The state Senate Economic Development and Technology Committee held a bill yesterday that would have eliminated general excise tax exemptions on several business activities, strongly suggesting it will not be part of the Senate’s plan to balance the budget.

The House had relied on the proposal as the largest source of new revenue to close the state’s budget deficit. HB 799 would have temporarily suspended GET exemptions on the business activities and imposed 2 percent, 3 percent and 4 percent general excise taxes on those activities over the next few years.

Several business interests opposed the idea, telling lawmakers it would have damaged their ability to recover from the recession.

"It wouldn’t be something that would be adding to our economic recovery, it would actually be impeding," said state Sen. Carol Fukunaga (D, Lower Makiki-Punchbowl), chairwoman of the Senate Economic Development and Technology Committee.

"I think, at this point, we’re going to be looking at other alternatives," she said.

Senators will now have to come up with a significant source of new revenue to make their version of the two-year budget balance. The state is facing a projected two-year deficit of nearly $1 billion.

The state Council on Revenues has announced that it will hold a special meeting on Tuesday to reconsider its forecast to account for the effects of the Japan earthquake and tsunami and the unrest in Africa and the Middle East on tourism and oil prices.

If the council lowers its forecast, the projected deficit would increase.

State Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee, and other key senators believe the GET exemptions have helped lessen the pyramid effect of the general excise tax.

"It was never part of my financial plan," Ige explained after Fukunaga held the bill.

House Speaker Calvin Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) said, "It’s going to be a big hole and the Senate is going to have to find the money to replace it."

Say said it appears the business interests that enjoy GET exemptions have again preserved the tax breaks.

"Special interests have prevailed once more," he said. "I’m just a little disappointed that it occurred. But overall, in the Senate’s wisdom, they’ll find a way to come up with legislation that will try to balance the budget."