‘It’s time to tax the rich more,’ say Deputies

• Reform Jersey call for urgent overhaul of Jersey’s tax system
• They believe high earners should be charged more to plug £125 million budget shortfall
• Do you agree? Take part in our poll below

AN URGENT overhaul of Jersey’s tax system is required with high earners needing to be charged more to plug a £125 million budget shortfall, according to the Island’s only political party – Reform Jersey.

Following the announcement by Treasury Minister Alan Maclean earlier this week that the Island faces a potential funding shortfall of millions by 2019, Deputy Geoff Southern, from Reform Jersey, has called for a wholesale tax review which he says should be a priority for the States.

Deputy Southern said the States’ package of measures was too narrow and that more money could be generated by redesigning the tax system.

‘Instead of having a proper, thorough review of the tax regime, which is what we should have, ministers are looking at things in the narrowest sense,’ Deputy Southern said.

‘£60 million needs to be found in staff savings, which is an enormous amount.’

Deputy Southern, who was also critical of the suggestion that States services could be outsourced, added that more money could be taken in Social Security contributions, which are presently capped at the first £47,000 in earnings.

‘We probably need to examine a higher rate of tax for those higher earners as well,’ he added.

‘If you taxed those earning over £100,000 an extra five per cent you would raise £46 million per year.

Leaders of the States financial watchdog bodies have also called for a drastic reduction in public sector staffing numbers and for the civil service to recognise it has no choice but to make radical changes to the way it spends money.

Deputy Andrew Lewis, the chairman of the Public Accounts Committee, said that the public sector needed to be significantly reduced and that efficiencies would largely be driven by a major consolidation of the States buildings.

And Deputy John Le Fondré, who chairs the Corporate Services Scrutiny Panel, added there was nothing left for the States to do but make sweeping changes to expenditure.

He said that a previous CSSP had warned as far back as 2012 that income forecasts may not be as promising as they looked.

‘Therefore one of our jobs looking forward will be to consider whether the present forecasts are sufficiently prudent.

‘The only good thing that comes out of this is that finally government/civil service has no choice but to recognise that it has to do something radical about expenditure, and I welcome the stance that the Treasury Minister is taking thus far.’

Deputy Lewis said that before taxes were looked at the States needed to examine how they spent public money.

‘One of the main starting points must be a new estate strategy,’ he added. ‘Currently the States as an administrative body operates out of more than 25 different locations.

Consolidation of the estate will result in a much-needed change in culture, significant economies of scale and the opportunity to fully implement a full e-government strategy designed into modern, fit-for-purpose facilities.’

• December 1997: ECOFIN,the Economic and Financial Affairs Council of the European Union, agreed to adopt the Code of Conduct on Business Taxation. EU states agreed not to engage in harmful tax competition, which was described as a system of taxation which offered foreign companies lower tax rates as an incentive for them to locate in the jurisdiction operating that system.
• March 1998: ECOFIN established its Code of Conduct Group to assess tax regimes in EU member states and their associated territories
• 1999: The Code Group considered that five features of Jersey’s tax regime then in place were harmful
• 2002: Jersey voluntarily agreed to abide by the Code of Conduct – in line with its commitment to being a ‘good neighbour’ of the EU. The Code Group was then informed that a zero rate of business taxation would be introduced, with a higher rate – ultimately ten per cent – for regulated financial business and public utilities. The group was also informed that ‘harmful’ structures would be removed within five years
• June 2003: An ECOFIN meeting report stated that Jersey’s new tax regime – now known as zero-ten – had been reviewed and was not considered to be harmful
• June 2007: Jersey was advised by the UK that‘ deemed distribution’, a means of preventing certain beneficiaries of business activity from avoiding tax was outside the scope of the EU code because it was personal taxation. Significantly, deemed distribution, tax demanded on the understanding that some business profits which could be distributed might remain undistributed, had not been a feature of any submission to ECOFIN before its 2003 decision
• 2008: The introduction of the zero-ten tax regime
• October 2009: It seemed that some EU member states had concluded that zero-ten was against the ‘spirit’ of the code
• May 2010: The Code Group stated that it would assess zero-ten
• June 2010: The Island’s Treasury launched a consultation on alternative tax regimes as part of the review of our fiscal strategy
• September 2010: Jersey offered a presentation and answered questions at a Code Group meeting at which the EU Commission described zero-ten. This was the first such hearing afforded to a jurisdiction outside the EU. The nature of deemed distribution as a means of countering personal tax avoidance was explained and its was emphasised that the measure should not be seen as part of the business tax regime. It was also pointed out that any proposed changes to the Island’s tax regime should be declared acceptable by the Code Group before those changes were made. The Code Group was asked by the commission to assess zero-ten
• November 2010: The group concluded that zero-ten, combined with deemed distribution, could give rise to harmful effects, but it recommended that the council should review the conclusion in the light of a high-level working party’s examination of the scope of the code
• December 2010: The working party concluded that deemed distribution is a mechanism for taxing business profits and therefore fall within the scope of the code
• 15 February 2010: Chief Minister Terry Le Sueur tells the States that deemed distribution has been abandoned and that this should secure the future of zero-ten
• 17 February 2010: The Code Group is due and may formally assess Jersey’s corporate tax regime