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Tough Fiscal Decisions Ahead For IoM

by Jason Gorringe, Tax-News.com, London

13 August 2012


Tough political decisions are needed by the Isle of Man, says Treasury Minister Eddie Teare, as work progresses to put the Island’s public finances back on an even keel.

Mr Teare said difficult changes were necessary to complete the rebalancing of Government’s budget as scheduled by 2016, commenting: "The budget rebalancing process is on target and so far it has had a relatively limited impact on services and staffing, which may have led to a degree of complacency. But we are not out of the woods yet, and there are still some big issues to be resolved before we can finally say we have put the Island back on course for the future."

One such issue, the Minister added, was the extension of means testing in areas of social policy, currently the subject of a consultation by the Department of Social Care with which he urged the public to engage.

Providing an update on the budgetary process, Mr Teare said Treasury had now received Departmental spending bids for the next financial year. Those submissions were being reviewed and meetings with Departments would continue throughout the summer.

"It is fair to say that, as expected, a gap exists between the total spending projections of Government and the reality of what is available", he said. "There is no easy way of bridging that gap, but we have to do it."

By way of background, the Minister explained that the largest Department in terms of gross expenditure was social care, at GBP321m in the current financial year, followed by health at GBP184m. The largest category of gross spending by type remains employee costs at GBP312m, followed by benefits at GBP255m.

Mr Teare said that in looking at Government budgets it was important to understand the difference between revenue spending - ongoing commitments funded by tax income - and capital spending - one-off expenditure on specific projects funded from a central internally generated pot.

The main fiscal challenge facing the Island as a result of the VAT sharing changes, he explained, was in relation to revenue spending – staffing costs, for example, and the payment of benefits.

The Minister added that in addressing the fiscal challenge the Government had to make the necessary changes while avoiding a ‘slash and burn’ approach that could destabilise the Island’s economy, which was still showing positive growth.

He concluded by noting that at present he was content that the £55 million required from Reserves in 2012-13 would not be exceeded, and that as such the rebalancing of Government’s finances remained on plan.

"Income is holding up in line with projections and even after the rebalancing Government’s reserves will still be substantial", said Mr Teare.

TAGS: Isle of Man | tax | international financial centres (IFC) | budget | offshore | services

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