Premier and Finance Minister Paula Cox slashed employment costs for businesses today, when she announced in her Budget statement that the rate of payroll tax will be cut by two percentage points from April.The move takes the rate from 16 percent to 14 percent, reversing the increase from last year. Employees will also effectively get a small pay rise, as their contribution will fall to 5.25 percent from 5.75 percent.Stating that “this is not the time for faint-hearted leadership”, Ms Cox said Government spending would fall by $150 million in the 2011/12 fiscal year, with $90 million cut from current account spending and $60 million from capital expenditure.But she added that no established public sector jobs would go, though vacancies will remain unfilled unless a convincing case can be made otherwise. Planned public-sector overtime will be slashed to $11 million from $18 million.Ms Cox said the payroll tax reductions would add $50 million to spending power in the local economy and added that last year's increase was always intended to be temporary. “The fiscal impact of the payroll tax cut will widen the deficit by a similar amount, but the overriding consideration is that businesses and worker need the assistance now to help them through the final stages of the recession,” Ms Cox said. “This is the essence of resetting the dial to win the future.”Ms Cox projects that revenues for the 2011/12 fiscal year will be $940 million. The total expenditure target is $1.08 billion.The Budget document also revealed the scale of Government's fiscal problems. The Budget deficit for the 2010/11 year, which ends on March 31 is now estimated to be nearly $224 million, instead of the $143.5 million that the last Budget forecast. The revised estimate shows debt and guarantees outstanding at $1.17 billion at the end of March this year, against the projected figure of $969.5 million.Additionally, Government is to change the way it accounts for certain guarantee liabilities – in particular, the $200 million guarantee of a Butterfield bank preference share issue in 2009 – so they are no longer charged against the debt ceiling.The debt ceiling was raised to $1.25 billion from April 1, 2010. The accounting change means Government debt and guarantees outstanding is projected to fall to $1.08 billion at the end of the 2011/12 fiscal year.Payroll tax relief for the hotel sector will be extended through the end of March next year. Customs duty relief on capital goods for some sectors will also be extended beyond the end of March this year.Current account spending for 2011/12 is projected at $900 million and capital expenditure at $84 million, while the cost of servicing the debt will be $70 million.Ms Cox revealed that Island's unemployment rate was about five percent.“Our economy is holding its breath,” Ms Cox said, and her Budget was intended to allow it to exhale. The Government's programme was one of fiscal restraint and the encouragement of job retention and creation.“Increasing employment is the only sustainable solution to reducing poverty and equality,” she added.Ms Cox said Government would allocate $12 million to a variety of small projects, such as building and roadside maintenance, to provide stimulus aimed at benefitting small contractors. A further $27 million is earmarked for the expansion and capital maintenance of the Tynes Bay Waste Treatment Facility and another $3 million for the completion of the X-ray scanner installation at the container port in Hamilton.Ms Cox also promised more rigorous management of Government contracts, including requirements to disclose potential conflicts of interest, more rigorous change order management and stricter reporting regimes, to monitor the progress of projects.She added that she wanted the Budget to look beyond a 12-month time frame.