alcohol and cigarettes. "But you get only a small amount of revenue from that.

"When you look at where the opportunity is, when you're coming out of a recession, the area where you can find some revenue and not be extortionate is payroll tax."

Efforts had been made to insulate areas of the economy that were particularly vulnerable, she added, such as the taxi, hotel and retail sectors, which would all get some form of relief of varying scope.

Payroll tax relief for the taxi sector, which would come in the form of rebates from January 2010, would cost the Government about $1 million, Ms Cox said.

Retailers will be allowed to pay an as yet unspecified lower rate of payroll tax for the January through March period.

Dawn Zuill, owner of children's clothes retailer Daisy & Mac, asked why the taxi-sector relief had not been extended to struggling retailers.

And she criticised Ms Cox's comment in the Budget that "we cannot have a Reid Street-doing-fine mentality and a North Street that suffers", pointing out that the entire retail sector had suffered from 20 successive months of sales volume declines.

The payroll tax hike would only make life tougher for retailers, she added. "We employ 100 percent Bermudian staff and we've been forced to cut employees to keep our doors open," Ms Zuill said.

"More Bermudians, I can assure you, are about to lose their jobs, which will mean Government will lose revenues and there will be higher demands on social services.

"Places like Singapore and the UK have been giving tax relief to their communities for more than a year. Can you please explain your reasons for leaving retailers with no relief?"

Ms Cox replied that the January through March reduction in payroll tax would give retailers similar relief to that afforded to hoteliers.

Deferments of duty payments would also help retailers with their cash flows a key area of concern for many in the sector, Ms Cox saidand Government would look at what more it could do to extend that help.

Some were also not taking advantage of tax breaks that were already in place, such as the apprentice and intern payroll tax exemption and the duty relief on materials for refurbishment of retail premises.

Another questioner asked Ms Cox whether she thought her payroll tax hike was likely to result in international businesses moving more jobs overseas.

>The rise in the salary cap from $350,000 to $750,000 will impact high-earning executives and the companies that employ them.

Ms Cox said international companies took numerous factors into account when deciding on their domicile for example,>US tax policy.

She added: "I don't believe that this increase in itself will cause a flight of capital."

n talks with international business leaders, Ms Cox said safety and security were major concerns, so they would be pleased to see increased funding for the Police in the Budget.

"Bermuda is still seen as an attractive domicile in which to do business," she said. "As a country, we should try to indicate that we are welcoming to international business. We are still seeing continued interest in Bermuda."

According to the National Economic Report 2009, international business directly accounts for more than a quarter of Bermuda's gross domestic product and would remain the economy's main driver for the foreseeable future, Ms Cox said.

Tourism was "not where it should be" and was facing a challenging 12 to 18 months, she added.

>Ms Cox said her major concern was the financial control deficiencies highlighted by the Auditor General in successive reports.

Former Chamber president Peter Everson suggested that, from his experience, the best way to solve that problem was to cut off the cash to the weakest managers.