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Anti-Inflation Measures Characterise Jersey's Budget 2001

Robert Lee,, London

16 November 2000

Jersey's Budget 2001 report was lodged this week by the island's Finance and Economics Committee, and according to the States of Jersey Treasury, it's a budget that 'seeks to fight inflation, improve social services, introduce tax reforms, uphold high standards of public service and maintain a stable and very prosperous economy.'

It was predicted that anti-inflation measures would be a key feature of the Budget, and they are. The economy is booming but there has been much debate in recent months on just how to tackle inflationary pressure. Accordingly the Budget 2001 report contains a number of proposals specifically aimed at controlling inflation.

These include a significant increase in the contribution to the Strategic Reserve, which will have the effect of removing money from the economy, and the freezing of tax allowances and thresholds which will increase tax receipts and reduce the number of individuals not paying tax. The freezing of tax thresholds and allowances means that 30 per cent of individuals will pay no tax (on their earnings in 2001) compared with 33 per cent at present.

Moreover, the cost of borrowing will be increased by the phased reduction of tax relief on interest payments (although the effect of this change on those on lower incomes will be tempered by a proposed cut in the marginal rate of income tax from 27 per cent to 26 per cent.) Tax relief on interest will be reduced from 100 per cent to 90 per cent of the interest paid for the year 2001.

As far as income tax is concerned, the proposal to reduce the marginal rate of income tax from 27 per cent to 26 per cent is in line with the Jersey States' long-term aim of reducing it to 20 per cent, thereby simplifying the tax system and paving the way for more efficient methods of tax collection. The reduction will help low-to-medium level taxpayers by recycling the additional funds (around £1.5m) gained from reducing interest relief.

Senator Frank Walker, president of Jersey's Finance and Economic Committee, said: 'Budget 2001 is possibly one of the most complex Budgets to have ever come before the States. Balancing the ever-growing demands for improved services against economic prudence has always been a feature of the Jersey Budget but this year there are the added pressures of combating inflation, introducing greater accountability, improving financial controls and seeking greater efficiency.

‘More than ever the question is not “How much can we spend?” but rather “How much can we afford to spend?” if we are to achieve a stable and, above all else, sustainable economy.

‘Budget 2001 answers that question by providing a range of strategies, some of which will be more fully developed in the coming months as we improve our understanding of the major fiscal influences on the Island’s economy.

‘Finally, it is worth repeating the message that this is a success story that many would envy and that all of us should particularly welcome the news that an extra £19m will be spent on the Island’s health, education and social services next year in addition to an extensive capital programme. This is only possible due to our very prosperous economy and the tough measures we are introducing are specifically aimed at ensuring that it stays that way.'


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