I am pleased to present my first Budget as Minister for Treasury and Resources.
It is a “steady as you go” Budget that fits our current circumstances with no surprises and no major tax measures.
It continues to pursue a sensible, long-term fiscal framework for Jersey in line with the Budgets of my predecessors.
It is based on three A, B, C principles that have stood me in good stead throughout my political career: affordability, balance and common sense.
This Budget will ensure that this Government’s actions are affordable and balance our income and our spending and that we apply common sense in tackling the risks and threats to our economy.
It should come as no surprise to Members, given that this Assembly has only just agreed the Common Strategic Policy, that this Budget, that was lodged at the beginning of October, does not contain any significant new measures.
Those will come in due course in the fully costed rolling 4-year Government Plan that we will be proposing next year.
Given the uncertainties around Brexit and with the advice from the Fiscal Policy Panel still fresh in my mind, it should also come as no surprise that I do not intend to deviate from the path of fiscal responsibility established in the current Medium Term Financial Plan.
In fact, like previous Governments, we are developing a sustainable, long-term fiscal framework for public finances that will also make the best use of our public assets.
This long-term strategic approach will result in a framework that extends beyond the term of this Council of Ministers.
We are also continuing to develop One Government, to create a modern, innovative public sector that meets the needs of Islanders effectively, efficiently and affordably.
In doing so, we are seeking to improve how the States Assembly and Council of Ministers work together for the common good.
This is all good common sense and this long-term and collaborative approach will ensure that Jersey is in the very best place to weather Brexit and to exploit any future opportunities for our Island.
While Budget 2019 is not the vehicle via which the Council of Ministers will introduce major changes, it is still an important event in our Island’s economic calendar.
It allows us to consider the economic outlook for the Island and introduce the sensible measures that I am proposing to benefit lower and middle-income taxpayers and homebuyers.
I will turn first to the economic outlook.
I am indebted to the Fiscal Policy Panel for the contribution that their expertise continues to make to Jersey’s economic understanding and planning.
Their annual report, released in October, concludes that while growth improved in emerging and advanced economies over the past 2 years, downside risks to the global economy have increased.
As the O.E.C.D. (Organisation for Economic Co-operation and Development) points out, these risks include financial market instability in some developing countries, trade tensions, ongoing structural issues in the E.U. (European Union) and geopolitical risks.
Jersey is an inextricable part of the global economy, so these are real and serious issues for us.
As a sterling currency jurisdiction with 88 per cent of our trade in goods with the U.K. (United Kingdom), we are especially sensitive to what happens in the U.K. economy.
The Office for Budgetary Responsibility expects a U.K. slowdown in growth this year to a modest 1.3 per cent with a slight acceleration next year.
While U.K. employment growth has been strong, business investment remains uncertain in the light of continued uncertainty on negotiations with the E.U.
Our own economy was essentially flat in 2017 with growth of 0.4 per cent in real terms.
But given the increase in population, gross value added per person fell by close to 1 per cent last year to a record low, which reinforces the need for us to address our declining productivity.
The finance sector’s output shrank for a third year running in 2017, although the sector is positive about future business growth and bank profitability driven by the expectation of rising interest rates.
But the uncertainty surrounding Brexit and the future path of interest rate rises are risks to the finance centre, as is the ever-present threat of punitive regulations targeted at low-tax international finance centres.
At this point, I would like to acknowledge the excellent work done by the Minister for External Relations and the team of officials established from across Government in engaging so constructively with the E.U.’s Code of Conduct Group on business taxation.
In October, the Minister lodged legislation that we will shortly debate to ensure that Jersey-resident companies demonstrate appropriate economic substance in Jersey from 2019 onwards.
I am confident that our legislation will be assessed favourably by E.U. Finance Ministers early next year, ensuring that Jersey continues to remain off the E.U.’s list of non-co-operative jurisdictions.
Our approach of constructive engagement continues to protect the reputation of our Island as a safe and responsible international finance centre and it demonstrates our ongoing commitment to supporting the financial services industry, which represents more than 40 per cent of our economy.
Other business sectors
I am pleased to note that, taken together, the non-finance elements of our economy saw a fifth consecutive year of growth in 2017 and the latest Business Tendency Survey suggests a positive picture in 2018.
I am pleased to note that the Fiscal Policy Panel suggest that we could achieve G.V.A. (gross value added) growth of around 1.6 per cent for 2018 and 1.5 per cent for 2019, and that same Business Tendency Survey revealed that expectations for future business activity were at their highest in the last ten years.
Our labour market has remained buoyant with employment in June 2018 at a record high of just under 62,000 people.
The number of registered jobseekers has also continued to fall from more than 2,000 at its peak in 2013 to 970 in September, although this represents an increase of 150 from the June total. Some of this change since June, though, is seasonal.
Higher employment and lower unemployment have the double bonus for our Budget of generating higher income tax receipts and lower social security benefit payments, but inflation remains a cause for concern. It reached a 6-year peak in June of 4.5 per cent, falling back a little to 4.3 per cent in September.
The main driver of inflation has been increasing housing costs, although household services, leisure services and motoring are also having an impact.
After five successive years of real-term gains, according to the latest statistics, this increase in average weekly earnings has been overtaken by inflation.
In June 2018, wages rose by 3.5 per cent year on year, which represents a 1 per cent fall in real earnings.
Higher inflation and lower real earnings are clearly matters of concern to Islanders because of the impact on the cost of living.
I am sure that all Members appreciate the difficulty that this also causes to the Government and employers because higher pay rises will only fuel inflation further.
We cannot be locked into a rising spiral of inflation and wages, especially at a time when productivity is falling.
That is why in this Budget, I am seeking to help lower and middle-income Islanders through some modest tax and stamp duty changes. And why, as Jersey’s biggest employer, we have not proposed across-the-board, inflation-linked pay increases for our own staff, because these would not only add to inflationary pressures, but would also add to the States’ recurring wage costs and spending.
Which brings me to the issue of our public finances.
The challenge for Jersey’s public finances
I am pleased to report that the Income Forecasting Group predicts higher States income for 2018 than was expected at the time of the last Budget.
Based on the latest forecast of tax revenues, total States income for 2018 is now expected to be £783 million, which is £30 million higher than was predicted a year ago.
For 2019, total States income is projected to be £36 million higher than forecast a year ago, before including the modest tax measures proposed in this Budget.
While this is good news, both the Income Forecasting Group and the Fiscal Policy Panel have expressed caution in making long-term assumptions that these increases are sustainable rather than temporary.
At the end of October 2018, the Strategic Reserve, our Rainy-Day Fund, stood at £840 million, and the Social Security Reserve Fund was £1.78 billion.
The annual returns over the last 5 years have been 6.45 per cent and 8.66 per cent respectively, which is clearly good news for public finances.
However, I would urge caution as recent global market volatility is impacting on our portfolio, with a reduction in equity returns offset by an improvement in the returns from other asset classes.
This demonstrates the benefits of a well-diversified portfolio. Such volatility cannot be fully mitigated, but I am confident that the States portfolio will still achieve our long-term investment return objectives.
Looking at any single year in isolation is not a good measure of performance for long-term investors, but we still expect to see limited growth in these funds by this year-end.
However, the actual level of return is highly likely to be lower than the 5-year performance I have just mentioned.
I want to remind Members that during the years in which we supported the economy to recover from the global financial crisis we did so in part through transfers from the strategic reserve.
This was a proper use of the Rainy-Day Fund at a time when we needed an umbrella to protect us against international storms. As part of that strategy, the States Assembly agreed to reimburse the Strategic Reserve for the funds withdrawn and the plan had been to transfer £50 million back to the Strategic Reserve in 2019.
But considering the strong growth in the Strategic Reserve in recent years and the flexibility we need to respond to global and local economic uncertainties, I propose instead, with the support of the Council of Ministers and following the advice of the Fiscal Policy Panel, to transfer the £50 million to the Stabilisation Fund.
The Stabilisation Fund is the war chest established by Senator Le Sueur to help Jersey respond to the ups and downs of the economic cycle. According to the forecasts, even after transferring £50 million to the Stabilisation Fund, £135 million will remain in the States current account, the Consolidated Fund, at the end of 2019.
Given the need to be flexible as we develop the Government Plan and because of the considerable capital investment that our Island needs, I propose to consider how we use those funds once the Government plan is finalised.
Spending and Growth
This brings me to the issue of public spending and growth.
Despite the additional States income of £30 million previously mentioned, on current forecasts after depreciation we are anticipating a deficit in the accounts for 2018.
The current Medium Term Financial Plan identified considerable extra funding for health, including £8.2 million in this Budget, some of which was earmarked for Children’s Services.
While not all the savings measures planned for the current Medium Term Financial Plan have been delivered, neither have all the revenue-raising measures.
This is particularly because of decisions taken in the previous Assembly to reject proposals for commercial waste charges, which have left a significant funding gap in our finances.
This decision alone has left an £11 million shortfall in budgets for the Growth, Housing and Environment Department.
In order to plug part of this gap, growth above £5.3 million for health inflation has been deferred.
This is possible because a lot of the funding for investment in transforming our health and community services is currently unspent.
It is intended that once the existing programme of health transformation has been delivered, additional funds, released as a result of public sector reforms, would be used to reinstate the planned investments in healthcare.
But diverting some of the growth allocation still is not enough to meet all of the shortfall in infrastructure funding.
The efficiencies and savings arising from public sector modernisation will eventually eliminate the shortfall between revenue and spending, but in the meantime, I am transferring the £6.9 million from departmental underspends and unallocated reserves to the Department for Growth, Housing and Environment to fill the remaining gap in the Budget arising from the lack of a waste charge.
As a result of reprioritisation and the decisions I have made to reallocate funding, we will balance the books by the end of 2019, but we clearly cannot continue to spend more than we raise.
The forecasts for 2020 onwards make for sobering reading.
Inflationary pressures and continuing investment in modernising health and caring for our ageing population will mean that public spending will grow more quickly than our income.
Allowing for inflation and the financial commitments already entered into, if we do not take decisive action, we are heading for a structural deficit recurring of £30 million to £40 million from 2020.
This does not take account of any additional investments that this Council of Ministers will want to make to deliver our strategic priorities.
We cannot allow this to happen because this Government is committed to delivering sustainable public finances, which means that we will have to take radical action to cut the cost of Government.
In October, the Chief Minister announced that he expects the public service to achieve efficiencies worth £30 million in 2019.
That is an important start, but we have to go further than this if we are to provide the funding we need to invest in the Government’s priorities and in modernising its services.
So, in addition to the £30 million of savings that will be generated in 2019, the public service will have to reduce its costs further by 2022.
Public service modernisation will make a huge contribution to the development of sustainable public finances.
Effective modernisation of public services through managing the organisation as a single Government rather than a loose collection of federated departments will enable cross-cutting efficiencies to be delivered rather than the silo-based cuts to services of the past.
However, further savings will necessitate considerable funding on a strict invest-to-save principle, particularly in our I.T. (information technology) infrastructure and services.
It is evident that we are well behind where we should be in investing in modern and effective I.T. that allows seamless flows between finance, performance, H.R. (human resources) and payroll information, replacing the current monotonous manual processing currently undertaken.
Not only would such investment improve the customer experience and free staff to be involved in value-added activity, it would also improve outcomes; for example, by allowing joined-up care across the Island’s clinicians and carers.
While we have already started with the transformation of the Taxes Office, for example, we have a long way to go.
Equally, there is considerable potential for improving the productivity of our current economy through digital innovation as well as to grow our digital sector infrastructure. We must not lose sight of that fundamental principle that the best way of securing income to pay for public services is to grow the economy that drives those tax returns.
Exciting proposals are coming forward from Digital Jersey harnessing the advantages presented by our unique, world-leading fibre network. Government in partnership with business needs to continue to invest to reap the benefits of these opportunities. Further gains will be made by looking to find synergies between investments in Government I.T. systems, with innovation in the local digital infrastructure.
To deliver these investments, we are developing plans to bring forward an I.T. and digital infrastructure fund to invest in the vital I.T. infrastructure services that customers need and deserve, as well as in the wider Island’s digital infrastructure and economy.
This fund would be governed by strict business case rigour with robust return on investment rules and the tracking of benefits.
These investments will deliver considerable savings.
These will not alone be enough to meet the ever-growing demands for services and to meet the costs of an ageing population.
You cannot deliver high levels of service on shoestring budgets - that is fantasy financing.
So, I am convinced that if Islanders want to continue to enjoy high-quality services, the Government will, as part of a balanced strategy, also need to continue revenue-raising measures for the future and, in due course, this Assembly will be asked to find the courage to support them.
Because we can only reduce so far to make our public services more efficient and affordable, after a point we would be cutting into the core of the services themselves.
I do not hear States Members and Islanders clamouring for cuts in nursing, in policing, in fire and ambulance, in schools, in roads and sea defences, or in environmental protection; quite the opposite, in fact.
So, as Minister for Treasury and Resources, I have to ask: once the slack has been removed from the cost of Government, where will the money come from to pay for further improvements in public services?
There really is only one option. We as Islanders and Island businesses will have to pay more into Government if we want more out of it.
Whether this is through taxes or user charges is a matter for us in this Assembly to debate and resolve, but what we cannot do and we will not do while I am Minister for Treasury and Resources is raid the Rainy-Day Fund to plug the holes in day-to-day spending.
I know it will not make me popular to say this, but in Jersey, we want the best of both worlds: low taxes and high-quality public services.
We want the Government to spend more money on essential public services, yet we do not want to pay more to fund them.
This applies to businesses, too.
The majority benefit from our Zero/Ten corporate tax regime and low property rates, yet they baulk at the prospect of paying for the Government to deal with their waste, something that they would pay for automatically in any other country in which they operate.
We have some of the lowest rates of income tax, GST (goods and services tax), corporate tax and property rates in Europe, yet we still complain about the perceived burden of taxation.
Let me say quite plainly: you do not get Scandinavian levels of public services on low taxes.
We will need to have that debate when we consider how we are going to fund the priorities in the new Government Plan next year. I say to States Members again that they will need to have courage to make the right decisions for the long-term benefit of the Island.
The first test of this courage will come when this Assembly is asked to increase long-term care contributions from 2020.
As I was the previous Minister for Social Security, I know how important this fund is to ensuring our Island can meet the growing costs of long-term care.
I am proud that we, unlike some of our close neighbours, have had the bravery to confront this challenge, but that will have been wasted if we do not ensure the sustainability of the long-term care fund. I hope that States Members remember this when the proposition comes before the Assembly.
We will also need to debate how we fund our capital investment programme.
The current Medium Term Financial Plan identified £168 million for capital projects over the 4 years of the plan from 2016 to 2019.
Last year’s Budget agreed the latest tranche of that capital programme as well as a further £21 million to address additional priorities and costs.
This required transfers from the unspent capital and revenue expenditure to supplement the funds available, resulting in amendments to the indicative 2019 allocations.
Those allocations have been re-examined and we have made small adjustments in this Budget.
The most significant of these is the inclusion of an allocation towards improving areas of St. Helier to commemorate Liberation 75 in 2020.
I propose that this is funded from slight changes to the capital programme and an allocation of £1.4 million by repurposing previously allocated capital allocations that are no longer required for the same outcome.
Alternative funding measures are also being considered. The full investment in capital in 2019 will be £36 million.
This includes £20.7 million across vital infrastructure, including roads and sewerage works, £5.4 million for assets, including a C.T. (computed tomography) scanner for the hospital, and £3.8 million to complete the latest phase of the development of Grainville School.
But we still have a lot of investment to make in our Island’s infrastructure to support the economy for regeneration and to benefit current and future generations.
Our overly cautious approach of funding infrastructure through upfront cash has to change if we are to invest at the scale needed to meet these challenges.
I look forward to the development of an investment framework, which will make the best use of our strong balance sheet to help fund the capital investment that the Island needs.
This will be underpinned by an investment fund with a unique mandate. The proposal will be that it will invest on both a commercial and social basis to support economic activity in the Island and regenerate or redevelop infrastructure to support the Council of Ministers’ Common Strategic Policy and the Future Jersey vision.
The fund will have a long-term investment horizon and can act as a source of long-term capital with the flexibility to meet challenging and changing capital needs. It will seek to invest in transactions, which will make a difference to Islanders and a positive economic impact.
I would like the fund to become an investor of choice for local companies and project partners. This type of fund is common around the world and I believe it will provide the Island with a sound base from which to deliver significant improvements to our infrastructure over the long term.
I now turn to my specific Budget proposals for 2019, beginning with personal tax.
As I said earlier, the Government is aware of the pressures on Islanders on lower and middle incomes who are feeling the pinch of higher inflation and static or declining real wages.
So, with the little leeway I have, given what I have explained about the emerging structural deficit, I am proposing some changes to benefit those who need help the most.
I am proposing to increase the standard income allowance by 3.5 per cent in line with the increase in average earnings.
This will benefit approximately 42,000 taxpayers, reducing a single person’s annual tax bill by £130 and that of a married couple or civil partnership by £221.
This measure will take Jersey’s personal income tax allowance for a single person to £15,400 in 2019.
This compares very generously to Guernsey’s allowance for 2019 of £11,000 and the U.K.’s of £12,500.
I also intend to increase the second earner’s allowance by £150 to £6,000.
This maintains the equality achieved by my predecessor in his last Budget, in allowances between married and cohabiting couples, where both partners are earning.
This measure will benefit around 10,000 households.
As part of the package agreed by the Assembly to introduce new higher education funding proposals, I am proceeding with the removal of the higher child allowance given to parents with children in higher education.
These funds will be added to the existing funding for the new package of higher education grants available to the young people of the Island.
I recognise that the removal of non-resident relief in Budget 2016 caused hardship for a small number of lower income former residents who now live abroad. On taking office, I promised to address this issue and I am following through on that promise.
I have proposed some targeted reliefs for those with a low worldwide income or who suffer double taxation on their income. This is not a return to the previous relief.
We will require claimants to demonstrate that they are paying any taxes lawfully due in their country of residence and that they claim any double tax credits to which they are entitled where they now live.
But I have listened to the representations made since the Budget was lodged and made an amendment to my original proposals. This makes the reliefs effective from the 2018 year of assessment, reducing the amount of tax payable in 2019 by those able to benefit from the reliefs.
Review of personal tax
Since the Budget was lodged, there has been a lot of commentary on the antiquated nature of the personal income tax system and the way it treats married women.
No one wants this changed more than I do.
Treasury are about to launch a public consultation on the future of the personal income tax system, where Islanders will get their say on what it should look like in the future.
The way that married couples are taxed will change. The question is how.
Having considered the consultation feedback, I will bring forward recommendations to this Assembly next year as part of the Government Plan and I will want to introduce these changes as quickly as possible. Whichever way we finally decide to reform the personal tax system, it will represent a major change.
With the review well under way and the production of recommendations less than 12 months away, now is not the time to make major changes to the personal tax system.
So I will be arguing for this Assembly to reject Reform’s proposal to change the headline rate of income tax for the first time in nearly 80 years.
I recognise that many people are disappointed by the pace of change, not least a number of Deputies within this Assembly.
After lodging the Budget, I listened to their concerns and to their ideas. In response, I brought an amendment to the Finance Law under which married women would no longer need the specific consent of their husband to enter into discussion with the Taxes Office. When lodging the amendment, I stated that it did not address the fundamental issues at the heart of the income tax system.
I always acknowledged that it was a stopgap measure to help married women correspond with the Taxes Office until the recommendations from the personal tax review are implemented and fundamental change achieved.
Over the last week, the Treasury has had further soundings from Backbenchers on my amendment.
The message from those soundings has been clear: the fact that under the Income Tax Law a married woman’s income is deemed to be that of her husband is wrong and that is where Treasury’s focus should be.
As I stated just now, I agree.
This must change and this is what the personal tax review will deliver.
I do not wish to bring my amendment unless it has broad support across the whole of this Assembly, and hence I am announcing the withdrawal of the amendment to the Finance Law on this issue. I can assure Members that Treasury is completely focused on the review and that recommendations will be published next summer.
I would like at this point to extend my thanks to Deputy Doublet, who raised her concerns on many occasions about the inequity. I am delighted that she and Deputy Perchard have expressed a wish to pursue further discussions with Treasury to address and resolve the situation early in January.
In the meantime, I encourage all Members interested in this area to come in and meet with me, my Assistant Minister and Treasury officials to allow proper consideration of other ideas, which may improve the situation in the short term.
I now turn to impôt duties.
In Jersey, we have traditionally taxed alcohol, tobacco and road fuel, largely to raise revenue to pay for public services.
But, like other Governments around the world, we have increasingly recognised that these products can be damaging to health, to well-being and to the environment.
The demand for these products is price sensitive, so we can use taxation to incentivise people to change their behaviour in line with existing health and environmental strategies.
At the same time, we can recover some of the costs of dealing with the harm that alcohol, tobacco and car usage create for our society, but there is a balance to be struck.
With pressures on the cost of living, I do not want to raise costs for Islanders more than is right and fair.
My predecessors have generally increased impôt duties by at least inflation.
In some recent Budgets, impôt duties have gone up by more than inflation.
I have taken account of global evidence on the impact of alcohol, tobacco and fuel on health and the environment, but I have also had regard to the current inflationary pressures.
I have sought out and listened to the views of the hospitality sector.
I am proposing to increase alcohol duties by 3.5 per cent in line with average earnings, a lower than inflation increase.
This will add just over a penny to a pint of beer.
I consider this proposal reflects the appropriate balance between those competing pressures of raising revenue, limiting inflation and achieving better health outcomes. I do not believe that Deputy Wickenden’s amendment, which asks for all alcohol duties to be frozen at 2018 levels, achieves this balance and I will be asking the Assembly to reject his amendment.
I am proposing to increase duty on petrol and diesel by 2p on a litre.
This also represents a below inflation increase, but given the considerable impact of smoking on people’s health and the cost to Government of treating smoking-related illnesses.
I am taking a different approach to tobacco.
I am increasing the duty on tobacco by 9.5 per cent, 5 per cent above the June inflation figure that was available when I lodged the Budget.
This represents an extra 59 pence on a pack of 20 cigarettes.
Duty rates on alcohol, tobacco and fuel generally remain significantly lower than U.K. levels.
In light of last year’s material changes to vehicle emission duty, I am not bringing forward any changes this year. But for the avoidance of doubt, the temporary relief from the 2018 V.E.D. (vehicle emissions duty) increases for hire car businesses will expire as planned and forewarned on 31st December this year.
This Assembly has just agreed the strategic priorities of this Council of Ministers.
We have just agreed that we will focus on protecting and valuing our environment for this and future generations.
I am, like the Minister for the Environment, determined to deliver this priority.
Delivery will require a one-Government approach utilising the full range of policy options available to Government. However, it is beyond doubt that other jurisdictions across the globe are using a range of taxes and charges to help them deliver their environmental goals and raise monies to invest in environmental projects.
As such, I can confirm that throughout my term of office, Treasury officials will form a key part of the team looking at how we deliver on the strategic priority of the environment, ensuring that taxes and charges are considered equally alongside the other policy options available when preparing this Council of Ministers’ initial and subsequent Government Plans.
In particular, I have already asked officials to review the future taxation of car ownership and usage with a view to determining the fairest and most sustainable ways of raising revenue in the longer term while encouraging a move to more environmentally sustainable modes of travel.
This will take into account likely future shifts in consumer choices such as moves towards more environmentally friendly hybrid and electric cars.
In line with the U.K. and E.U., during this term of office we will ask officials to explore a range of policy measures to reduce waste in Jersey with a particular focus on reducing plastic usage and corresponding plastic waste.
We will also continue to explore how best to capture some of the uplift in land value that accrues when planning permission is granted for some new development. This would allow us to generate funding to invest in and improve the public spaces in St. Helier and other Parishes so that our urban centres become better places to live, work and visit.
I now turn to stamp duty, where I am proposing a number of changes to benefit first time buyers and those who need to take out a mortgage to buy their home.
Like the Minister for Housing, I am mindful of the housing challenges that Islanders are facing, especially in terms of the availability and affordability of homes.
Indeed, improving the quality and affordability of housing features among the Council of Ministers’ strategic priorities.
The steps I am taking in this Budget will further reduce stamp duty and land transactions tax for first-time buyers.
From 2019, properties valued up to £500,000 will qualify for first-time buyers’ relief, up from the previous threshold of £450,000.
I am also conscious that home buyers requiring mortgage finance to pay for their home are hit twice as they have to pay an additional stamp duty and land transaction tax of up to 0.5 per cent of the value of their mortgage.
This is not a tax that home buyers who have the cash funds to buy a property have to pay.
It feels wrong that people on lower and middle incomes have to pay a tax both on the value of their home and on the value of their mortgage, while people with higher incomes and liquid assets pay only once.
So I plan to address this inequity by phasing out the stamp duty and land transaction tax charges on mortgages over time, provided that we can afford to do so.
In Budget 2019, I am taking the first steps in this process.
I am abolishing stamp duty and land transaction tax on mortgages for homes costing up to £600,000 completely and I am tapering the charge for homes valued between £600,000 and £700,000.
To fund these two targeted measures, I am raising all standard stamp duty and land transaction tax rates by 0.5 per cent for homes valued over £500,000.
This will go some way to redressing the inequity in the burden of property taxation.
I would like to thank the Corporate Services Scrutiny Panel for their review of the Budget. I hope that the constructive, but challenging approach adopted during this review is maintained in the future.
I have considered their amendments to stamp duty carefully and appreciate their desire to reduce the stamp duty burden for those seeking to “move up to properties worth between £600,000 and £1 million”.
I also appreciate the fiscally responsible approach that they have adopted, recognising that, if you want to cut taxes for some, the right thing to do, is to indicate how you would recoup those taxes rather than leaving a hole in the public finances for the Treasury to sort out.
However, I am unable to support the panel’s amendment, because it balances the financial impact by increasing the stamp duty from those purchasing property worth less than £550,000; a plan with which I cannot agree, but I commit to working with the panel in the future on the issue of stamp duty and the first opportunity is about to present itself, as I am targeting another inequity within the current system.
At present “enveloped properties”, which are placed within a company structure, avoid stamp duties on transfers.
This is a practice that is prone to tax avoidance.
In my Draft Budget, I indicated that the Treasury would launch a consultation on a new stamp duty anti-avoidance provision and this will go live very soon.
I look forward to the outcomes of that consultation and will work with the panel when bringing forward any necessary legislation to address stamp duty avoidance.
In the weeks before I published my Draft Budget, there was a lot of speculation about whether the GST de minimis threshold for personal post or packet imports would change.
The de minimis threshold was introduced alongside GST to set a minimum threshold on imported goods below which it is neither practical nor cost-effective to collect GST.
The current GST de minimis threshold is £240 of goods by value and this represents £12 in tax foregone on those goods.
I recognise that the existence of this exemption is at odds with Jersey’s tax policy principle that taxation should be low, broad, simple and fair.
It is not fair because it creates an uneven playing field between domestic and off-Island online retailers. I recognise this inherent unfairness and I sympathise with High Street retailers in Jersey who are struggling against competition from internet shopping.
I received representations on this issue from them, some direct and others through the media, but I also recognise that we have this exemption because, if it were abolished, it would cost the States more to collect the GST on very low-value goods than we would generate in additional revenues.
While that is still generally the case, it is also true that the ratio between the amounts of GST foregone due to the application of the de minimis threshold versus the cost of collecting the GST is changing.
It is the long-standing position of previous Ministers for Treasury and Resources that the de minimis threshold will be abolished when it is practical to do so and I support that position.
But I have to ensure that requiring off-Island online retailers to charge, collect and remit GST to Jersey, will not result in those retailers simply withdrawing online shopping services, harming consumer choice and reducing price competition.
At this point in time, there is no practicable mechanism or common system for online retailers to charge, collect and pay, GST to Jersey.
So, while I am sympathetic to the retail sector’s representations, I have decided, after consultation with ministerial colleagues, not to reduce the de minimis threshold in this budget.
We expect that time will come when the E.U. abolishes its own V.A.T. (value added tax) exemption for personal imports from outside the E.U.
Once online retailers have invested in systems to meet E.U. requirements, we believe that they will be more willing to put processes in place for smaller jurisdictions like Jersey.
Meanwhile, I will keep this issue under review and will consider whether to reduce the de minimis threshold in subsequent Budgets as a transitional step towards abolition.
Officers will continue to engage with U.K. retailers to try to stop the practice of their charging V.A.T. goods sold into Jersey.
I would now briefly like to address a range of other measures.
Following a review and consultation with stakeholders, I do not propose to pursue measures to tax the profits on large alcohol vendors or local bookmakers.
The review of whether to reduce the quantity of duty-free tobacco that individuals can bring into Jersey is ongoing and I am not proposing any changes in this Budget.
Officers need more time to collate evidence as we work through the details of our Island’s future trading relationship with the U.K.
As agreed at the last States sitting, I am delighted to have placed care provided in the home by regulated providers on the same GST footing as care provided in a regulated care home.
All care services provided by regulated providers will be exempt from GST with effect from 2019 and I expect the reduction in GST to be passed on to the patients through price reductions, wherever possible.
We will be monitoring the impact of this measure on consumer pricing for care services.
I am also pleased to propose changes to allow the financial services sector to compete for business in the growing area of international employer savings schemes and I can confirm that in 2019 we will launch reviews commissioned by the last Assembly into taxing the profits of mutual trading and the feasibility of applying GST to imported digital services, including television and music services.
Revenue Jersey and the Revenue Administration Law
Officers within the Treasury are working hard to deliver the new target-operating model for the Civil Service, not least in the context of revenue collection where staff are currently building Revenue Jersey.
This new function is bringing together the work of Taxes Office and teams dealing with social security contributions and customs revenue matters.
But the structural reorganisation of revenue collection is only part of its modernisation.
I am pleased to report that the project to replace the Taxes Office’s 35 year-old computer systems with a new revenue management system is on time and within budget.
The new systems will be in place early next year and will be tested throughout 2019, processing the new format paper tax returns for the 2018 year of assessment.
I expect Islanders to start online filing of their personal tax returns in 2020, which is a huge leap forward for Jersey’s digital public services.
We will achieve further modernisation through a new Revenue Administration Law, which will be debated in January 2019, together with a number of administrative changes enacted in this year’s Finance Law.
These reforms include changes to filing dates to incentivise online filing of personal tax returns, new payment dates for corporate income tax payers, new penalties for non-submission of tax returns to incentivise better compliance and, for the first time, provision to charge interest on outstanding tax debts.
The Revenue Administration Law also proposes new civil penalties for those who choose to evade taxes or who act carelessly.
Because we are stepping up our efforts to improve tax compliance so that everyone pays the tax they owe when it is due, these efforts have already borne fruit, for instance we have recovered £1.6 million from some 200 taxpayers who set their tax affairs in order due to our tax disclosure opportunity between April and Christmas 2017 and we have recovered just over £6.5 million from other tax compliance activity within the Taxes Office over the last 12 months.
As a result of prudent decisions taken in recent years by my predecessors and by previous Councils of Ministers, Jersey has a strong financial base and an economy that has recovered from the global financial crash.
Brexit presents a range of opportunities and challenges and Jersey, through the External Relations Department, is in a good place to respond to both and we are preparing well to face the longer-term challenges arising from our ageing population.
But we are not complacent and we have to take decisive action as an Island to raise productivity and as a Government to ensure that we have sound public finances.
The public service under the chief executive is leading the way with the One Government modernisation programme, which will deliver both more modern public services and sustainable efficiencies over the next four years.
In turn, we must have a considered debate in Jersey about how we fund our public services and ensure that we maintain them sufficiently.
The Council of Ministers and this Assembly must work together to deliver the strategic priorities we have just agreed as partners in a shared ambition for our Island.
We must implement a new approach to investment in infrastructure and housing underpinned by a new economic framework and long-term funding, which makes the most of our robust balance sheet.
So the package of proposals that I have outlined in Budget 2019 completes the current Medium Term Financial Plan.
It prepares the ground for the Council of Ministers to implement its programme guided by our strategic priorities, which we have just agreed.
It provides continuing stability for business and support for hard-working lower and middle-income Islanders at a time they are feeling the pinch.
It has been well received by the Fiscal Policy Panel.
It is an affordable Budget, a balanced Budget and a common sense Budget.
I commend this Budget to the Assembly.