Economist Craig Simmons is predicting that taxes will go up as Government boosts its coffers to pay for expensive election promises.

The Bermuda College lecturer believes sin taxes, payroll tax and foreign currency fees could all get Budget hikes while company fees will likely be left alone given the turmoil in international business.

Mr. Simmons told The Royal Gazette this Budget could be the most challenging yet for Finance Minister Paula Cox.

"She has had the unenviable job of estimating the dollar value of promises made in the heat of battle during the recent election campaign.

"Our Budget tradition of having tax revenues exceed current spending further complicates the matter of how to pay for those promises."

Mr. Simmons added: "Tax increases are in the cards.

Payroll tax is an obvious choice: it has a sufficiently broad base to provide some of the needed additional revenue."

Payroll tax is levied on personal employment income, explained Mr. Simmons, and is a progressive tax with three tiers ¿ the standard rate is 13.5 percent.

"Minister Cox may decide to increase each tier's rate and/or to change the threshold boundaries."

He said employment income represents just under half of GDP, which in 2006 reached $5,355 million. Increasing payroll tax by one percentage point could raise an additional $26 million.

Customs duty is the second largest source of tax revenue after payroll tax, he said.

"So-called sin taxes are included in this category. Expect taxes on cigarettes and alcohol to increase. Cars and boats could possibly be in for a duty increase, with cars also seeing licensing fees raised."

But he added: "Given the turmoil in the international financial services industry and the impact this turmoil is having on local firms, one would not expect a significant increase in company fees."

Mr. Simmons said in light of successive current account surpluses on the balance of payments, it could be argued that foreign currency is under-priced. "To better reflect the true cost of foreign currency, the Government could raise its price by increasing the foreign currency purchase tax. At the moment, this tax is levied at 50 cents per $100.

"Increasing this tax to say $1 per $100 could generate an additional $12 million. In light of last year's doubling, one would not expect a significant increase in this Budget."