STATES OF JERSEY

r

budget 2008

 

Lodged au Greffe on 23rd October 2007
by the Minister for Treasury and Resources

 

 

 

STATES GREFFE

PROPOSITION

 

THE STATES are asked to decide whether they are of opinion -

 

            (a)        to approve the estimate of total taxation revenue in 2008 of £570,020,000 as set out in summary table A on page 30 of the Budget Statement, with the sum to be raised through existing taxation measures and the proposed changes to income tax, impôts duty, stamp duty and share transfer property tax for 2008 as set out in the Budget Statement;

 

            (b)        to agree that the sum of £25,000,000 should be transferred from the Consolidated Fund to the Stabilisation Fund in 2008 as soon as appropriate amendments to the Public Finances (Jersey) Law 2005 to allow the transfer to take place are in force.

 

 

 

MINISTER FOR TREASURY AND RESOURCES

 

Note:    The Budget Statement has been printed separately but is reproduced below for convenience in this electronic version.

 

 

 

 

States of Jersey

 

 

 

 

 

DRAFT Budget

 

STATEMENT 2008

 

 

 

 

 

 

 

 

MINISTER FOR

 TREASURY AND RESOURCES

 

 

BUDGET STATEMENT 2008

 

PROPOSITION

 

The States are asked to decide whether they are of the opinion:

 

a)     to approve the estimate of total taxation revenue in 2008 of £570,020,000 as set out in summary table A on page 30 of the Budget Statement, with the sum to be raised through existing taxation measures and the proposed changes to income tax, impôts duty, stamp duty and share transfer property tax for 2008 as set out in the Budget Statement;

 

b)     to agree that the sum of £25,000,000 should be transferred from the Consolidated Fund to the Stabilisation Fund in 2008 as soon as appropriate amendments to the Public Finances (Jersey) Law 2005 to allow the transfer to take place are in force.

 

 

 

MINISTER FOR TREASURY AND RESOURCES                              

 

 

 

Contents

 

 

Page

 

 

 

 

1. Foreword............................................................................................

4

 

 

2. Executive Summary...........................................................................

6

 

 

3. Financial Framework..........................................................................

8

 

 

4. Financial Forecast 2006 – 2012.........................................................

10

 

 

5. Fiscal Strategy………….………………………………………………...

13

 

 

6. Income Tax Proposals.......................................................................

16

 

 

7. Impôts Duty Proposals.......................................................................

20

 

 

8. Stamp Duty Proposals.......................................................................

25

 

 

9. Fiscal Framework...............................................................................

27

 

 

10.Financial and Manpower Implications...............................................

28

 

 

Summary Tables

 

 

 

Table A - States Income.......................................................................

30

 

 

Table B - States Expenditure.................................................................

31

 

 

Table C - Summary Graphs………………………………………………..

32

 

 

Table D - Consolidated Fund.................................................................

33

 

 

Index of Tables and Charts

 

 

 

Table

Page

 

 

4.1    Financial Forecast 2006 – 2012

11

 

 

6.1    Proposed Exemption Thresholds

18

 

 

6.2    Proposed Allowances

18

 

 

7.1    Proposed Duty Increases

22

 

 

7.2    Comparison of 2007 Tax and Duty Levels

22

 

 

7.3    2007 Retail Price Margins - Comparisons with the UK

23

 

1. FOREWORD

 

MINISTER FOR TREASURY AND RESOURCES

 

 

 

I am pleased to present my second Budget as Minister for Treasury and Resources in accordance with the Public Finances (Jersey) Law 2005. I should take this opportunity to remind Members that this Budget Statement now only considers measures for taxation and borrowing, and any proposals for transfers to or from the Strategic Reserve. I am this year also taking the opportunity to propose a transfer of further funds to the newly created Stabilisation Fund as part of these Budget proposals. All decisions on expenditure allocations were taken in the Annual Business Plan debate in September, and it remains for me to take account of those decisions and the revised financial forecasts when presenting the tax and funding proposals in this Budget.

 

In addition I am required to present to the States, alongside the Budget Statement, the required taxation drafts in the form of the draft Finance Law 200- and the draft Income Tax (Amendment No. 26) (Jersey) Law 200-  to give effect to the new tax and duty measures and changes that are being proposed.

 

The Strategic Plan and this year’s Annual Business Plan approved quite significant increases in expenditure. This investment was part of our vision to protect and improve the level of public services and invest in social, environmental and economic initiatives. This vision was predicated on maintaining Jersey’s competitive position and supporting the economic growth required in the Fiscal Strategy.

 

The latest financial forecasts show that our confidence in these policies was justified and the forecast increases in profits and earnings, and the success of the economy, are now reflected in the significantly improved tax revenues expected in 2007 and continuing in 2008. This success can also be seen in our recent economic growth results which show a 7% real increase in 2006 from 2005. This Budget demonstrates that we can deliver a balanced and sustainable financial position while still investing appropriately for the future. This position has only been achieved by sticking rigorously to the measures and timetable of our Fiscal Strategy and we must complete the delivery of the remaining measures, including GST, over the coming year.

 

In light of the improved forecasts and acknowledging the impact of fiscal measures recently brought in and, with the further impact of GST next year, the Council of Ministers is supporting my proposals in this Budget to provide some relief to those most affected. I am therefore proposing, in addition to the agreed increase in tax exemption limits last year, further increases for 2008 and 2009, increases to child allowances of 20% and an increase in the stamp duty relief for first-time buyers.

 

In further recognition of the significant improvement in the financial position I am proposing a transfer to the Stabilisation Fund equivalent to the expected surplus in 2007 of £25 million and if the surpluses forecast for 2008 and 2009 come to fruition then I will be proposing further significant transfers in future years. I say if, because we are currently assessing the impact on our Island of yet another external pressure beyond our control, the current ‘credit crunch’ in the global finance sector. But whilst I am not yet prepared to bank all our forecast surpluses I am confident that we are in a very strong position to deal with the impact of this latest threat and continue to prosper.

 

In conclusion I should like to record my appreciation for the support of the Council of Ministers in bringing together this Budget, following on from the recent Annual Business Plan, in a corporate and responsible manner and within the constraints of the agreed financial framework. I should also like to thank the Comptroller of Income Tax, the Director of Customs and Excise, the Economic Adviser, the Law Draftsman and a small but dedicated team of officers working under the aegis of the Treasurer of the States, without whom this Budget Statement could not have been produced in such a timely and efficient manner.

 

 

 

 

Senator Terry Le Sueur

Minister for Treasury and Resources                                                          October 2007

 

 

2. EXECUTIVE SUMMARY

 

Key features of the 2008 Budget are as follows:

 

Financial Forecasts

 

Tax Proposals

The Minister’s income tax proposals in the 2008 Budget are to:

 

In addition to these measures, the Minister will also progress the remaining measures in the agreed Fiscal Strategy:

 

Impôts Duty Proposals

The Minister’s impôts duty proposals are to:

o       34 pence on a litre of spirits;

o       4 pence on a bottle of wine;

o       1 penny on a pint of ordinary beer;

o       13 pence on a packet of 20 cigarettes.

 

 

Proposals relating to Stamp Duty

The Minister’s main proposals relating to stamp duty are:

 

Stabilisation Fund Transfer

The Minister is proposing a transfer of £25 million from the Consolidated Fund to the Stabilisation Fund in 2008 as a provision against downturns in the economy.

 

Consolidated Fund

The balance on the Consolidated Fund is estimated to be £111 million at the end of 2008, after allowing for the proposed transfer to the Stabilisation Fund.

 

The balance in future years is forecast to increase largely as a result of the timely introduction of a Goods and Services Tax ahead of the move to the 0/10% corporate tax structure.

 

3. FINANCIAL FRAMEWORK

 

In accordance with the Public Finances (Jersey) Law 2005, the draft Budget Statement proposes the tax and borrowing proposals for 2008 with all the States expenditure allocations having been agreed in the Annual Business Plan debate in September.

 

The Annual Business Plan, approved earlier this year, outlined the financial framework for the next five years which showed that forecast budgets were broadly balanced over the five-year planning cycle and, with the current balances on the Consolidated Fund, the States’ ‘current account’, the financial position was sustainable until 2013.

 

The five-year forecasts contained in Table 4.1 of this document show that the States policies are working well and the plans for economic growth are delivering the required increase in tax revenues. The income tax revenues show a significant improvement in all the forecast years since those produced in June for the Annual Business Plan.

 

The latest forecasts show that the financial framework consisting of the measures and policies within the approved Fiscal Strategy can deliver the objective of balanced budgets and a sustainable financial position, provided that the remaining measures are implemented on time; including the Income Support Scheme, GST and the remaining 0/10% provisions. Furthermore those underlying policies which have served us well over the last few years; balanced budgets, improvements in efficiency and sustainable growth in priority areas of public spending must be adhered to in order to achieve our target of low inflation. Importantly, this also means that the current spending limits must be adhered to and all the forecasts are based on this assumption.

 

Over the next twelve months a review of States spending will be undertaken, as agreed in the recent Business Plan debate, and this will inform the annual business planning process for 2009. The review will have an objective of identifying further efficiency savings and service reductions beyond the £35 million per annum already delivered in recent years. The review will involve chief officers, a nominated group of Assistant Ministers, the Public Accounts Committee, the Comptroller and Auditor General and will be supported by resources from the Treasury and Chief Minister’s departments.

 

The recent Business Plan debate has also served to reinforce the importance of keeping Members informed and engaged as part of the process. As a result the process will continue to be developed and improved, recognising this point and particularly in relation to better coordination and communication with the Scrutiny function.

 

The final part of the financial framework is in terms of economic growth and there is an underlying assumption in our forecasts that real economic growth of 2% will continue beyond the lifetime of the current economic growth plan. This requires the States to continue to support and develop those policies and initiatives that will facilitate further productivity improvements and growth in the workforce (through increased participation of locals and/or inward migration).

 

As above average economic growth is achieved it must be locked away with the additional tax revenues and surpluses that arise transferred to the Stabilisation Fund or Strategic Reserve. The Stabilisation Fund in particular needs to be built up to its target as it forms a key part of a fiscal framework to contain inflation, improve economic stability and create the conditions for sustainable economic growth in the Island. The recent appointment of the Fiscal Policy Panel means we will have for the first time independent, economic expertise to advise on these policies and decisions.

 

There will also be continued improvements to our current reporting and monitoring processes. The identification and approval of a dedicated resource to deliver Generally Accepted Accounting Principles (GAAP) and Resource Accounting will enable many initiatives to be taken forward to improve the quality of reporting and therefore of the information in support of business decisions. This will gradually extend to the quarterly financial reporting and performance monitoring from departments to the Council of Ministers.

 

The GAAP project will also assist in the greater integration of strategic and business planning with resource allocation. This will be achieved in stages, gradually bringing financial allocations more in line with strategic and business objectives over a period of time.

 

In summary, the current financial position is very healthy and this has only been achieved by having a clear financial framework and sticking rigorously to the measures approved in the Fiscal Strategy. The longer term forecasts still show potential structural deficits, although these are now reduced and there is also uncertainty around the effect of the current ‘credit crunch’ and the scale of the 0/10% deficit. The States can be confident that it can continue to prosper through this period if it holds to the policies that have served it well thus far.

 

The States must not become complacent and must remain committed to its financial framework providing sustainable public services through tight controls on States spending, improved public sector efficiency leading to balanced budgets and contributing to low inflation. In addition the new fiscal framework will provide a wider economic assessment to inform measures to contribute to containing inflation and improving economic stability. Finally, it is essential that the remaining fiscal measures approved in the Fiscal Strategy are implemented in accordance with the current timetable.

4. FINANCIAL FORECAST 2006 - 2012

 

 

Background

The financial forecasts are typically prepared three times a year and in 2007 have been revised at appropriate points to inform the preparation of the Annual Business Plan 2008 and this Budget Statement.

 

Budget Statement 2008

The forecasts in the 2007 Budget, as amended, showed a deficit of £3 million in 2007 with surpluses in 2008 and 2009. The latest forecasts show a significant change from those figures as a result of:

 

Summary

The overall effect of the changes since the 2007 Budget is a significantly improved financial position in each of the years from 2007 through to 2012. The increases in revenues, largely resulting from economic growth, have more than funded the increases in expenditure approved in the recent business plan debate. The increase in tax revenues forecast for 2007 is expected to be a robust base which will be maintained in future years. There is also confidence of continued growth in the short term, although this is partly offset by the recent ‘credit crunch’ problems affecting financial institutions and financial markets.

 

As a result of the increased tax revenues in the short term the deficits as a result of the move to a 0/10% corporate tax structure are likely to be increased and these have been reviewed. Despite these offsetting adjustments there is still a general improvement in the financial position with reduced deficits forecast in the longer term.

The forecasts beyond 2009 must be considered as indicative due to the assumptions made in respect of the significant fiscal changes and current uncertainty in financial markets.

 

The forecast financial position over the five-year planning period remains balanced and sustainable in accordance with the strategic objective and financial framework.

 

 

 

 

Table 4.1 Revised Financial Forecast (October 2007)

 

 

Notes:

There are a number of assumptions behind the Financial Forecast in Table 4.1. These are:

Income Tax

·       2007 tax revenues are based on the latest tax assessments for earnings and profits in 2006 and these show significant increases.

·       The 2008 revenues are based on specific assumptions about the increase in taxable profits, earned and unearned income for 2007. These forecasts are cautiously optimistic but do not and can not make specific adjustment for the recent ’credit crunch’ as figures are not yet available.

·       The forecast years, from 2009, include a general planning assumption of 2.5% increases in base income tax revenues ahead of the move to 0/10%. The effect of the new corporate tax structure is separately calculated.

·       The impact of the change to a corporate structure 0/10% has been reassessed upwards to a range of £89 million to £104 million between 2009 and 2013, and the mid-point of this range at £96 million is included in these forecasts.