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Jersey Chamber Of Commerce Comments On Tax, Spending

by Amanda Banks,, London

14 August 2007

Jersey's Chamber of Commerce has put forward tax and spending proposals for the States authorities, which it says will maintain financial stability on the Island following the forthcoming introduction of the zero-ten corporate tax regime.

The Chamber has urged the Jersey government to maintain the jurisdiction's relatively low tax regime, and to keep a tight rein on public spending. It has also expressed concerns regarding the uncertainty surrounding the planned introduction of a GST regime to compensate for lost corporate tax revenue.

The Chamber of Commerce revealed that it has been tracking the States budgetary process since the process began in the public domain in April of this year. The key concerns first observed and commented upon were as follows:

  • The level of government expenditure for 2008 with a then stated increase of 7.7%
  • The poor government record of fiscal forecasting as the 2008 figure is not the only shock of recent years as shown by government's “reinvestment” of £20M of promised savings under the zero ten framework as first published.
  • The concern that the proceeds of GST were being deployed before 2010 to finance such expenditure, being outside the spirit of the zero ten framework as conceived in 2004 , together with the outside projection growth in government spending since that time.
  • Consequential concerns were raised on the timing of GST in the context of the above points. Indeed business was promised a clear 12 months to implement changes, which has not occurred according to the Chamber of Commerce, and although withdrawal of the price marking law does give some flexibility, the commitment has not been delivered.

It went on to observe that:

"Since April when the plan was first published there has been a marginal reduction in spending requirement from 7.7% to 7.3%. Chamber continues to have serious concerns about the level of spending contemplated for 2008 and would urge government to continue to search for savings through the assistant ministers’ exercise currently in hand."

The business body continued:

"Given our current position in the planning cycle and the need to assemble appropriate resource to advise on such a planning exercise moving to a formal five year cycle now is not totally feasible , particularly given some of the unknowns still surrounding 2010. Nevertheless there are a series of actions that can be taken now to move towards a medium term position and help strengthen business and public confidence in the present process.
These steps are as follows:

  1. Ring Fence all pre 2010 GST receipts and place them in the Stabilization Fund with the condition that the Stabilization Fund may not be deployed until 2010 to deal with the fall in Corporate Tax receipts and or any recession arising from economic downturn. We estimate this figure will be of the order of £75M less any related income relief - This will re-establish the principle of the original zero ten commitment where it was clearly understood that any “early” collections of GST would be reserved for the fall in corporate taxation. It also achieves prudent provision against the potential unknowns of 2010 be it downturn or the quantum of fall in Corporate receipts. We believe based on current economic growth this commitment is achievable. The proposed timing also fits well with recommendation 2.
  2. Formally Commit to a Three Year Plan- although this is not a full move to a five year plan as recommended in the Kern Report it is a significant move away from the usual one year commitment agreed in the States. It will in particular prevent any short term pressure from dissipating the absolute need of recommendation 1. Although we have continuing serious concern about the figure for 2008, 2009 and 2010 are both sub inflation projections and start to bring the economy back on track after the excess of 2008. It is essential however if the ship is to be turned the course is committed and stuck to for the three year period in order to bring about consistent change over time.
  3. No Reinvestment of Savings/ No breach of Spending Limits- it is essential it is clearly understood as part of the process that should any spending limit fall under pressure during any year of the committed plan that such pressure is alleviated by equivalent savings elsewhere that are net and not “ reinvested” as seen in the past.
  4. Appointment of a Fiscal Panel- it has always been the intention to appoint a Fiscal Panel, comprising of three independent economists to advise on macro economic planning in the economy, given this is a perceived gap in the planning process and it gives a healthy level of independence to the methodology as a whole. We should move to formalize this commitment as part of the budgetary approval process this year. We would wish to see the panel appointed in the last quarter of this year with a planning priority of moving the economy to a five year States approved cycle from 2010 budget onwards. This allows for the proposed current committed cycle of three years to run its course and deals with the risks perceived in 2010 watershed. It permits the evaluation of the out turn of 2010 and puts the economy on a medium term setting thereafter.
  5. Rate of GST- government now believe the rate of GST can be held at 3% for four years and with the originally perceived deficit closing the rate should be sustainable thereafter. We believe that at a minimum as part of the current process government is now able to commit formally to holding the rate for four years and should do in this year’s States proposal. In addition as part of the envisaged five year planning process to ensure clarity we recommend that the rate be fixed for each five year cycle thereafter to bring consistency to the process and avoid ongoing speculation of will the rate go up or not from year to year.
  6. Other Taxes- Given current economic growth presents the opportunity to commit to a three year plan and make appropriate Stabilization Fund savings there should be no need for other taxes or increases in any existing taxes on Jersey residents, although the need to try and resolve the issue of non resident owned companies and lack of contribution should continue to be addressed. Government has commented favorably in this direction and yet again this should be formalized as part of the three year commitment.
  7. Business Plan Documentation- current documentation should be updated to clearly reflect the outfall of 2006 and a forecast for 2007, clearly setting out any forecast deficit in 2013 or the lack of it to demonstrate the three year plan proposed to the best of forecasting ability is affordable in the current climate and includes adequate provision for downturn should it occur. Fully transparent and up to date documentation is essential to demonstrate plans are sufficiently robust and affordable for the contemplated period of three years initially.

We believe a combination of the above measures clearly stated and committed to for the three year period are a substantial step in the right direction to remove short term political pressures that dog our planning process. Furthermore it works towards a more settled planning environment and starts to build longer term public and business confidence in the process. Above all if all current assumptions are correct affordability with prudent provision for downturn should be clearly apparent."

The full text of the Jersey Chamber of Commerce report can be found in the Tax News Resources section.

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