The Black Hole
To maintain Jersey’s current standard of living, the quality of public services, our environment and employment opportunities the island needs to have a strong economy. At the moment our economy is at risk from international competitors and as such the States have agreed to take some steps in order to protect it.
In order to safeguard our island’s economy the States are changing the way it taxes businesses and individuals; which will enable the island to still be a competitive base for international financial services (our main industry). However, these measures (due to be put into place in 2008) will result in Jersey’s tax-take to fall by up to £80-£100 million a year by 2010.
This shortfall needs to be raised by other means. States members hope to raise £20 million from economic growth, another £20 million by cutting waste and improving the efficiency in public services leaving a grand total of £60 million to be raised through making further changes to our taxation systems.
The way in which we pay our income tax is changing as of the beginning of 2006. Instead of paying income tax in one lump sum at the end of the financial year those eligible to pay income tax will pay in monthly instalments on a previous year basis. The Income Tax Instalment System (ITIS) is set to generate £5 million toward the deficit.
Through the above mentioned strategies the States hope to have found £45 million of the shortfall. To recover the other £55 million they feel that the only feasible option is to increase tax revenues. This is going to happen in two ways, firstly the introduction of a Goods and Service Tax (GST), and secondly phasing out tax allowances for those on higher incomes.
According to the States of Jersey this will mean that the tax burden will be spread fairly across the community, with everyone who is able paying a little extra and those who are better off will pay more.
GST will be introduced in 2008 at a rate of 3% and will be payable on nearly all goods and services available in the island with the proposed exclusion of a small number (such as postal services, transport to and from the island and construction and rental of residential properties). The rate of 3% is guaranteed to be held for at least 3 years and is expected to raise up to £45 million a year in extra tax.
20% means 20%
Phasing out allowances for higher earners, is proposed to affect only the top 30% of tax payers with higher disposable incomes. The plan will see tax allowances and reliefs being phased out over a period of five years with a ceiling of no one paying more than 20% of their income in tax. The tax bills for top earners will increase by less than one percent of their income each year so the full effects will not be felt until 2011, when the States hope the 20% means 20% will generate up to £10 million per annum.
So what do you think?
Do you accept the need to introduce GST or do you think there is an alternative way to generate the required revenue? Do you think it’s fair to phase out tax relief for higher earners?
Tell us your thoughts on tax…