Are they putting off higher taxes until after the next elections?

From John Clennett.

THERE appears to be a major misconception among members of the public, and one which is being actively fomented by certain politicians, to the effect that the present financial crisis – and in particular the projected deficit for 2010 of £64million, – is the result of uncontrolled States expenditure and that the position could, or should, be remedied by drastic reductions in States expenditure.

This is incorrect. While it is true that States expenditure has been increasing and may well need to be controlled, for the years 2005 to 2009 States revenues and expenditure have both increased broadly in line and budgets have been balanced. But for 2010 income tax revenues are due to fall by £100 million, resulting in the budget deficit of £64 million.

The reason for this is the introduction in 2010 of the tax regime known as zero/ten, by which companies trading in Jersey will no longer pay tax on their profits. This policy was adopted by the States in 2004 and the report accompanying the proposition stated quite clearly that there would be a massive fall in tax revenues which would have to be replaced and that it was unlikely that such a sum could be found by reducing States expenditure.

The report also envisaged that the zero/ten regime and the remedial measures would be in place by 2008, so there is no cause for surprise. In the intervening years, apart from the introduction of GST also envisaged in the 2004 report, nothing much seems to have happened, despite the recommendation in the report that the matter was urgent.

Now we are already well into 2010 and faced with a position where, at the end of 2011, both the consolidated fund and the stabilisation fund will be exhausted. Even if the next promised comprehensive spending review makes some workable proposals, the time factor for them to be agreed and introduced will be extensive.

It therefore looks likely that additional taxation will be necessary and although to the public this may appear to be extra taxation, it is in fact a transfer of the tax burden from limited companies to the populace at large as a result of the States decision in 2004.

Given the time that has elapsed since 2004 one has to ask why the necessary provisions are not already in place. Could it be that unpalatable decisions are being put off until after the next elections?