Tax News 7

Tax News 7 : 2010-09-06

Report Casts Doubt On Jersey Fiscal Strategy

A new report by Scrutiny Jersey has warned against the 50/50 balance of tax increases to spending cuts proposed under Jersey’s Comprehensive Spending Review. Discussions on the review are ongoing to achieve annual savings in government spending of GBP50m per year by 2013, and tax increases worth GBP60m per year.

Ministers have committed to departmental efficiency savings of 2% in 2011 and the report is critical of government claims that spending cannot be cut more significantly. The report urges that cultural change is needed within the States, and deeper cuts committed to.

It was previously indicated by the Fiscal Strategy Review Green Paper that spending cuts could not provide any fiscal space in their own right as spending would need to be increased in areas such as health, education, infrastructure, social housing, transport, recycling and energy efficiency, necessitating new tax increases. Four tax proposals were then proposed, each worth GBP30m annually, with a recommendation that two be adopted. These were that:

• The Goods and Services Tax (GST) rate should be hiked by 2%;
• The Social Security ceiling should be raised to GBP115,000;
• Domestic rates should be increased three-fold;
• An income tax rate of 30% should be introduced on incomes above GBP100,000.

The Scrutiny Panel Chairperson, Senator Sarah Ferguson stated of the proposals:

“For some years we have been in a low tax, high spend environment. The world has moved on. The choice before us is stark. Should we aim for a low tax, low spend government or a high tax, high spend government?”

“Whilst there is discussion about the details, there has been no real dialogue as to the balance between savings and tax increases. International experience is that the ratio, for the process to be effective, should be 80% savings and 20% tax increases.”

“During this review we have asked what is the vision for the island and what is the shape of government after all the changes have been effected. We have heard about a leaner, more efficient government and sustainable finances but no coherent and clearly articulated vision for the island. This lack of vision obscures the choices which must be made in the immediate future.”

"A new approach is needed which combines lower taxes and less government. The old way – low taxes and high spend – is no longer an option."

Co-author of the report, Professor Michael Oliver, warned in his analysis that “Jersey is being nudged into adopting higher taxes and spending”.

In his recommendations, he said, “the Comprehensive Spending Review requires cultural change, but in the past this has proved very difficult to deliver in Jersey”. He called for “a thorough debate about the assumptions and approaches to achieving long-term fiscal sustainability,” and underscored that this should focus on achieving “highly-differentiated and focused spending cuts”.