The Jersey government has warned that tax increases will likely be an inevitable feature of government proposals to save GBP50m each year, starting in 2011.
In a statement released on February 1, the government outlined the process that ministers will undertake to come to a decision on measures to guard the island against further deterioration in state finances.
The review will comprise of two main stages. The first major part of the process will be the Comprehensive Spending Review (CSR), which will look to find savings in government expenditure and public services, under which all State services will be required to find savings. The CSR will analyse all areas of States spending to find ways to save money, to evaluate the implications of any proposed savings and to target improvements.
Those conducting the reviews will be tasked with finding savings of GBP50m from the 2011-2013 business plans. Some of these savings will be used to create a contingency fund for unforeseen expenses, to fund any changes needed to make savings and to fund some growth in essential services. Targeting this level of savings will break the historical cycle of annual spending increases above previous forecasts.
After the review on spending has been conducted - identifying all the efficiency savings possible – there will be a political decision on how much retrenchment is to be implemented with the remainder of the savings to be found through increases in taxation.
Despite assurances given by the Jersey government in the run up to Jersey Finance Minister, Phillip Ozouf’s maiden budget, that taxes would not be increased on financial services the government may be left with few options in its second budget.
The government has a number of options: among them, it could again increase indirect taxation, as seen in the December budget; reverse its moratorium on fees on the financial services sector, which was introduced for 2010; or generate extra revenue by revising its zero-ten corporate tax regime, as has been necessitated by the ECOFIN Code of Conduct group.
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