Mortgage-payers and less wealthy targeted in latest States cost-cuttings

Among the options for personal tax reforms, set out in the States three-year Medium Term Financial Plan due to be debated in October, include ‘broadening the tax base’.

Senator Alan Maclean

The Council of Ministers are proposing unprecedented measures to raise extra funds to avoid an estimated shortfall of £145 million by 2019, including reducing the public sector workforce, imposing new sewage and health charges, and axing benefits to pensioners, including the Christmas bonus.

Treasury Minister Alan Maclean said that detailed changes relating to personal tax would not be announced until the next annual Budget, which is due to be lodged towards the end of month for debate in December.

‘There have been ongoing discussions about mortgage interest tax relief, as well as a lot of other options,’ said the minister. ‘All these matters are routinely reviewed at the end of the year.’

Senator Maclean said that there had already been a number of changes to mortgage interest tax relief in recent years, including a maximum mortgage limit of £300,000 – the average price of a three-bedroom house in 2004 – and a cap of £15,000 on relief, applied in last year’s Budget, together with a 1% reduction in the marginal rate of tax, to 26%.

A Green Paper on property tax put out for consultation last year also suggests that MITR is costing the public purse between £12m to £14m a year, with ‘no equivalent for those who cannot afford/are not allowed to buy’, which means that ‘those on the lowest incomes and struggling the most to get on the housing ladder are subsidising the ownership of those who can afford to buy’.

Nevertheless, the Green Paper says, ‘the question of withdrawing tax relief on mortgage interest is an emotive one’. In fact, when the idea was first mooted in 2003, the then Finance and Economics president, Senator Frank Walker, faced an angry backlash at a Town Hall meeting, not least from those who had bought property on the basis that tax relief would be available.

So far, the feedback from the Green Paper consultation – which ended in December – has not been made public, although Treasury Minister Alan Maclean said a review of property tax would be issued early next month.

Asked during a recent interview whether Council of Ministers were considering axing tax relief entirely, Chief Minister Ian Gorst said: ‘We will be thinking about it and will probably talk about a plan in the next Budget – you could make changes around the same time as stamp duty for first-time buyers.

‘What you want to do is to reduce the cost of people getting on the property ladder, which historically was thought to be Mortgage Interest Tax Relief. But actually, I think there are other ways of delivering a more direct relief to people we want to target,’ he said.

Another possibility would be to phase out the the ‘marginal rate’, which seeks to place less burden on lower income households.

‘We reduced this by one per cent last year, to 26%,’ said Mr Gorst, adding that the system was ‘unnecessarily complex’ and needed modernising. ‘People think they are paying more on the marginal rate – it would be better if it could be clearly shown.’

According to the Medium Term Financial Plan – the blueprint for States spending over the next three years – 25% of people who are registered to pay personal income tax make no financial contribution because they are covered by current exemptions and allowances.

The plan also stresses the importance of keeping personal tax rates ‘competitive’, compared to other low-tax jurisdictions. It said: ‘The importance of retaining higher earners within Jersey is evidenced by the fact that the ten per cent of Islanders with the highest income contributed 51% of total personal income tax for the 2013 year of assessment.’

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