International companies may outsource more jobs overseas as a result of the payroll tax increase, the Association of Bermuda International Companies warned yesterday.

ABIC said the increase in payroll tax from 14 to 16 percent of salaries will make companies less competitive and will hinder their ability to retain business or expand employment opportunities.

ABIC, commenting for the first time on Finance Minister Paula Cox's Budget Statement, also cited the lack of cost cutting measures by Government itself.

While acknowledging the difficulties of drawing up a Budget in the current economic climate, ABIC raised concerns over the "lack of resolve" from Government in cutting back on unnecessary expenses.

ABIC said that instead Government was asking corporate and individual taxpayers to make up for the ever-widening gap between revenue and expenditure, with borrowing on the rise again and the cost of servicing that debt falling on the taxpayer for the foreseeable future.

"ABIC recognises that in the current depressed economy, there is a need for stimulus and we acknowledge that International Business, as the central component of Bermuda's economy has a significant role to play in helping Bermuda weather the storm," ABIC stated.

"We note positively that the Minister intends to implement controls to address cost overruns on capital projects, and that the Ministry is mindful of the various reports from the Government Auditor General's office highlighting the lack of accountability and fiscal restraint that currently exists in many areas of Government.

"We encourage the Minister to further extend this fiscal restraint and accountability to the current expenditure components of the Budget. From outside of government, it appears that the key driver to managing the overspend is the robust enforcement of proper financial controls in keeping with the stature of a domicile such as Bermuda."

ABIC said international business and its employees would bear the brunt of the tax increases, with some other sectors receiving varying levels of exemptions.

"The 14 percent increase in payroll taxes and, in some cases, a tax increase of well in excess of 100 percent on the most senior job creators in the international business sector will only serve to make Bermuda and the companies located here less competitive in the global economy, and will undoubtedly have a negative impact on retaining our current business or expanding employment here," the statement said.

"We would point out that international business in Bermuda is comprised of much more than the large insurers/reinsurers that receive much of the local coverage, and the bulk of ABIC's membership comprises service companies where payroll, and hence payroll taxes, form a large part of the budget.

"Some of our member companies will see their payroll tax costs increase by more than 50 percent as a result of these increases in the budget."

ABIC said many of its members had outsourced operations to other domiciles and others were now actively considering outsourcing – jobs permanently lost from the economy due to the already high cost structure of employment.

"The proposed tax increases will likely diminish job growth in Bermuda," the statement read. "Given that the global economic environment is expected to gradually improve, we would strongly encourage the Minister to implement the proposed payroll tax increases as a temporary crisis measure, with a firm commitment to reverse these when, and if, Bermuda's growth rates return to their historical norms.

"ABIC urges Government, as a matter of urgency, to institute measures to ensure that budget overruns will simply not be tolerated in the year ahead, or in the years to come.

"We further encourage Government to consider these measures within the framework of a closer and more transparent dialogue with ABIC and the other international business organisations in order to reassure international business that Bermuda remains a welcoming domicile of choice for those companies that are here and those that may be created here in the future.

"ABIC and its member companies have a strong commitment to Bermuda and look forward to working with Government to address any and all of the issues raised in this statement. We are in the process of compiling detailed information from our members in relation to the impacts of this budget and how it impacts their future planning."