The government is proposing to borrow £386 million by next year and Islanders could face ‘permanent tax rises’ if proposals to repay it are rejected, Chief Minister John Le Fondré has said.
Yesterday ministers published the second Government Plan, covering the period 2021 to 2024, which laid bare the financial impact of Covid-19, indicating that it is expected to cost the Island £400 million in spending this year and next, not taking into account a potential worsening of the crisis.
A further £400 million is expected to be lost in government revenue between 2020 and 2023, which Senator Le Fondré said would be covered by already determined measures, with ministers aiming to balance the books by 2024.
Measures that have been outlined to recoup the expected £400 million in lost revenue include withdrawing taxpayer contributions to the Social Security Fund until 2023, introducing a new tax on the medicinal cannabis industry, making more companies liable to corporation tax and increasing revenue from stamp duty.
Asset sales could also be considered in the coming years to raise money, with the Chief Minister indicating yesterday that the publicly owned site at South Hill was a candidate for this.
Under ministerial proposals, extra spending on measures such as test and trace, additional income support payments and the payroll support scheme will be covered by a loan being taken out next year worth £336 million.
Another £50 million loan could be taken out this year, if proposals are approved, to finance the Fiscal Stimulus Fund, through which the government would pump money into the economy to revive it.
Under government proposals, the majority of the debt would be repaid by two-thirds of income taxpayers – about 55,000 people – moving from paying tax on a prior-year to current-year earnings basis.
The move announced earlier this year by Treasury Minister Susie Pinel is expected to generate £320 million. Those affected would have their 2019 tax year frozen until 2025 after which they would be required to repay the amount over a five- to ten-year period.
Yesterday, Senator Le Fondré outlined that the receipts from the move, which would see those affected effectively pay their lifetime tax liability earlier, would be ring-fenced specifically for the repaying the new loan.
And in response to questioning on the matter, the Chief Minister said that if the move was rejected by the States in a debate next month, the government would have to consider other ‘permanent tax rises’ or increasing GST to 7 or 8%.
Deputy Pinel, who lodged the proposition calling for the reform, said that the move would protect the next generation from paying for Covid-19.
‘Should the States Assembly approve my proposal to move prior-year basis taxpayers to a current-year basis, the future payments of the 2019 tax liability of prior-year basis taxpayers will be ring-fenced into a sinking fund,’ she said.
‘This will repay much, if not all, of this debt. These payments would be time-limited and they avoid the need to raise taxes on Islanders working hard to protect their livelihoods following the necessary lockdown measures.
‘This approach would also ensure that the debt we incur to protect the Island from the effects of Covid-19 now does not become a long-term issue for the next generation of Islanders.’
Both ministers pointed out that those affected by the transition would still pay the same tax over their lifetime and would not have a ‘lump sum’ to pay once they finish work.
It is planned to draw down the loans from the £500 million ‘revolving debt facility’ agreed with a consortium of banks earlier this year, which the Chief Minister has described as an overdraft-type facility.
The government is not planning to use money from the Strategic Reserve, also known as the rainy day fund, to pay for the Covid-19 crisis, preferring to take out debt at a time of very low interest rates.
Ministers and States Treasurer Richard Bell indicated yesterday that it was also unlikely that the reserve, the value of which stood at £874.2 million at the end of June, would be used to fund Jersey’s new hospital, which has been estimated to cost £550 million.
The government has also set aside £40 million to cover costs in case the crisis worsens again.
The Government Plan is due to be scrutinised by the Corporate Services Scrutiny Panel over the next nine weeks and is due for debate on 14 December.
