In last week’s UK Budget Chancellor Rishi Sunak announced that corporation tax in the UK would increase from 19% to 25% in 2023 in an effort to recover pandemic-related spending, which is expected to leave UK £400 billion in debt.
Mr Sunak also decided to freeze the personal taxation thresholds, which he said would hit highest earners the hardest in terms of increased tax bills.
Recent estimates have suggested that the pandemic will cost the Island £400 million and also result in lost tax revenue of £400 million.
In last week’s States sitting, Senator Sam Mézec tabled written questions to Treasury Minister Susie Pinel, the responses to which revealed that, in 2018, Islanders earning more than £1 million per year paid an average 8.5% tax on their earnings while, for those on £50,000 or less, the figure was 8.9%.
The Senator said that the figures demonstrated growing inequality in Jersey ‘even before the pandemic hit’ and suggested that increasing tax on high earners would be a ‘safe start’ in paying off the cost of Covid-19.
‘We have to ask ourselves what sort of society we want to live in once the pandemic is over,’ he said.
‘Do we want to go back to being a place where young people are leaving Jersey in droves because they can’t afford the cost of housing? Do we want to see taxes continually raised on low and middle earners, with the highest earners always being exempt? Do we want to continue the trend we had before where, over a decade, earnings flatlined?’
He added: ‘The government will have to provide detail on how they intend to ensure that ordinary Islanders feel the benefit of any economic recovery after this pandemic and, so far, they have not provided any at all. A safe start would be to increase tax on the wealthiest people in Jersey to levels that resemble what the rest of us have to pay.’
Deputy Kirsten Morel said that he felt both the Island’s 21E tax-break scheme for wealthy incoming residents and the zero-ten corporation tax scheme needed to be reviewed, with a view to raising more income in a few years time.
‘I think Jersey still undersells itself. The Island should definitely be raising its price for wealthy people coming to live here. That’s one way to raise a bit more tax,’ he said.
‘On the other side of it is the fairness and equity. If people earning more than £1 million are paying a rate that, on average, is lower than those earning under £50,000, then that’s creating inequality, which will breed resentment.’
The Deputy said that as well as generating limited income, the lack of a corporation tax in Jersey, for all but a few companies, also meant the government had fewer economic levers to pull, adding that trends such as the desire to restrict population growth and increase automation would leave the Island less able to rely on personal income tax for revenue in the future.
But he added that zero-ten offered the benefits of ‘tax neutrality’ for companies in the finance industry, which should not be undermined, and was good for entrepreneurs looking to start a new business.
‘The crisis has crystallised the need for us to look seriously at reintroducing corporation tax in a more across-the-board manner,’ he said, ‘but with the caveat that we still need to maintain tax neutrality for the finance industry and mustn’t become uncompetitive on the international stage.’