07 December 2010
Sir, the world is slowly emerging from what the history books will call “The Great Recession". We’ve seen a number of countries suffering significant financial problems. Many now face unsustainable deficits in their finances. Whilst we have not been affected as dramatically, the recession has left us with a deficit.
The decisions we are now called to make need to inspire trust and confidence. They need to deal with this deficit and lay the foundations for a strong economic recovery to meet Jersey’s agreed long-term objectives. We have approved the Business Plan and these proposals now set out a 3-part budget plan that deals with the financial challenge we face.
It strikes a sustainable balance between making savings and efficiencies while maintaining our essential services. Approving this budget will ensure that Jersey remains a stable and successful jurisdiction.
Sir, if we, the leaders of the Island, don’t act now, we face a deficit of £89 million in 2011, £107 million in 2012 and £112 million in 2013.
We have already agreed savings of £12 million in 2011 are now proposing further savings of £35 million by 2012 and £65 million by 2013: tough savings targets that will require significant changes in the way the States works.
While we have made a good start in delivering these savings, cuts in spending alone are not enough to balance our finances. For this reason, this budget proposes tax changes that will raise £22 million in 2011.
The remaining shortfall will be funded over the next 2 years from the balance of the Stabilisation Fund. This means, that by the end of 2011, we will have spent £158 million of our savings to cushion the effect of this recession.
The budget proposals are based on significant expert research and wide consultation. Their impact is well quantified and understood. They have the full support of fellow ministers who are united in taking a longer-term view for the benefit of future generations.
The International Monetary Fund points out that the recovery in the global economy remains fragile, uneven and downside risks have risen. Although a ‘double dip’ is still a risk, it is no longer considered to be the most likely outcome.
Larger economies, like the UK and France, have returned to growth this year although their recovery is slow. The view of Jersey’s highly regarded independent Fiscal Policy Panel is that “significant uncertainty remains around the strength and durability of the global recovery”. They say that it “would therefore be prudent for Jersey to continue to plan on the basis that [the recovery] will be fragile and drawn out”.
The downturn has had a significant impact on the Island’s economy. Many businesses have been affected and unemployment numbers have risen by nearly 300 over the last 12 months. More than a quarter of those currently seeking work are aged between 16 and 19. Behind every statistic is a person and it is our duty to assist every Islander seeking work.
However, at 3%, our unemployment level is still one of the lowest of any developed economy in the world and this budget aims to keep it that way.
GVA, a measure of economic activity – broadly the sum of wages and profits - fell by 6% in Jersey in 2009. Falling profits in our banking sector have been caused by low interest rates, which are expected to persist for some time to come.
Together with lower employment numbers, lower pay increases, low interest rates and poor investment returns – these have all combined to reduce our tax revenues.
Sir, I continue to hear some say, that the current deficit has been caused by the introduction of 0/10. This is not the case. The drop in tax revenue was clearly identified prior to 0/10 being introduced: it was then filled by GST, 20 means 20 and efficiencies.
The deficit we now face is structural and arises for 2 reasons:
- the impact of the global recession and its influence on our tax revenues
- the continued rise in States spending in recent years
A structural deficit can arise from a recession. This occurs when the severity of the downturn causes a permanent reduction in economic activity and associated wealth.
Even after the proposed budget measures are in place, a deficit of £55 million is expected in 2011 - which equates to about 1.5% of GVA - and a deficit of £18 million in 2012.
Of course, uncertainty remains around our income tax forecasts which have a range of plus - or more importantly – minus £35 million by 2013.
The advice of our Fiscal Policy Panel is that we should act in a responsible and prudent manner. They advise that our focus should be a credible, medium-term plan and that we should act now. They cautiously remind us that even if these proposals are implemented, the fiscal position we face is ‘extremely tight’.
Sir, I will explain during these introductory remarks that not doing enough now would pose greater risks for our economy in the longer term. The biggest dangers are complacency and the temptation of delay.
Thanks to the prudence and foresight of our predecessors, we are in the fortunate position that we have no public debt but have savings. I’ve already stated that we will spend £158 million of our savings. Some have suggested that we spend even more.
However, we should recognise that the independence of a jurisdiction is, in many respects, dependent on its financial strength.
Members only have to look at the recent examples of Iceland, Ireland and other places to see how a lack of financial strength has resulted in them ceding some of their sovereignty.
That is why I believe we need to protect our strategic reserve so that we can maintain our hard-fought-for independence for our successors.
In the Strategic Plan we committed to balanced public finances. The Council of Ministers has responded to this commitment and we have developed a 3-part plan:
- cutting spending whilst avoiding unnecessary and unintended damage to front line services
- boosting the economy and business development - maximising jobs for Islanders and securing tax revenues in the longer term
- dealing with the remaining deficit by targeted revenue raising measures
1 - cutting spending
The first part of the plan is the commitment to meet a challenging savings target of £65 million by 2013. This increased target reflects the very clear message from Islanders that they expect savings first and taxes second. The amendment from the Deputy of St Mary to reduce the savings target is, I believe, at odds with that message.
Sir, I strongly believe that we need to maintain the £65 million target.
Comprehensive Spending Review
At the start of the spending review each department was asked to identify savings of 10%. All departments, without exception, have played a proactive and positive part. Reviews were conducted of the 3 major spending departments and 2 reviews looked at the significant areas of staff pay and court and case costs.
This assembly owes gratitude to the 7 independent reviewers who gave their time and expertise freely for the benefit of the Island. I believe the involvement of Non-Executive Board members could play an important role in our future governmental structures – helping ministers and chief officers in the implementation of policy.
Importantly, the Comprehensive Spending Review is not just about savings. It is also about reallocating resources to deliver better services more effectively and more efficiently.
We should also build capacity in the third sector. The States is not necessarily the best provider of every service that Islanders require.
The CSR has highlighted many innovative ideas. Staff from across the States have been thinking differently and getting involved in changing the services that they provide - from those on the front line of our caring services and those employed in back room roles, jobs which are equally essential to the smooth running of our public services.
More than 370 savings ideas have been submitted by staff and they are being considered by departments as opportunities for making changes.
These suggestions include:
- reviewing management structures and pay scales
- reducing occupation of high value land
- using energy more efficiently
- encouraging the private sponsorship of parks and gardens
The resources department is now making savings of more than £750,000 by harnessing new technology to reduce the cost of business processes, and rationalising data centres more effectively.
I would like to take this opportunity to thank all the staff involved in preparing the proposals for the CSR, for coming up with ideas and for their continued dedication in serving the public of this Island.
As well as savings, all departments were also asked to conduct a review of charges. There are cases where it would be appropriate for the beneficiary of a service to pay for its use, rather than taxpayers as a whole.
After careful consideration the Council of Ministers is bringing forward £2 million of specific user pays charges.
- charging more to grant liquor licences
- charging anyone who uses the General Hospital as their doctor’s surgery
- charging businesses for Technical Fire Safety and Building Control Consultation Work
We are making savings in most service areas. A review of procurement has identified savings of £6.5 million which we will deliver by 2013. Court and case costs are another area where significant savings will be made by strengthening procedures and improved negotiation.
Terms and conditions
Sir, it would be unrealistic, in any organisation that spends more than 50% of its budget on staff, not to look at employment costs. Following the assembly’s approval of the Article 11(8) funding request in July, the first phase of the Voluntary Redundancy Programme has been finalised. More than 70 staff applications have been accepted.
This alone will reduce expenditure next year, and every year thereafter, by more than £3 million.
The Council of Ministers has set an initial target of £14 million to be delivered from changes in staff terms and conditions, with the intention of making greater savings beyond 2013.
Some commentators have questioned why the council has not undertaken to deliver greater savings from terms and conditions. As a fair and responsible employer, staff and unions need to be consulted first. They'll also be given the opportunity to shape future savings. For example, areas like pensions - could potentially deliver savings of £10 million but these are going to take longer to deliver.
During the course of preparing this budget, I have held a significant number of meetings with different groups and organisations.
I am grateful to all those many individuals who spent their lunchtimes and evenings meeting me to discuss the budget proposals.
I can assure them, that I have taken account of many of the views they expressed.
The next stage for the CSR and for departments is to deliver. To achieve this, a small CSR programme team has been drawn together to plan, co-ordinate and monitor the CSR effort across all departments. This is a significant change programme.
While the task ahead is significant I believe we are ready to ensure that the 2012 and 2013 Business Plans contain robust and deliverable proposals which deliver the savings targets that are within the spending envelope incorporated in this budget.
We have developed longer-term planning, both as an organisation and within departments. In future, departments will have greater certainty. By extending their budgets over 3 or 4 years, departments will also have more flexibility to manage budgets between years.
In order to manage government spending within the proposed limits, we do need central contingencies to manage forecast variations and unpredicted expenditure. Any large organisation plans for unforeseen events.
I recognise the intention of Deputy Vallois’ amendment to establish an appropriate process for managing these contingencies.
The Council of Ministers has been persuaded that a broader approval process is required to provide further assurances to the States that contingencies will be allocated appropriately.
In the coming months the Treasury will be consulting on the changes needed to the Public Finance Law to introduce the principles of 3 or 4 year budgeting.
Growth for essential services
All departments were asked to submit their investment and growth needs for the next 3 years. The Council of Ministers has accepted a number of these growth requests and they are included in the indicative expenditure limits:
- over and above the existing commitment of a 2% real growth for Health and Social Services, additional funding will be provided for extra consultants, doctors, midwives and nurses
- Education, Sport and Culture will receive additional funding to invest in vocational options for school leavers, in adult literacy and to expand locally provided higher education
- the Council of Ministers is proposing to maintain the 5% annual increase in overseas aid throughout the period to 2013
Taken together, the proposals for savings, user pays, investment and growth, the net reduction in departments’ budgets ranges from 3% to 13%. Spending will have fallen by more than 12% in real terms between 2010 and 2013. We will have covered inflation, provided some growth in essential services as well as making significant savings.
We have also set out proposals for the capital programme for 2012 and 2013: £49 million in 2012 and £46 million in 2013, including extensive social housing funding, which after property sales and other sources, requires net funding of £14 million and £19 million respectively.
The capital programme includes £7 million for the maintenance and refurbishment of our essential infrastructure - £4 million for highways, £2 million for sewers and £1 million on sea defences.
In addition, funding for the Philips Street Shaft Phase 1 project to complete St Helier’s flooding prevention has been identified.
The programme includes an additional investment of more than £9 million in Health.
I accept the need to be flexible and recognise Senator Le Gresley’s intention to accelerate the rebuilding of St Martin’s School. I have committed to work with the Education Minister and Property Holdings to ensure an early start can be made on this project in 2012.
Just as other central banks and governments across the world have acted to prevent a replay of the 1930s “Depression”, this assembly commendably has played its part too. I want to thank members again for their foresight in supporting the careful use of money from the stabilisation fund to support local employment and businesses.
£44 million has funded important and valuable projects which helped to compensate for lower demand in the private sector, supported local businesses and kept Islanders in work.
The Skills and Training Initiative and Advance to Work has helped more than 100 unemployed teenagers secure permanent employment during the downturn and is helping many other adults gain the skills and confidence that they need to find jobs.
Jersey Enterprise has delivered additional support programmes for local businesses including:
- the Jersey Business Angels Network
- small exporter grants
- States ‘Meet the Buyer’ events
- enterprise grants
- off-Island trade opportunities
This fiscal stimulus money was allocated in a timely, targeted and temporary manner and is working. We should be proud that our past prudence has enabled us to fund fiscal stimulus measures from savings.
2 - boosting the economy
The second part of the plan is to deliver economic growth. The Council of Ministers wants to see the spirit of enterprise driving our economic recovery.
It is clear that while we cannot rely on a swift rebound in the global economy, there are reasons for cautious optimism:
- the latest forecast from the International Monetary Fund (IMF) is that the world economy will return to pre-crisis levels of growth and expand by 4.2% in 2011
- interest rates are expected to rise at the end of next year albeit at a later stage and slower pace than previously anticipated - this should help to alleviate some of the pressure on banking profitability
- having fallen this year by 2%, we have factored in moderate growth in Jersey’s GVA of 1% in 2011 and 2% in 2012 and 2013
- new businesses and new jobs are already being created
- retail sales volumes have begun to stabilise
- whilst the number of visitors fell since the onset of the crisis – those numbers are now stabilising
- in the first 9 months of this year, 791 entities were granted new Regulation of Undertaking Licenses and 802 additional staff licenses – mainly qualified - were approved
These new entity approvals will, I’m confident, also lead to many more jobs. For example Waitrose alone plans to create in excess of 200 new jobs. Again, the majority of those jobs are for Islanders.
- significant retailers have plans to open branches in Jersey next year meaning more opportunities for Islanders
- the September Business Tendency Survey gave some cause for encouragement
- finance firms report a further rise in business activity and are more optimistic about future business and employment
The Economic Development Minister and his team are determined to continue and improve the support to all business sectors – importantly tourism, agriculture, finance, construction and retail. They all play an important part in our island and economy.
Last week the States approved the first phase of our new Intellectual Property legislation – designed both to encourage inward investment and provide new opportunities for local companies. More than this, the Economic Development Minister will publish and consult on a new Economic Growth Strategy in the first half of next year.
Promoting financial services
In addition to the budget proposals, the States will be asked to approve a change to our Income Tax Law to exempt funds. This is intended to provide long-term confidence in the tax neutral treatment of Jersey investment funds.
It is essential that we continue to diversify the markets in which our financial services sector is active. We also need to focus on growth in the Asia Pacific and Middle East regions. The recent signing of a tax information exchange agreement (TIEA) with The People's Republic of China is an important step in developing the market for Jersey.
Jersey Finance continues its excellent promotional efforts and I am pleased that this assembly has overwhelmingly agreed to support the efforts to help secure growth.
3 - reviewing taxes
Sir, I now turn to the tax proposals.
In making these budget proposals, I have listened to the views of more than 1,000 people, businesses and interest groups who responded to the consultation on personal tax. A range of valuable comments were received which highlighted the need to find a sustainable balance between fairness on the one hand and what is best for the economy on the other.
The 20% flat rate of income tax is the foundation of our economy. After consultation and careful consideration, the Council of Ministers supported my conclusion that a higher rate of income tax would have negative consequences. This budget sends out a strong and powerful message that we support maintaining the foundation of our economy – our 20% income tax rate.
Social Security contributions will be reviewed and a cap on increases considered. Based on expert advice and on consultation, the Council of Ministers has proposed 2 main revenue raising measures – one of which is an increase in Social Security contributions of 2% for those on higher incomes.
The Social Security Minister will, of course, bring a separate proposition in relation to this. However, I want to say this - the Social Security Fund is separate from general taxation. Making this change will mean that higher paid employees and their employers will pay more money into the Social Security Fund.
We have listened carefully to representations made by all business sectors, about the impact this proposal will have on the cost of doing business in Jersey. It is important that over the next few months we continue to listen to the arguments on this proposal.
The Social Security Minister and I will continue to explore ways in which Social Security Contributions can be better structured so that they generate the revenue needed while allowing business to flourish and remain competitive.
The second key measure proposed in this budget is the increase in GST from 3% to 5% from 1st June 2011.
This increase in GST will raise £15 million in 2011 and £27 million in 2012 after allowing for GST compensation. This is a necessary and important part of the overall budget package that will put our finances back on track.
Even at 5% GST is lower than most other places and this is designed to protect the competitiveness of our economy. Everyone pays GST. Better off locals pay more than those not so well off. Business visitors and holidaymakers also contribute.
I have heard that there are members in this assembly who believe that indirect taxes like VAT and GST are regressive or even very regressive. Sir, I would encourage members to look at the evidence.
The Institute for Fiscal Studies concludes that VAT is progressive. This is also supported by the Office for National Statistics.
If we use a similar approach to assess the impact of GST, bearing in mind the differences between GST and UK VAT, we find it is closer to being a proportional tax, rather than a regressive tax.
Notwithstanding this evidence, I do understand the need to protect the most vulnerable. The question is not whether to protect the less well off but to how to do so with the best effect and the least administration.
A recent review of taxation in the UK, headed by Nobel laureate Sir James Mirrlees, recommended that the UK abandon its current system of VAT exemptions and differential rates and instead move towards a broad-based system.
Introducing exemptions does not just target the groups that are most in need. It affects all Islanders, and benefits those on higher incomes far more than it does those on lower incomes. The cost of exemptions would be around £8 million a year; only £3 million of which would go to those less well off while £5 million would go to the better off.
The Council of Ministers believes it is important to protect those on lower incomes from the effect of GST. It is intended that all people on income support and those who earn less than the tax threshold will be compensated - just as they were when GST was originally introduced.
We are not alone in raising consumption taxes. 14 EU countries have recently increased, or are in the process of increasing, their VAT rates - all from significantly higher basic rates. Many other governments, like New Zealand, are using consumption taxes to correct their fiscal deficits.
Exemptions benefit those who can afford to pay, are administratively burdensome and other countries are envious of our GST structure – a low tax with a broad base. Our GST model is sound and efficient and it is essential that we keep it that way.
GST & impôts
Finally, a related detail on the effect of GST changes on impôts.
As Treasury Minister, I allow the Agent of the Impôts, to waive duty and GST on imported goods where the total tax is less than £12. This is known as the de-minimis waiver.
This means that individuals importing goods up to a value of £400 may not be required to pay GST. If the assembly agrees to the GST proposals and the de-minimis waiver remains at £12 , this value will be reduced to £240.
To assist local businesses it is not my intention to increase the de-minimis waiver, however I will review this concession throughout 2011 to ensure that it is set at an appropriate level.
Other income tax proposals
I am proposing that the last year of the withdrawal of allowances under 20 means 20 takes place as planned. Although it depends on household circumstances, 20 means 20 only affects tax-payers with higher incomes.
I am also proposing that the profits from exploiting land and importing oil are subject to tax at 20%. This extends the number of businesses that pay income tax on their profits, and as I committed in October, I will seek to extend this further after the Code Group process.
I am proposing that income tax exemption thresholds increase in line with average earnings growth, helping taxpayers on lower incomes. This proposal ensures those on lower incomes do not see a real term drop in their incomes without putting too much pressure on tax revenues.
Finally I have been advised that we should collect more information to allow a proper audit of income tax returns and to improve the administration and collection of tax. A number of law changes have been introduced to start this.
Last year I said I would ensure all taxes due are efficiently collected and paid. I would like to thank members for approving investment in additional investigators. As a result of this investment we have already collected £2 million in back taxes and penalties.
I believe we can do more.
A review of the States tax functions has been carried out. The review has confirmed we have a cost-effective Taxes Office, whose cost per pound of tax revenue raised compares very favourably with other similar tax jurisdictions. It has, however, also highlighted the complexities of Jersey's personal tax system:
- a wide range of allowances on top of tax exemptions
- 2 different tax rates
- some Islanders paying the current year’s tax and some paying for the previous year
- most taxpayers find it difficult to understand how their effective tax rate is calculated
Consequently, the Taxes Office receives a large number of queries and spends a great deal of staff time dealing with these.
Around a quarter of tax returns are still incorrect when first submitted. Even more staff time then has to be spent in correcting returns for unintentional errors, rather than being able to investigate omissions that may not be unintentional.
A simple system
It’s essential we move towards a simpler personal tax system, so that individual taxpayers can understand their own tax position and fewer incorrect tax returns are submitted.
I have also questioned why we expect almost all taxpayers to submit tax returns, when other jurisdictions only require tax returns from those with complex tax affairs.
Next year I intend to propose simplifying Jersey's tax system. Improvements in IT systems will in future allow online filing of tax returns and automated self-assessment. Where individual taxpayers still need to submit tax returns, we plan to make the tax collection process more straightforward, providing automatic estimates of tax payable.
Where individual taxpayers no longer have to submit returns, online access will provide details of how their effective tax rate has been calculated.
We will improve data sharing between Social Security, Customs and the Taxes Office, to enhance efficiency and reduce loss of tax revenue.
I’ve also been looking at how to strengthen our tax policy arrangements.
At the moment we supplement the very limited internal resource with external consultancy advice. However, the increasing range and complexity of international tax developments, like 0/10 and TIEAs, means it makes more sense to build capacity with a stronger in-house team.
There are also a number of opportunities for tax policy improvements which would also boost revenues. So that Jersey has a modern, efficient and effective tax collection system, a new Treasury Tax Policy Unit will be formed from 1st January with the specific remit to raise more tax revenues.
The combination of a strengthened tax policy team, a simplified and more automated tax system and efficiencies from sharing information should see an annual net benefit of £5 - £10 million in the next 3 years.
Sir, all these revenues I have referred to will be required to balance our books in the medium term.
Sir, I was disappointed that the States approved an amendment to remove all increases from impôts duty last year. I understand the rationale but this action increased the deficit we now have to deal with and was not supportive of our health strategies. I also noted that some prices increased despite no tax increases.
In this budget I am proposing that alcohol duties should be raised by 6.2%, the same rate that was proposed in last year’s budget.
In price terms this is equivalent to:
- 58 pence on a litre of spirits - 3% increase on the average retail price
- 7 pence on a bottle of wine - 2% on an average bottle
- 2 pence on a pint of beer - less than 1% increase
For tobacco duties I propose a higher rate increase of 11.1%, equivalent to an extra 35 pence a packet.
Together these measures will not only raise revenue, but they will also support the Health department’s policy to improve Islanders’ health by reducing alcohol and tobacco consumption.
I am also proposing that fuel duty should rise by 2 pence per litre, which is half of that proposed last year, with the appreciation that for many, the use of a vehicle is less discretionary than the purchase of cigarettes or alcohol.
The impôts proposals, if approved, would come into effect on 1 January 2011.
Stamp duty was reviewed as part of the Fiscal Strategy Review. I am proposing to increase the rates of stamp duty (and Land Transactions Tax) on properties valued over £1 million, £1.5 million and £2 million to 3.5%, 4% and 5% respectively. This change would take place from 1 June 2011.
The majority of our housing market has seen stable prices over the last 2 years. As this proposal will only affect those buying property over £1 million, most Islanders will be unaffected.
Judicial fees for using the court have also been reviewed to reduce difficulty in collecting payments in some instances and to increase the fees in line with inflation.
Deputy Breckon has lodged an amendment to increase probate duties to levels that apply to stamp duty. If that amendment were to be approved, I am concerned that we could see a significant reduction in our bank deposits and investment in Jersey funds by international investors.
We will come to Senator Breckon’s amendment in due course, but let me say now that this is a competitive issue for Jersey.
As disappointing as it is to say, the most likely effect of Deputy Breckon’s amendment would be a reduction in Probate duties.
I will be urging States Members to oppose this amendment.
Last year I committed to look at ways of increasing the tax contribution from the 1(1)(k) regime. Since then, our 1(1)(k) residents have been the subject of a lot of discussion– some of which has been negative.
Sir, the very small population of around 130 taxpayers contributes in the region £13.5 million per year - equivalent to 1% GST.
I estimate the indirect contribution that 1(1)(k) residents make through spending and investment is conservatively at £50 - £70 million per year.
In the last 2 years, new applicants have paid, on average, more than £3 million on their house purchases, contributing almost £5 million in stamp duty. Many spend millions on refurbishment work using local builders, architects and interior designers.
Our 1(1)(k)s attract hundreds of high spending visitors to the Island. Their contribution to local charities runs in to multiple millions. Sir, I welcome our existing and prospective 1(1)(k) residents and their families to Jersey.
I hope that members of this assembly agree that they have made, and will continue to make, a substantial financial and economic contribution to this Island.
More than that, we need to continue to create the right environment which attracts and maintains our High Value Residents.
Other countries, our competitors, are doing this – we can do more.
I have looked at ways of increasing the tax contribution for 1(1)(k)s. As a first step, I believe we can increase the minimum contribution for all future applicants without harming our competitive position. I have asked the Housing Minister to increase the minimum tax contribution for future 1(1)(k) category consents to £125,000 for all new entrants with immediate effect.
I also intend to develop a new High Value Residents regime for the new entrants. If we were to welcome 15 new residents a year, this policy would bring a minimum of £2 million of additional tax revenue and a further considerable contribution through spending in the Island and generating local employment.
One issue which I have considered, is that the policy encourages current and prospective 1(1)(k)s to structure their investments outside Jersey, quite legally, before they move to the Island. Jersey loses investment business even if they have been persuaded to come here. Other places do well out of this and that’s something that I want to change.
We need a simple and competitive tax regime that encourages high net worth individuals to bring their investments and businesses to Jersey. Some of our competitors have a tax cap on income tax liabilities but this limits the contributions.
In future, in addition to the change that I have already requested, I plan to propose that all future High Value Residents will be taxed on their worldwide income at 20% on the first £625,000 pounds and 1% thereafter.
This is a different and innovative approach which does not limit the financial benefits to Jersey but is more competitive and lucrative. However, tax changes alone are not enough.
There must also be an increased focus on marketing – we need to spread the message throughout the world that Jersey is open for business. People and businesses who want to invest in our Island are welcome, and we need to do everything that we can to make them feel so.
Sir, I move finally to business tax.
Members will be aware that the Code Group met last month to consider our business tax regime. The Code Group agreed by consensus that there are harmful effects of our regime. However they have not yet undertaken a formal assessment.
A number of commentators are portraying it as the end of 0/10 but this is not the case. Based on feedback we have had from Code Group members and the UK, we understand that the concerns surround the interaction of the deemed distribution rules with the 0/10 regime.
Although we don’t agree with this conclusion, if the Code Group and ECOFIN decide that this is the case, we are prepared to change these rules. I believe we can do this without a loss in tax revenues. This is an anti-avoidance rule and there are other ways of achieving the same effect.
This could include taxing residents on shareholder loans, as we do under the existing rules, and ensuring that if someone enjoys the profits of their company in any way, that is subject to tax.
We understand that ECOFIN will today decide whether there should be a review of the scope of business tax – that is, should it include personal tax measures such as deemed distribution rules?
Assuming that review goes ahead, we are not expecting to hear anything further from the Code Group until February. We will however be engaging with the UK and the Code Group in the meantime.
The business tax review continues and I am taking account of responses to the consultation. I don’t intend to go into detail now but suffice it to say that the overwhelming response was that 0/10 should be maintained. This review will carry on but obviously the final outcome of the Code Group assessment is an important element of this.
I committed, in the business tax review consultation, to look at how to ensure those businesses that actively trade in Jersey contribute to tax revenues. I have already brought forward proposals in this budget to extend the scope of the 20% rate to oil and excavation companies.
I have noted the Deputy of Grouville’s amendment. While I appreciate the reason for bringing this amendment, I cannot support it in its current form. I have committed to look at this issue and that commitment stands. I therefore plan later today to lodge an amendment to the Deputy of Grouville's proposal that will allow flexibility in the nature of the measure that is introduced.
As the Deputy rightly says in her report, but is not currently reflected in the proposition, the measure could be a tax or a charge by another name. Whatever is introduced must ensure that the integrity of our tax regime is maintained.
If the Code Group concludes it assessment in February and we have clarity on any concerns they have, I will commit to consult on a proposition by the end of June, for measures to be introduced in 2012. I will continue to keep States Members informed on all of these aspects in the coming months.
Following consultation on company fees, the Economic Development Minister and I have listened to the responses from local business. Given the challenges that local companies are facing, annual company fees will not be increased.
I have proposed an increase in the basic ISE Fee from £100 to £200 charged to international companies. This will raise approximately £3 million per year.
I have also been advised that the structure for other ISE fees, such as those charged to banks and trust companies, could be improved and so I am reviewing this to make sure it is.
The increase already proposed in the budget will result in the finance industry contributing more than £8 million. I want to aim to increase fees further to contribute a total of around £10 million.
I hope this might persuade Senator Le Gresley to withdraw his amendment to increase fees immediately, without consultation.
The budget I am proposing to members today is the result of many months of careful research and consultation. I’m sure members will know the level of planning, research and detailed analysis that has gone into developing this strategy. The work of the Fiscal Steering Group, made up of a number of States members, was invaluable, giving guidance in advance of the consultation earlier this year.
As I close, I want to recognise particularly the Interim Treasurer of the States, who has done a tremendous amount in his short time here to strengthen Financial Management in Jersey; also the Chief Executive of Resources, for his long hours and hard work; and of course the Comptroller of Taxes, the Director of International Taxation, the Economic Advisor, the Agent of the Impôts, the Head of Statistics and all the senior officials at Treasury and Resources, Social Security and Chief Minister’s Department, with their excellent teams of professionals supporting all of us in preparing and drafting these proposals.
Sir, I’m also delighted to welcome today, for the first time in the gallery, the new Treasurer-Designate, who will be assuming office in the New Year. She is already making her mark amongst staff and I wish her every success in her new role.
I would like to express my sincere gratitude to the Chief Minister for his continued wisdom and support, my Assistant Ministers, Deputy Noel and Deputy Le Fondre, and of course ministerial colleagues for their diligence and creativity in bringing forward savings proposals that will safeguard the Island’s financial and constitutional independence.
I also want to recognize the valuable role of the Corporate Affairs Scrutiny Panel who have been challenging but fair in their questions.
Sir, in closing, I’d like to remind members where my speech started. We are emerging from the deepest global recession since the 1930s. The recovery is fragile. If we do not make some difficult decisions now, there will be even tougher decisions to make in future.
As the Island’s leaders, we need to have the courage, foresight and conviction to ensure we make the right decisions today to secure our good fortunes for tomorrow. Faced with difficulties, my predecessors were able to pull a money-laden rabbit out of a hat. We will be successful in the future but the world has changed.
We are thankful that our predecessors made provision for future downturns and we are now benefiting from their foresight.
We have been able to spend £158 million to help protect Islanders from the worst effects of the downturn. Unlike most other jurisdictions, we’ve been able to do this without borrowing a penny. And that’s what the majority of Islanders expect us to do.
Our proud history was built on the fundamental principle of living within our means. Highlighting just one of Jersey’s great post war politicians, what would the members like the late Senator Cyril Le Marquand do if he they were sitting in this Assembly today?
Would they want us to live beyond our means? I suspect not.
We can learn another lesson from the past from the introduction of Philip Le Feuvre’s 1951 Insular Insurance Act. Despite the 2 years of protest which sometimes ended in violence, who can imagine life today without the courage the States then showed?
We have to remember that the money we hold in trust is not ours to spend on compensating for over-spending. Our reserves come from the taxes of Islanders who worked hard to earn it. They expect us to use it wisely.
They expect us to live within our means and to provide essential services as efficiently and effectively as possible. They expect us to think about the future, just as they do when planning their own personal finances for the long-term future of their families.
When I think back to the Business Plan debate in September, it was clear to me then, and it has become even clearer since, that both members and Islanders want to see significant savings in States expenditure before any increase in taxes. That is why the Council of Ministers agreed to an increased savings target of £65 million.
I have been open and transparent, right from the launch of the Treasury’s reviews of personal and business taxes. I made it clear that I would be as tough as I could on making savings and efficiencies, but it was obvious that I would not be able to find enough savings to avoid some tax rises.
We need to balance the budget as quickly as possible, not for its own sake, but because a balanced budget is necessary for economic growth and job creation.
It is necessary we meet the objectives we debated and approved in our Strategic Plan:
- maintaining a strong, diverse economy
- ensuring sustainable public finances
- reforming public services to improve efficiency
- working together to meet the needs of the community
We cannot achieve those aims without first tackling the immediate problem. It needs to be tackled now… today…. And not put off in the hope that it will go away.
Our long term constitutional independence very much depends on the way we run our finances. Members need to consider what’s happened to other much larger jurisdictions. Do we really want to risk that there won’t be another global downturn in the coming years? Where would we now be if we’d had to borrow to maintain our public services?
Sir, judging by the number of Islanders who have taken the trouble to contact me over the past weeks, their vision is the same as mine; they want a self-sufficient community which protects the vulnerable, maintains a flexible, competitive economy and supports Islanders in helping themselves.
I believe this is the right budget for today, designed to meet current spending challenges, to reform public sector, to encourage future economic growth and to lay firm foundations for a successful society.
Jersey is a wonderful, unique place with a long proud history of fiscal prudence. I hope members will join me, to help keep it that way.
Sir, in these challenging times I commend this budget to the assembly.