Budget 2016: Mortgage Interest Tax Relief could be phased out and alcohol and cigarettes more expensive

Treasury Minister Alan Maclean has admitted that the 2016 Budget document will not please everyone, but said that the proposals were ‘measured and fair’ and a continuation of the MTFP.

Among the proposals is the phased withdrawal of Mortgage Interest Tax Relief, which effectively allows house buyers on lower incomes to borrow more.

There are also plans to remove standard child allowance, which provides tax exemptions for parents, over the period of the Medium Term Financial Plan. The Budget document says that this will only impact single parents with an income of £78,000 or married couples with a joint income of £106,000.

DRINKERS and smokers will face increased taxes if the Budget is approved.

A litre bottle of spirits would cost 90p more under the proposals while a packet of 20 cigarettes would go up by 35p.

Meanwhile, small independent cider makers will be able to produce 500,000 litres while still benefiting from a 50 per cent reduction in duty rates. Currently, the limit is 20,000.

Senator Maclean said that this increase was due to the recent success of Island brewers.

The impôts increases:

Spirits: 90p on a litre bottle at 40 per cent abv

Wine: 2p on a 75 cl bottle of table wine

Strong beer: 3p per pint

Strong cider: 3p per pint

Standard beer/cider: 1p per pint

Tobacco: 35p on a pack of 20 king-size cigarettes

Earlier this month, the States approved a raft of savings measures and additional charges as part of the MTFP to help plug a predicted £145 million financial shortfall by the end of 2019.

One of the most controversial of those measures was the proposal to raise £35 million through a new health charge – the details of which have not yet been revealed.

However, Senator Maclean, delivering his first Budget as Treasury Minister, has said that the strong income forecast of the 2016 proposals may allow the States to reduce the impact of that charge.

Senator Maclean said: ‘This Budget does not introduce sudden change but takes a phased approach to a number of measures which will help us to strengthen our structural position and provide us with the flexibility we need to minimise the level of any future public charges, such as the health charge.

‘We need to support our ageing population by targeting our resources and protect ourselves against the risk of lower levels of future income.’

He added: ‘The Budget works on the basis that all taxes should be low, broad, simple and fair.

‘It is building on the decision taken by the States to approve the MTFP. That decision has given us greater flexibility and means we can have a more measured Budget.’

If approved, there will also be more than £26 million of capital spending, including almost £6 million on developing e-government, which aims to put more States business online.

The States are due to debate the Budget at the last States sitting of the year on Tuesday 15 December.

INCOME FORECAST

ONE of the main positives from the Budget is that income forecasts are better than initially thought.

Current forecasts indicate that around £7.5 million above initial predictions could be raised in additional revenue through the proposals within the Budget.

Senator Maclean has said that if these forecasts remain true, then that additional revenue will be put back into either paying off part of the States borrowing programme or by reducing the impact of the £35 million health charge which was approved in the MTFP.

The minister also said that he was encouraged by the fact that revenue from GST has increased in 2015, indicating that Islanders were spending more.

He said: ‘What the Budget raises above the forecasts for the MTFP is about £1.8 million for 2016 and around £7.5 million by 2019.

‘What we are saying is that providing those current forecasts are maintained, then this budget will give us greater flexibility to either pay off some of our borrowing from the Strategic Reserve or delay or reduce the impact of the health charge.’

STANDARD CHILD ALLOWANCE

MUCH like the removal of MITR, standard child allowance for taxpayers who pay 20 per cent will be withdrawn over the next few years, if the Budget is approved by the States.

Currently, the ’20 means 20′ tax policy still has a number of allowances in place relating to parents. However, the 2016 budget plans to remove the majority of these allowances for the highest band of taxpayers.

An exemption for parents with children in higher education is being retained, while child allowances for marginal-rate taxpayers is being maintained.

It is predicted that the withdrawal of the standard child allowance will affect about 6,500 Islanders.

A single parent would have to be earning more than £78,000 to be affected by the proposed measure while a married couple would have to have a joint income of £106,000.

Senator Maclean said: ‘This is only for standard-rate taxpayers and is the completion of our 20-means-20 policy.

‘Again, it is something which is being phased out rather than an immediate change and we have left the higher education component.

‘This will only impact relatively high earners and that will be a relatively low number of people.’

Meanwhile, parents with children under the school age who require child-care support will receive a greater tax exemption under the 2016 plans.

Currently, parents of pre-school children can claim a tax exemption of a maximum of £12,000. However, the maximum exemption could rise to £14,000 if the States adopt the Budget proposals, in a move which would cost an additional £100,000 per year between 2017 and 2019.

MORTGAGE INTEREST TAX RELIEF

FOR several years, the Council of Ministers has considered the withdrawal of Mortgage Interest Tax Relief and as recently as last year, former Treasury Minister Philip Ozouf suggested that MITR may be on the way out.

However, previous proposals to withdraw it have prompted a widespread backlash, including angry public meetings in the Town Hall when the issue was first discussed in 2004.

Senator Maclean said that the system ‘distorts the housing market’ and removing it would raise around £300,000 by 2019.

It is proposed that MITR, which is available to lower earners on the marginal tax rate, will be gradually phased out from 2017 over a ten-year period.

Senator Maclean said: ‘It was 2004 when it was a highly emotive subject and it was capped at £300,000. Since then other budgets have talked about phasing it out.’

The minister said that other measures were being considered to help first-time buyers, including introducing a deposit loan scheme which was trialled in 2013. Under the scheme, the States provided a total of £3 million in loans at zero per cent interest to first-time buyers to help them get onto the property ladder.

THE Budget sets out more than £26 million in captial spending projects.

One of biggest of those spending projects is the commitment to e-government, which accounts for almost £6 million of the proposed capital spending for 2016.

Other projects include the rebuilding of Les Quennevais School and an upgrade of the Met Office radar equipment.

Among the projects are: