Isle Of Man Reviews Fiscal Policy

by Robert Lee, Tax-News.com, London

19 May 2010

The Isle of Man government has announced that it has commenced a comprehensive review of its spending efficiencies to re-balance the budget following the reduction of the Isle of Man’s share of value-added tax (VAT) revenues with the United Kingdom.

Speaking in the Tynwald on May 18, Chief Minister Tony Brown announced that the government would be reviewing the way it operates, to achieve greater efficiencies and to enhance economic development.

The review builds on the momentum created by the restructuring initiative, which came into effect on April 1 with the aim of making the island "leaner, fitter and better equipped to face the future," Brown said. The government has been forced to introduce a five-year strategy to rebalance the government’s finances in the wake of an annual loss of revenue from the VAT sharing agreement of at least GBP50m this year, rising to GBP100m from April 2011.

The first step on the road to readjustment was February’s budget, which combined lower public spending, increased taxation and the use of reserves. In February the government introduced a 2% increase in the higher personal income tax rate to 20%, from 18%, raising an additional GBP9.4m annually; and a 1% increase in employee National Insurance Contributions (approved by Tynwald in November last year), raising an additional GBP7m.

Brown explained that the ‘Transforming Government’ plan will continue that journey by highlighting further revenue generating ideas, cost savings and more efficient ways of working across all government departments.

Commenting on the release of the plan, Brown said:

"The government is rising to the challenge of its revenue shortfall with a series of practical, co-ordinated and pragmatic measures.”

“There has to be a realization at both political level and within the public sector that many difficult decisions will have to be made if we are to secure our extensive public services and secure employment within the public sector. The changes necessary to root out waste and safeguard public services will on occasion require robust determination, especially at political level. Sectional and individual self-interests within government are not acceptable, and will not be supported or tolerated. As I have indicated previously, there is a need for a change of mindset, not only at political level, but also within the public service as we move through these challenging times.”

“The island is not alone in facing difficult decisions, but [the Isle of Man is] entering this period of fiscal readjustment on a firm footing with low unemployment, no external borrowing, sound reserves and a solid reputation as a centre for international business. I would like to reassure everyone that the overriding need to reduce costs will be balanced against our desire to grow the economy, maintain a good level of public services and preserve our excellent quality of life. The successful restructuring of government departments will ensure that spending reductions are targeted correctly in order to minimize the impact on front line services and long-term economic development.”

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