Jersey Budget Hits Consumers Not Companies

by Jason Gorringe, Tax-News.com, London

26 October 2010

Jersey's Treasury Minister, Phillip Ozouf has published proposals for the island’s forthcoming budget, which is expected to include an increase to the island’s Goods and Services Tax (GST) to 5%.

Delivering his proposals, he said that retrenchment in the public sector will see annual savings of GBP65m by 2013, which will account for the majority of the GBP100m per year savings required to establish the island’s budget on a sustainable footing. To establish a buffer against future crises, the remainder - and a surplus - is to be found through tax increases as earlier indicated, worth in excess of GBP60m annually.

In his budget speech he said: “After the savings and tax measures which I am going to outline today, it is planned to run a deficit of GBP55m next year and GBP18m in 2012. This will give time for the economy to return to growth before the island returns to balanced budgets in 2013 and beyond.”

Delivering details of future tax policy, Ozouf firstly reassured taxpayers in that he had gained support from the Council of Ministers for maintaining the 20% personal income tax rate, an aspect of the Jersey tax regime, which, he said, "has been a key element to its stability and economic success for more than 60 years."

In his budget speech he called on the States Assembly “to remove any uncertainty over one of the cornerstones of our stable taxation system and send out a strong and powerful message that Jersey will maintain the 20% rate.”

However he did say that the taxation of individuals would need to be changed. “For that reason, I am asking the Social Security Minister to bring forward proposals in 2011 to introduce a 2% flat Social Security charge on incomes above the Social Security cap, which next year will be just over GBP44,000,” he announced. From January 1, 2012, a “fairer alternative” system is proposed to be introduced, to be paid by both employers and employees.

In addition to ruling out personal income tax increases, the Treasury Minister negated the proposed tripling of property rates in Jersey. Whilst admitting that property rates are low, Ozouf said a tripling of the levy would disproportionately fall on taxpayers with low incomes.

To further protect those on low incomes, income tax exemption thresholds will also receive a customary annual boost, expected to be in line with average earnings growth.

On the taxation of High Net Worth Individuals (HNWIs), as was discussed in last year’s budget, Ozouf said he intended to review the 1(1)(k) regime, in line with the findings of an independent review, commissioned at the time of the last budget. Proposals for which are to be included in the Budget Speech on December 7.

To fill the fiscal void, the Treasury Minister has instead proposed a 2% increase in the Goods and Services Tax rate to 5%, deferred until June 1, 2011. This will generate GBP28m, after taking into account support for low-income workers. Unlike the UK system, Ozouf explained, because of 'GST compensation' for low-income earners, Jersey's regime is not regressive but proportional.

Alongside an increase to Jersey's consumption tax, Ozouf has also proposed hiking tax rates on the import of tobacco and alcohol, by 11.1% and 6.7%, respectively. Meanwhile, fuel duty will be hiked by 2p a litre. Duty on marine fuel, following discussions with the Minister for Economic Development, will be maintained this year, but the Harbours department will be required to contribute an additional GBP200,000 towards government coffers on an annual basis, Ozouf announced.

Further, Ozouf has proposed increasing the higher rates of stamp duty and Land Transactions Tax on properties valued at over GBP1m and GBP2m, the introduction of which will be deferred until June 1, 2011.

Corporate tax rates on companies that import fuel and exploit land will be subject to the same rate currently applied to utility companies, 20%, to bring greater fairness to the island's tax regime.

Lastly, discussing the taxation of the island’s businesses, Ozouf said that it would be premature to discuss changes to the island’s 0/10 corporate tax regime ahead of the EU Code of Conduct’s assessment in terms of its compliance with international standards. Instead he confirmed that decisions on the forthcoming regime for the island would come in the next few months.

As previously announced in January, Ozouf also confirmed that company fees will not be increased, apart from an increase to the ISE Fee charged to international companies, yielding approximately GBP3m.

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