Jersey’s economy faces a contraction of 2% in 2010, following negative growth of around 5% for 2009. The government anticipates that the island will run a budgetary deficit of GBP60m in 2010, followed by GBP68m in 2011, and a recurring deficit of GBP40-50m thereafter.

On the advice of the Fiscal Policy Panel the deficits for 2010/11 will be funded by the existing balances in the Consolidated Fund and up to GBP112m from the Stabilization Fund, but Ozouf underscored that this could not continue, that change in spending and fiscal policy is inevitable.

Delivering the budget, Ozouf said:

“I believe that we must have a strategy to return to balanced budgets as soon as possible. This means we need a plan in place by this time next year, for the 2011 Budget. To deal with this I am proposing three streams of work:

• Firstly, the best way to deal with a deficit is to grow ourselves out of it. We need to maximise economic growth and maximise the income from Financial Services;
• Secondly, I am going to start a Comprehensive Spending Review;
• Thirdly, a review of our Fiscal Strategy.”

A major portion of the government’s first task - restoring strong economic growth – will be achieved, in part, by increasing the promotion of Jersey as a leading finance centre. Ozouf announced that from the fiscal stimulus package in 2010, GBP2.5m will be used to enhance Jersey’s position in the Asia Pacific region by establishing representative offices.

On expenditure, a comprehensive review will be undertaken to investigate possible retrenchment in various sectors, he informed that this would include Health, Social Services, Education, Sport and Culture, Security and lastly, Home Affairs. According to Ozouf, the possibility of sectors being opened up to the private sector will be discussed.

Finally Ozouf discussed fiscal policy, the major segment of the budget proposals. Commenting on Jersey’s current situation, Ozouf stated:

“Three years ago we made significant changes to our tax system to keep our island competitive and to maintain the high quality public services and way of life we are all used to.”

“The early decision to move to a 0/10 corporate tax structure, introduce GST, 20 means 20 and ITIS may have been unpopular, but was undoubtedly right.”

“These policies have provided certainty, encouraged investment and supported high levels of economic growth. We all benefit from the strong position Jersey has maintained. Responsible governments however always keep their fiscal strategies under review, not only to ensure they meet changing international standards, but above all to ensure they remain appropriate and competitive.”

“In light of the global financial crisis, which is prompting most countries to review their tax structures, we too need a Fiscal Strategy Review - not only because of the structural deficit but also because of the need to plan for the costs of an ageing population, infrastructure renewal and growing health demands,” he explained.

“The FSR will review all taxes and charges including personal income tax, GST, duties and, importantly, our social security contributions. Any tax options coming out of the review will be assessed for efficiency, competitiveness, who pays, fairness, the cost of collection and revenue stability. Islanders will be consulted on the options and their responses will help formulate any proposals for change,” he added.

“While I am not going to rule anything in or anything out, and I believe that our success has been built on low taxes and high economic growth, members must appreciate that in trying to generate as much revenue as possible from export services, and particularly financial services, we must remain internationally competitive and protect jobs.”

“A key part of the FSR is a review of business taxation. This was always intended to be part of the Review but clearly recent events have increased our focus on this area. I am conscious that recent press speculation has created uncertainty in the finance industry and it is important that I respond to this. First I want to clarify the following:

• 0/10 has not been found to be non-compliant with the EU Code of Conduct on Business Taxation;
• Secondly, I understand the fundamental importance of tax neutrality to our Financial Services industry and the requirement that this be maintained; and
• Thirdly, Jersey has not agreed to move to a flat corporate tax rate of 10%.”

“We do however understand that certain EU Member States have questioned whether 0/10 could be interpreted as being outside the ‘spirit’ of the Code.”

“The international tax world is changing. Jersey is already committed to the tax ‘norms’ of non-discrimination, which is why we introduced 0/10. However, we must be alert to this and understand the concerns that have been raised.”

“I will look for other precedents from established International and European tax codes, not only to ensure compliance with international standards, but also to ensure a level playing field for Jersey’s businesses, trust and other structures.”

According to Ozouf, the findings of the review, to be carried out during 2010, will be debated for inclusion within next year’s budget.

Turning to discuss measures within the immediate budget, Ozouf informed that the deficit would not be found through increasing direct taxes, in fact he noted that lower incomes would instead benefit from the 5% increase to the income tax exemption thresholds agreed last year.

There have been a number of relatively minor changes to the Income Tax Law proposed:

• Firstly, landlords that invest in insulation and energy efficient improvements will be able to gain a concession from the cost of the investment;
• A number of beneficial changes are to be made to the occupational and private pensions tax legislation;
• The penalty for the late filing of tax returns is to be increase by GBP50 to GBP250, the first increase in five years;
• Lastly, there are minor adjustments being made to existing 0/10 provisions to align the powers, penalties and offences in the Income Tax and GST laws and regulations.

Duties on alcohol and tobacco are to be hiked under the budget, equivalent to cost price increases of:

• GBP0.58 on a litre of spirits, or 3%;
• GBP0.07 pence on a bottle of wine, or 2%;
• GBP0.02 pence on a pint of beer; and
• GBP0.30 on 20 cigarettes, or 5.5%.

Concessions on marine fuel will be reduced generating an additional GBP200,000 in 2010, equivalent to reducing the relief by around a third.

To fund environmental initiatives the government is also planning to introduce a Vehicle Emissions Duty in September 2010. Alongside a proposed increase of GBP0.03 on petrol and diesel duties, the VED will provide GBP2 million for environmental projects.

The long-awaited Land Transaction Tax will be also be introduced in 2010, on January 1.

In order to crack down on tax avoidance, the government has announced that tax investigators will receive extra funding. In particular Ozouf said that individuals granted residential qualifications as approved wealthy immigrants, commonly known as 1(1)k’s, would come under increased scrutiny following consultation with Jersey residents. While he did emphasize that the majority of 1(1)k’s offer invaluable revenues to the treasury and are fully-compliant with Jersey tax law, he said investigations would be undertaken to ensure that the minimum tax liability of GBP100,000, prescribed under the statutory regime, is paid annually.

Concluding, Ozouf also announced that unintended tax breaks available to UK Superannuation Funds would be rescinded. Ozouf explained that the government considers that non-resident property investors should not gain tax breaks that are not available to other resident real estate investors.

In response to the budget speech, Geoff Cook, Chief Executive of Jersey Finance, applauded the government’s support of the financial services industry. In particular Cook welcomed Ozouf’s confirmation that the government will defer amending the business tax regime until such times as all the available options are discussed with interest parties as part of an extensive consultation process. Cook concluded by lauding government efforts to diversify Jersey offerings, including the introduction of the foundation business form, as well as continued funding to attract business flows from emerging economies such as China, India and the Gulf.