Budget Statement 2015 (as adopted as amended)

ADDENDUM

AND

BUDGET STATEMENT 2015

As amended following the States debate of

22 24 September 2014

ADDENDUM AND BUDGET STATEMENT 2015

As amended following the States' debate

of 22–24 September 2014

Contents

ADDENDUM to DRAFT BUDGET 2015  1 BUDGET STATEMENT 2015 (as amended)  9 PROPOSITION  11 2015 BUDGET REFERENCES  15

PART A – INTRODUCTION  19

1. Foreword  21

PART B – TAX AND DUTY PROPOSALS FOR 2015  29

2. Income Tax Proposals  31
3. Goods and Services Tax Proposals  39
4. Impôts Duty Proposals  40
5. Stamp Duty and Land Transaction Tax Proposals (as amended)  46
6. Ongoing and Future Reviews  49
7. Financial and Manpower Implications (as amended)  51

PART C – PROGRAMME OF CAPITAL PROJECTS  53

8. Capital Programme 2015 (as amended)  55

PART D – ALLOCATION OF GROWTH FOR 2015  65

9. Allocation of Growth for 2015  67

PART E – FINANCIAL FORECASTS  71

10. Financial Forecast (as amended)  73
11. Proposed Measures to Manage the Consolidated Fund (as amended)  75
12. The Indicative Economic Impact of the Financial Forecasts (as amended)  79

PART F – THE ECONOMIC CONTEXT 87

13. The Economic Context 89

PART G – SUMMARY TABLES 97 Summary Table A – States Income 2015 (as amended) 99 Summary Table B – Summary of Growth Allocations for 2014 and 2015 agreed

in the 2014 Budget (December 2013) 100 Summary Table C – Proposed Capital Programme for 2015 (funding sources as amended) 101 Summary Table D – Proposed Capital Programme for 2015 (as amended) 102 Summary Table E – Proposed Capital Allocation to States Trading Operations for 2015 103 Summary Table F – Consolidated Fund Forecast for 2015 (as amended) 104

PART H – APPENDICES 105 Appendix A – The Hospital Project – Current Position 107 Appendix B – The Liquid Waste Project – Current Position 114 Appendix C – The Rules of the Housing Development Fund 117 Appendix D – The Rules for the future operation of the Strategic Reserve Fund 134 Appendix E – The Rules for the operation of the Stabilisation Fund 140 Appendix F – Proposed Repayment of all Jersey New Waterworks Limited's 146

Fifth Preference Share Class of Capital

Appendix G Allocation of funding from the proposed shareholder returns (as amended) 149

Index of Figures

1. Exemption thresholds for 2014 and 2015 32
2. Income tax allowances 33
3. Impact on sample households 33
4. Income tax thresholds 34
5. Comparison of tax payable 34

1. Duty increases proposed for 2015 42
2. Proposed rates of Vehicle Emissions Duty based on CO² mass emission figure 42
3. Proposed rates of Vehicle Emissions Duty based on cylinder capacity of engine 43
4. 2014 Retail price margins – comparisons with the UK (March 2014) 43
5. A comparison of typical 2014 tax and duty levels for a range of commodities 44
6. Summary of duty revenues 45
7. Explaining the net variation to forecasts 45

1. Current and proposed stamp duty rates/LTT on residential property costing more than

£1 million 47

2. Illustration of the impact of the proposed increases in Stamp Duty/LTT on a range

of residential properties 47

3. Number of residential properties costing more than £1 million sold in Jersey between

1 July 2011 and 30 June 2014 48 7.1 Estimated financial implications of the 2015 budget proposals (as amended) 51

1. Capital Programme for 2015 (as amended) 56
2. Replacement Assets 61
3. Proposed Capital Programme for 2015 – Funding Sources (as amended) 62
4. States Trading Operations 63

9.1 Central Growth Allocation agreed for 2014 and 2015 67

10.1 Financial Forecast 20132015 (as amended) 74

11.1 Proposed measures to balance the consolidated fund (as amended) 75

1. Revised Financial Forecasts (as amended) 79
2. Projected "current" financial position (as amended) 80
3. Profile forecast for Capital expenditure projects to 2015 81
4. Timing adjustments to the projected financial surplus (as amended) 81
5. Overall States of Jersey Financial Position (as amended) 82
6. Estimate of Public Sector Pension Schemes on the local economy 83
7. Overall States of Jersey Financial Position (as amended) 84
8. Detailed Economic Impact – 20112017 (as amended) 85
9. Capital Expenditure Profiles 2014 – 2020 using cash flows and future

profile assumptions (June 2014) 86

1. Growth trends in the key economies 89
2. Latest trends in economic activity 91
3. Actively seeking work 92
4. House price index 92
5. Capital expenditure 94

Addendum and Budget Statement 2015

Addendum to Draft Budget 2015

Addendum to the 2015 Draft Budget

At the conclusion of the States debate of the 2015 Draft Budget on 24 September 2014 the States had approved four amendments to the original proposition from the Minister for Treasury and Resources.

The effect of these amendments and the revisions to the proposed measures to manage the balance on the Consolidated Fund are summarised below and have been reflected in the Budget Statement 2015 (as amended).

Amendments Agreed

Second Amendment (as proposed by Deputy Young and amended by the Minister for Treasury and Resources) - First time buyer stamp duty relief

The effect of the 2nd Amendment (as amended) is to reduce the estimate of income from taxation during 2015 by £115,000 by providing further relief to first>time buyers' on stamp duty on property transactions up to £450,000 from 1st January 2015.

Fourth Amendment (as proposed by the Minister for Treasury and Resources)

Part i) of the amendment relates to the re>phasing of the Capital Project for the JDE Financial System from 2015 to 2016 and as such reducing the total capital expenditure allocation from £76,382,000 to £75, 144,000 for 2015.

Part ii) of the amendment increases the proposed transfer from the DHLF to the Consolidated Fund in 2014 in paragraph (i) of the amended proposition from £2,000,000 to £6,500,000.

Both these items are part of the revised package of proposed measures to manage the balance on the Consolidated Fund.

Fifth Amendment (new paragraph (c) - as proposed by the Minister for Treasury and Resources)

This amendment proposed a transfer from the Jersey Car Parking Trading Fund in 2014 of £2.635 million to be applied to fundJ the Green Street Car Park project in 2014 (£1.5 million), sustainable transport initiatives which are part of the Infrastructure Rolling Vote (£0.5 million) and the Road Safety Improvements project (£635,000) in the proposed Capital Programme for 2015.

Sixth Amendment (as proposed by the Minister for Treasury and Resources)

This amendment proposed that the extension of the higher rates of stamp duty over £1 million should only apply to residential property and that proposals for non>domestic property over £1 million is deferred, pending the drafting of a fuller set of amendments on stamp duty for commercial property, to be laid before the States for consideration in the New Year. The effect of this amendment is to reduce the additional revenue generated during 2015 from £857,000 to £607,000.

Revisions to measures proposed to manage the balance on the Consolidated Fund

The net effect of the proposed revisions to the measures to manage the balance on the Consolidated Fund would be an overall improvement of F2-821 million, which represents the projected balance at 31 December 2015 if all income and expenditure levels are as forecasted.

This is illustrated in Table 1 and also reflected in the revised Summary Table Fin the main Budget 2015 report.

Table 1  – Summary  of  the  changes  to  the  measures  proposed  to  manage  the

balance on the Consolidated Fund

Reductions and timing changes to the Proposed Measures

A number of reductions and timing changes to the measures initially set out in the draft Budget 2015 are required: Reduce Proposed Jersey Post Extraordinary Dividend

Jersey Post was originally asked for an extraordinary dividend of £5 million in 2014. After consideration, the Jersey Post Board of Directors indicated that they would only be able to approve the payment of a special dividend of £2 million in 2014.

Timing Change to Proposed Jersey Telecom Payment of deferred Gigabit Dividend

Jersey Telecom was originally asked for an increased dividend of £3 million in 2014 and 2015. Following further discussions with Jersey Telecom the proposal has now been revised to receive £3 million additional dividends in 2015 and 2016.

Reduced Funds available in the Criminal Offences Confiscation Fund (CCF"

Since the draft Budget 2015, further bids to the COCF from departments have reduced the available balance by £1.1 million from £6.4 million to £5.3 million. Importantly, this still leaves a balance of £2 million as a contingency against any exceptional court and case costs.

It should also be noted that the Proceeds of Crime and Terrorism (Miscellaneous Provisions) (Jersey) Law 2014, which came into effect on 4th August 2014, repealed the Drug Trafficking Offences (Jersey) Law 1988 and prescribed that any monies remaining in the DTCF should be transferred to the COCF.

The transfer of the balance on the Drug Trafficking Confiscation Fund 7DTCF) to the COCF will mean that there will be no available transfer from the DTCF in 2015. However, this will be compensated by an additional transfer being available from the COCF of £1.1 million and the overall effect will be neutral.

Reduce forecast for Dividends and Returns in 2015

The 2015 schedule of Dividends and Returns is reduced by £2 million to reflect the review of the current position. Remove further rephasing of capital, increased shareholder contributions and savings

The draft Budget 2015 included a balancing figure with no specific measures developed in the original proposals. Specific compensating measures have now been identified and are described in the following section, however work will continue to identify further measures should they be required in 2014 or 2015.

Compensating measures required to manage the balance on the Consolidated Fund Re(phasing of Unspent Capital Approvals

Further work has been carried out to review with departments when capital allocations will actually be spent. Capital funding for the JDE Development and Upgrade project has been identified as not now required until 2016 (originally deferred from 2014 to 2015). The T&R Minister lodged P129/2014 Amd (4) which was agreed by the States to request approval to reduce the 2015 Capital Programme accordingly.

Special Funds and other Fund balances

Part (h) of the Draft 2015 Budget recommended the States to approve a transfer of up to £2,000,000 of the Dwelling Houses Loan Fund (DHLF) to the Consolidated Fund.

The Treasury and Resources Minister lodged an amendment which was agreed by the States, P129/2014 Amd.(4), to increase this amount by a further £4,500,000 revising the transfer amount to £6,500,000. This represents unallocated balances which are not required and can be used to assist in the funding of future planned capital and infrastructure long term projects.

The rationale for the increase is that after a review of the Fund's balance sheet it was identified that all available surplus cash balances and investment balances could be released.

Increased transfer from Jersey Car Parking (JCP"Trading Account to fund Transport initiatives

The Treasury and Resources Minister lodged an amendment P129/2014 Amd.(5), which was agreed by the States, to transfer £2,635,000 from the Jersey Car Parking Trading Fund to the Consolidated Fund in 2014. This will be used to fund £1.5 million towards the Green Street Car Park project in 2014, £500,000 for sustainable transport initiatives within the Infrastructure Rolling Vote, plus the £635,000 capital allocation to the Road Safety Improvements project in 2015. In 2010 a budget amendment was passed by the States to fund the Eastern Cycle Track from the JCP Trading Fund, recognising that using reserves from JCP for sustainable transport initiatives was justifiable. This proposal recognises that States decision and makes further use of available reserves in the Trading Fund to maintain capital expenditure plans and stimulate the economy in accordance with FPP advice.

Further return and re(phasing of unspent capital balances

The review of unspent capital approvals identified a number of capital votes where funding was either not required or will not be spent until future years. A £1,000,000 allocation can be returned from the Liquid Waste Strategy capital budget and there is an available balance on the Planning Vote of £700,000 which can now be released following the completion of the associated projects.

Utilisation of unspent balances on Restructuring Provision 2015

A review of the Restructuring Provision identified that after taking account of all approved projects, the unallocated balance on the Restructuring Provision at the end of 2015 would be £2.7 million. This assumes that the MTFP allocation of £7.17 million is maintained in 2015 and the full carry forward of unspent balances from 2014 is permitted.

The available balance of £2.7 million maintains all approved bids to date including £7.2 million for e>Government and £1.9 million for Public Sector Reform approved by CoM in June for Workforce Management, Leadership Training, Lean, Engagement and Project Management Office.

Reduce Contingency allocation for 2015 Pay Award by 1%

During discussions with the Corporate Management Board the view was that the provision in Central Contingencies for a 2015 pay provision should be reduced by 1%, from 2.5% to 1.5%, and this approach has also been acknowledged by the States' Employment Board (SEB).

Other changes

A further change was requested by the Corporate Management Board (CMB) in relation to the allocation of the 2% department savings for 2015 in the original proposals. This proposed change is neutral to the financial position and reflects a more appropriate allocation of the proposed £12 million savings.

Departmental contributions towards the forecasted reduced income levels

During discussion of the proposed savings from all departments of 2% base budgets in 2015 at the CMB, Chief Officers expressed a preference to be given a total quantum of savings to meet in 2015, rather than for the savings to be prescribed as staff or non>staff. It is important that these savings should be considered as recurring but it is accepted that in 2015 one>off measures may be required to fulfil any temporary shortfall in recurring savings.

CMB also requested that internal recharges should be excluded as levying savings on these transactions does not provide a real saving to the States and in fact penalises those Departments with large numbers of recharges. The allocation has therefore been adjusted to reflect this position.

Summary

Following the approved amendments and as a result of revisions to the proposed measures the projected closing balance on the Consolidated Fund in 2015 is £2,+21,000.

Budget Statement 2015

As amended following the States' debate of 22–24 September 2014

Proposition

%#oposition (as amended)

Budget Statement 2015

The States decided:

1. to app#ove, in acco#dance with the p#ovisions of A#ticle 1071)(a) of the %ublic *inances (Jersey) 6aw 2005, the estimate of income f#om taxation during 2015 of F)15,137,000 as set o4t in summary Table A of the Budget Statement, with the sum to be raised through existing taxation measu#es and the proposed changes to (ncome Tax, Goods and Services Tax, Imp3ts D4ty and Stamp D4ty fo# 2015 as set o4t in the Budget Statement.
2. toapprove,inaccordancewiththeprovisionsofArticle 10(3)(d)ofthePublicFinances(Jersey)Law2005, a capital head of expenditure for each of the capital projects for States funded bodiesto be started or continued in 2015 (other than States trading operations) as set out in the recommended programme of capital projects in Summary Table D (with the removal of the item "JDE Development and Upgrade £1,238,000") totaling £75,144,000, noting that the Minister for Treasury and Resources, in accordance withthe investment strategy for the Currency Fund set out in the "States Investment Strategies" (made under  Part 2  of  the  Public  Finances  (Transitional  Provisions)  (No. 2)  (Jersey)  Regulations  2005  and presented to the States on 11th November 2013), will make an investment of £25,494,000 from the Currency Fund to fund Phase 1 of the £75 million project to construct the new sewage treatment works, withsuch sum being repayable by the Transport and Technical Services Department over a period of 40 years, applying a formula of investment return determined by the Minister for Treasury and Resources after taking advice from the States investment managers;
3. to approve, in accordance withthe provisions of Regulation 22(1)(c) of the Public Finances (Transitional Provisions) (No. 2) (Jersey) Regulations 2005 the transfer in 2014 of £2,635,000 from the Car Parks Trading Fund  to  the  consolidated  fund, with  £635,000  of this  sum  being  used  to  fund  the  "Road  Safety Improvements" 2015 capital project of the Transport and Technical Services Department, £500,000 being used to fund part of the Department's "Infrastructure rolling vote" in 2015 for sustainable transport initiatives and £1,500,000 being used to offset the cost of the existing Green Street Car Park capital project.
4. to refer to their Act dated 3rd June 2014 in which they approved the Waste Water Strategy (P.39/2014) and to agree, in principle, that a total capital allocation of £75 million for funding the proposed new sewage treatment works should be made, and to request the Council of Ministers and the Minister for Treasury  and  Resources  to  take  the  necessary  steps  to  bring  forward  for  approvalfurther capital allocations  up  to  this  maximum  of  £75 million  in  future  Medium  Term  Financial  Plans  and  Budget Statements respectively;
5. to approve, in accordance withthe provisions of Article 10(3)(e) of the Public Finances (Jersey) Law 2005, each of the capital projects that are scheduled to start during 2015 in the recommended programme of capital for each States trading operation, as set out in Summary Table E that require funds to be drawn from the trading funds in 2015;
6. to refer to their Act dated 5th December 2013 in which they approved the Draft Budget Statement 2013 and agreed, inter alia, that the Strategic Reserve Fund could be used for the planning and creation of new hospital services in the Island, and to approve the transfer of a further sum of £22.7 million from the Strategic  Reserve  Fund  to  the  Consolidated  Fund  in  2015  so  as  to  provide  for  these  purposes,  in accordance with the provisions of Article 4(3) and 10(3)(f) of the Public Finances (Jersey) Law 2005;

7. to refer to their Act dated 5th December 2013 in which they approved the Draft Budget Statement 2014 (P.122/2014) and, inter alia, agreed to vary the purpose of the Housing Development Fund in accordance with Article 3(3)(b) of the Public Finances (Jersey) Law 2005 to include the lending of monies to enable the further provision and development of housing in Jersey;

and to approve, in accordance with Article 3(3)(b), the revised rules for the operation of the Housing Development Fund as set out in Appendix C of the Budget Statement, with these rules giving further instruction and guidance on the use of funds and the purpose and the operation of the Fund;

8. to refer to their Act dated 5th December 2013 in which they approved the Draft Budget Statement 2014 and,  in  accordance  with the  provisions  of  Article 10(12)  of  the  Public  Finances  (Jersey)  Law  2005,  to approve the following additional transfers in 2014 of
   1. up to £6,120,000 from the Housing Development Fund to the Consolidated Fund in accordance with the provisions of Article 10(3)(f) of the Public Finances (Jersey) Law 2005;
   2. up to £1,058,000 from the Stabilisation Fund to the Consolidated Fund in accordance with the provisions of Article 4A(2) of the Public Finances (Jersey) Law 2005;

9. to approve the transfer of up to £6,500,000 from the Dwelling Houses Loan Fund to the Consolidated Fund in accordance with the provisions of Article 2(1) of the Building Loans (Jersey) Law 1950;
10. to note the future operation of the Strategic Reserve Fund ("The Fund"), as set out in Appendix D of the Budget Statement, and to agree that the Strategic Reserve balance of £651,216,000 as at 31st December 2012 shouldbedefinedasthe capital value of the Strategic Reserve and that, for future years, the capital value be maintained in real terms by increasing the capital value in line with increases in Jersey RPI(Y);
11. to refer to their Act dated 5th December 2006, in which they approved the establishment of a Stabilisation Fund and agreed that the purpose of the Fund was to make fiscal policy more countercyclical and create in the Island a more stable economic environment with low inflation, and to approve the rules for the future operation of the Stabilisation Fund as set out in Appendix E of the Budget Statement;
12. to request the Minister for Treasury and Resources to request for The Jersey New Waterworks Company Limited, a public company limited by shares, incorporated in 1882 and operating under the Companies (Jersey) Law 1991, to ask the shareholders of the company to pass a special resolution for the followingK

1. to alter its Memorandum of Association by special resolution, to reduce its share capital by removing the Fifth Preference Share, class of share capital;
2. to repay the States of Jersey, the sole shareholder of all the Fifth Preference Shares, a fair market value for the shares (estimated at £7.4 million) during 2015 (the shareholding representing 900,000 issued and fully paid 10% cumulative fifth preference shares of £5 with a par value of £4.5 million).

Minister for Treasury and Resources P129/2014

Addendum and Budget Statement 2015

2015 Budget References

References

Treasury and Resources Minister

A number of reference documents were presented to the States related to the debate of the draft Budget Statement 2015+

• Fiscal Policy Panel (FPP) Report
• Treasury and Resources Minister's Response to the FPP Report 2014  &130/2014
• Corporate Services Scrutiny Panel (CSSP) Report on the draft Budget 2015  SR12/2014
• Treasury  and  Resources  Minister's  Response  to  the  CSSP  Report  on  the  draft  Budget  2015 SR12(Res)/2014
• Property Tax review  publication of Green Paper with supporting independent advice >R101/2014
• Long>Term Tax Policy  R133/2014
• Updating Jersey's Fiscal Framework  R102/2014
• Long>Term Revenue Planning Review  Progress Report  R136/2014
• Property Rates and the States  &103/2014

In advance of the draft Budget 2015 the States also debated P148/2014 a Vote of No Confidence in the Treasury and Resources Minister  This was rejected-

Addendum and Budget Statement 2015

Introduction

1.Foreword

,ntroduction

The Budget for 2015 marks the final budget for this Ministerial term of office.

It is a b4dget which balan/es the need for /ontinued s4""ort to the e/onomy with maintaining o4r current system of taxation and sustaining a lower marginal rate of taxation.

Since the onset of the financial crisis, o4r island has faced many different ty"es of challenges, and budgets of the last three years have reflected them.

In 2011 we fa/ed an extremely diffic4lt budget, where Members were asked to take tough decisions to address the deficit, make savings and prote/t 9ersey's e/onomy.

The 2012 and 2013 b4dgets that followed were fo/4sed on stability and targeted investment.

Last year, in the 201! budget we were able to start giving back to islanders, as we began to see signs of re/o2ery, and Islanders will feel the financial benefit of o4r decision to lower the marginal rate in their pockets this year.

For 2015, we are "resenting a budget /ontaining a n4mber of "ro"osals allowing 4s to fund ca"ital ex"endit4re and keep the /onsolidated fund in balance.

The measures are not dramatic, but they will "rovide stability, enable f4rther recovery and "rotect o4r strong financial position.

Strategic Priorities and the MTFP

In addition to the budgets, we have made a fundamental change to the way we do things by introdu/ing the Island's first Medium Term *inancial %lan.

As well as delivering on an extensive agenda of service im"ro2ements and reform, it was designed to deliver growth in essential ser2i/es, balance re2en4e budgets in all three years and "rovide su""ort for the economy witho4t raising ta0es.

It "rovided a longer>term a""roach to budgeting to allow departments to "lan ahead for ser2ice develo"ment and im"ro2ements.

The a"" roval of the MTF%, which su"" orted o4r strategic ob?ecti2es, has deli2eredK>

• the in2estment of a f4rther F2) million ann4al funding in ;ealth and Social Servi/es
• the delivery of the CSR sa2ings amounting to F60 million.
• F161.4 million spend on capital projects over the /o4rse of the last three years.
• An additional F14 million for Social Se/4rity by 2015.

A key "riority for this Co4ncil of Ministers was the need to address rising unem"loyment. The F5 million to the (nnovation *4nd to boost business and create jobs through the NBack to :ork' "rogramme has seen unem"loyment, which had reached its highest e2er le2els, brought 4nder /ontrol.

The work has resulted in a sustained downward trend in the number of "eo"le registered as actively seeking work, despite /ontinuing 4ncertainty and the loss of a significant "ro"ortion of the f4lfilment ind4stry.

Economic recovery

Confidence in the global economy has been g#owing over the last twelve months and the UDIo4#most im"ortant economic pa#tner, is seeing a st#ong and broadly>based ret4rn to g#owth.

The UD, o4#most im"ortant economic "artner, is seeing a strong and broadly>based ret4rn to growth.

Concerns abo4t a "otential ho4sing bubble in the So4th East #emainI however, and this has informed the thinking behind some of the meas4res o4tlined in this b4dget.

/ersey's position

There is also renewed o"timism locally, b4t 9ersey economy also #emains under "ressu#e.

The headline indicato#of 9ersey's o4tp4t, GVAI last published in Se"tember 2011 showed that economic acti2ity fell in 2012 by !M in #eal terms.

Data published for the finance secto# for 2011I showed that gross o"erating su#"l4s declined by 5%. Howe2er, businesses #eported that expendit4re on em"loyment increased by 3%.

Most #ecently, the B4siness Tendency S4#2ey data has been enco4raging. The headline business activity indicator has continued to strengthen over the last 12 months for the finance secto#and has remained negative fo#non> finance. Nine of the ten indicators have im"#oved, with business o"timism and f4ture business activity showing the most significant im"#o2ement.

'4# public finances #emain strongI howe2er, continuing low interest rates and the conseq4ences of the financial crisis resulted in "ersonal taxation being unde#>achie2ed, as was repo#ted in the 2013 States of 9ersey accounts. While in 2013 this was offset by an im"#oved business tax "ositionI it wo4ld not be "#udent to #ely on that for 2014.

While confidence is returning to the economyI inte#est rates are ex"ected to increase at a moderate #ate next year which will start to alleviate some of the press4re on States income.

Notwithstanding the im"act that low interest #ates, the financial ser2ices contagion and lower economic growth have had on income, we have been dete#mined to deli2er ca"ital spending as a Aey way of su"" orting the economy.

Outstanding wo#Ahas been by the Treasury team and their colleag4es ac#oss the States over last three years and o4r st#ong "osition is evidence of that.

Specific &udget measures for '()*

The main "ro"osals in this Budget will ens4re that the States is continuing to spend more money in the local economy than it is taking o4t.

The net #even4e f#om the meas4res o4tlined is estimated at F597,000 in 2015 and F2.297 million from 2016I above that o4tlined in the Medium Te#m Financial Plan.

The main pro"osals which will ha2e an im"act on o4#financial forecasts are toK

O Maintain the Marginal Rate at 2)M fo#2015.

O (ncrease all tax exem"tion thresholds b51.7%.

O Red4ce the Stamp D4t5 on the cost of bo##owing 7Nil for the fi#st F100I000 then 0.25% on the

balance 4" to a maxim4m "ro"erty cost of F400,000).

O Easing the impact of the loss of first>time buyers' relief for those buying homes just above the

threshold for relief

O (ncrease the Stamp D4ty "ayable on "4rchasing residential "ro"ert5 costing F1m o#mo#e on an

increasing scale.

O Cap mortgage interest tax #elief at F15I000.

O Amend the double tax credit provisions in order that marginal rate taxpa5e#s can benefit.

O Set (m"3ts d4ty #ates.

Marginal rate

We have chosen in 2015 to maintain the marginal rate at 2)M >underscoring o4#commitment to middle income earners. The long te#m goal remains to red4ce the ma#ginal rate to 25%. The economy needs the stim4l4s that the lower marginal tax #ate provides, b5enco4raging those who are most likely to spend to do so.

Tax exemption thresholds

We "#o"ose toK

• Increase all income tax exem"tion thresholds by 1.7%. The MT*%ass4med an inc#ease of 3%. So this re"resents a saving of F2.1 million against "#evio4s plans.
• $ontinue to f#eePe tax allowances
• Amend o4r legislation so as to ens4re that taxpa5ers #et4#ning to the Island a#e treated as c4rrent 5ear tax pa5ers for ITIS.

"roperty tax 1 '()* measures and long term tax re.ie

This 5ear's Budget also contains a series of "#o"ert5>#elated tax measu#es. These measures ha2e the "otential to raise #even4e as well as bring us closer to a s5stem that is as sim"le and e@4itable as "ossible.

A wide>ranging Pro"ert5 Tax Re2iew $onsultation has been la4nched alongside this Budget and will be o"en to public responses until the end of 2014. It will "#ovide an o"en "rocess fo#islanders to have a hand in shaping the system that Treasu#y develo"s for Jerse5's futu#e.

Mortgage interest tax relief

We ha2e been awa#e for some time that we need to find wa5s to #emove distortions from the system that we cu#rently have fo#taxing "#o"erty.

A number of ex"ert #e2iews have confi#med this. %#ofesso# $hristine WhiteheadI in her Jerse5 ; o4sing Strategy "a"er, identified the need to investigate the 4se of "ro"ert5 tax as a #elativel5 sim"le and eq4itable so4rce of re2en4e.

The cu#rent administration of mortgage interest tax #elief does little to help those home>owners at the lower end of the income scale and it acti2ely worsens the situation for those who a#e trying to b4y d4e to its effect on ho4se "rices.

In the 2015 budget we ha2e sought flatten out that inequality with a "ro"osal to place a cap on mortgage interest tax relief set at F15I000  being 5% on F100I000, which above the standard variable rate andI e2en with a rise in interest rates, will #emain so-

This cap is a modest one  /#eating additional #e2enue in 2015 of F100,000 and will ha2e an im"act on only a small number of home>owners  250 out of a#ound +I500 homes.

Stamp duty 1 easing the impact for first-time buyers

Since 2011 first>time buye#s have benefitted f#om reduced rates on pro"e#ty "u#chased up to the 2alue of F!50I000. This measure was a tem"ora#y extension to the F!00I000 th#eshold. It has benefitted some 1!5 pu#/hasers and had an a""roximate /ost of F2+.I000 "er year.

We now "#o"ose to #e2ert to the F! 00I000 th#eshold for redu/ed rates for first>time buyers but to ease the impact for those first>time buyers purchasing properties just above the threshold for relief, between £400,000 and £450,000. It is estimated that this will provide an additional £115,000 of relief to these purchasers.

Stamp duty 1 reducing the burden for purchasers buying residential property worth up to 23((4(((5

This measure will help pu#/hasers of #esidential "#o"erty /osting no more than F! 00I000.

On the fi#st F100I000 of borrowing no duty will be payable and a redu/ed rate of 0.25% will a""ly to amounts abo2e that threshold but not ex/eeding a value of F400,000.

This remo2es the bu#den on borrowing and will su"" ort the lower end of the ma#ket where higher rates can be a disincentive to "u#/hasing "ro"erty.

This change will /ost F532I000 but I belie2e we a#e wholly justified in targeting help whe#e it is needed and creating a "oint abo2e which tax #elief is not a2ailable-

Stamp duty 1 increased rates for high .alue residential properties

This "#o"osal will increase the rates of stamp duty /ollected on higher value residential "ro"erties and will affect those acquiring "ro"e#ties with a value of more than £1 million-

The "ro"osal in/#eases the rates which already ap"ly and introduces a new rate for residential "#o"erties /osting more than F1 million-

The "ro"osed #evisions areK

• F22,000 "lus 4% on the difference between the /ost and £1 million on residential "ro"erties valued at F1m to F1-5 million-
• F!2,000 "lus 5% on the difference between the /ost and £1.5 million on residential "ro"e#ties valued at F1.5m to F2 million-
• F).I000 "lus 6% on the difference between the /ost and £2 million on residential "ro"erties valued at between £2 million and F1 million-
• F127I000 "lus 7% on the difference between the /ost and F1 million on residential "ro"erties /osting mo#e than F3 million- This #emains significantly less than the UK. *o# instance, on a residential "ro"e#ty 2alued at F! millionI the  duty payable will  be F1,.I000 /om"ared to F2+0I000 on the same value residential "#o"erty in the UK.

This measure increases the duty rates at the higher end where it is likely to have lesser im"act on the decision to purchase and, based on market mo2ements over the "ast three years, would generate around F607I000 in additional revenue.

Stamp duty 1 inherited property

Our last property ad?ustment amends the stamp duty law so as to ensure that where individuals and /harities are both heirs to immovable pro"erty, the individuals "ay a fair rate of duty on their share of the estate.

States paying parish rates

A &eport sits alongside this Budget and addresses the question as to whether the States should pay rates on all the properties it owns and occupies. The cost is estimated at £900,000 per annum of which £600,000 would be payable to the Parish of St Helier and £150,000 to the Parish of St Saviour. If a decision is reached by a future Assembly that the States should pay rates then it is possible that the Island Wide Rate could be increased for commercial tax payers.

Double tax credit

Much of the work that has been done in Treasury over the last few years has aimed to ad?ust our system to find the areas which need to be u"dated to reflect our so/iety and provide equity for all tax "ayers.

As such, our /urrent regulations need to be amended to ensure that those taxpayers assessed at the marginal rate who have taxable income in more than one jurisdiction are not unfairly penalised and are able to recei2e a fair le2el of relief. This measure will /ost F500I000.

Imp6ts

The "ro"osed increases in im"3ts duties from the beginning of 2015 areK

• S"irits 1.7% >an increase of 21.7p per litre
• Wines 1.7 % >an increase of 2.4p per 75cl bottle
• Strong beer 1.7% >an in/rease of 1p per pint
• Weak cider ).9% >an increase of 1.1p per pint
• Standard cider 6.,% >an increase of 2.2p "er "int
• Strong cider 8.7% >an in/rease of 4.6p "er "int
• Tobac/o 4.7% >an increase of 22.4p on 20 king size cigarettes
• *uel 2.2% >an increase of 1" per litre
• Vehicle emission duty bands > a 1.7% increase

The budget pro"osals on im"3ts will raise additional re2enue of ap"roximatelyK

• F110I000 on al/ohol
• F)87I000 on tobac/o
• F41,I000 on fuel, and
• F15,000 on vehi/le emissions duty

7oods and Ser.ices Tax

No /hange to the rate of GST is pro"osed in this budget but we have suggested an alignment of the time limit for the re"ayment of GST to bring it in line with the (n/ome Tax law.

This will have no im"act on financial fo#ecasts b4t will "rovide us with some certainty on futu#e #e2en4e.

'4# d4ty le2els #emain lower than those pre2ailing in the UK and GST is set at significantly lower level than BAT. The "ro"osals for income tax also include significant changes to the tax #4les a""lying to pensions and are 2ital if o4r r4les are to Aeep pace with societal changes and bring o4r system in line with other com"arable ?4#isdictions.

Pension measures

The "ension measures contained in this b4dget follow a long "4blic consultation "rocess. We have had many positi2e res"onses which ha2e #es4lted in plans toK

• sim"lify the tax rules;
• modernise the rules, partic4la#ly by int#oducing flexible reti#ement fo#occu"ational "ension schemes;
• "rovide greater consistency between the treatment of occu"ational "ension schemes and "e#sonal "ension schemes and;
• give more access to the tax free l4mp s4ms.

These changes give greater flexibility to "ension savers and give Islanders g#eater confidence in their f4ture "ension provision.

As yo4 wo4ld ex"ectI Treas4ry will be monitoring this "osition caref4lly for the #emainder of the year. #apital programme

In additionI this Budget contains the measures we will take to balance the Consolidated *4nd while maintaining ca"ital spending in acco#dance with the Fiscal %olicy %anel's advice.

Confidence is #et4#ning to the local economy, but will continue to need o4# su"" ort. The ca"ital "rogramme o4tlined in the Budget 2015 re"ort will continue to provide that stim4l4s.

The "roposed total allocation fo#2015, following #e2iew and #eprioritisationI is F. 5.144 million. This includes:

• The States of Jersey pay#oll software re"lacement
• The second "hases of additional "rimary school accommodationI and
• The infrastr4cture for the s"orts strategy
• The second phases of the f4ture hospital "#oject and the Li@4id Waste Strategy have also been accommodated.

Funds

In the Treasu#y res"onse to the *iscal %olicy Panel's last re"ort on Budget 2014, the Minister "#o"osed to set o4t in Budget 2015K

1. A strengthened definition of capital within the Strategic Rese#2e;
2. Confi#mation of the #ole of the Stabilisation *und and howit sho4ld be replenished;
3. The ar#angements for the #epayment of the ;o4sing Bond through the ;o4sing De2elo"ment Fund 7;DF).

Housing De.elopment Fund

Members will #ecall that in early June we iss4ed a bond for £250 million at a co4"on of 1.. 5Mand for a te#m of 40 years.

The re/ei"t from the bond iss4ance has been placed in the ;o4sing Develo"ment F4nd-

( undertook to bring to the States the r4les for the o"eration of the ;o4sing De2elo"ment F4nd and these are set o4t in Appendix C of this re"ort.

These r4les allow monies to be lent to ho4sing tr4sts, associations or bodies with the same "4r"ose and registered in 9ersey in order that they can provide more and better ho4sing for (slanders.

Strategic Reserve

The r4les for the f4ture of the Strategi/ &eserve F4nd have also been set o4t here, deli2ering on the /ommitment we made to make clear the definition of the ca"ital val4e of the fund and how it sho4ld be managed.

( am "ro"osing that the Strategic Reserve balance of ?4st over F)51 million as at 31 December 2012 be defined as its ca"ital val4e.

In future 5ears that ca"ital val4e sho4ld be maintained in real terms using Jersey's RPI 7=8for the inflation factor. Stabilisation Fund

In my res"onse to the Fis/al Poli/5 Panel re"ort on the Budget 2014, which was laid before the States in 9anuary 2014, I made a /ommitment to set o4t clearly the rules for the Stabilisation Fund-

These rules are set o4t in A""endix E of the Budget 2015 report. Conclusion

In closing, I wo4ld like to draw a com"arison between the relatively strong "osition that we find o4rsel2es in, here in the s4mmer of 2014, and the challenges we fa/ed when this Council of Ministers took office in late 2011.

( am extremel5 "ro4d of the work which has been done o2er the last three years and the work that is ongoing to modernise and im"ro2e o4r tax and financial planning s5stems.

The "rinci"les that guided "re2io4s budgets ha2e "ro2ed their worth and the "rinci"le of balan/e which underpins this b4dget will now "rovide a solid foundation for the next States Assembly to b4ild 4"on-

We ha2e been bold and innovative in o4r "lanning for f4ture investment and made decisions which s4""ort Islanders and en/o4rage new economic growth-

These last three years ha2e been "roductive ones and we have demonstrated that we are able to deli2er real results against the targets set by the Council of Ministers at the o4tset of their term of office.

We have "4t mone5 ba/k into the e/onomy, we have su""orted low and middle in/ome tax "ayers, we have hel"ed "eo"le back into em"lo5ment and we have "rovided the means for im"ro2ements in 9ersey's ho4sing and healthcare.

This Budget for 2015 will "rovide the means to maintain and de2elo" this "osition of strength and deliver a "rospero4s and balanced e/onom5-

Addendum and Budget Statement 2015

Tax and Duty Proposals for 2015

2.In/ome Tax %#oposals

Ba/kground

The Minister fo# T#easury and Resou#ces /onsiders annual Budget measures so as to ensure the States #evenues are sufficient to meet spending proposals. The spending proposals were set out for three years from 2013 to 2015 in the MTFP adopted in 2012.

Exemptions and Allowan/es

(n/ome tax exemption th#esholds

The in/ome tax exemption thresholds are the amo4nt below which taxpayers do not ha2e a liability to in/ome tax.

The practice in #ecent 5ears has been to increase the exemption th#esholds b5 refe#ence to the lowe# of the &%(fig4re and the annual increase in earnings. In Budget 2012 howe2e#I exemption th#esholds were increased by a higher amount to provide greater benefit to lower in/ome taxpayers. In 2013 the exemption th#esholds we#e in/#eased b5 3% in line with the in/#ease in inflation fo#the year to June 2012. This was the higher of the two fig4resI as the in/#ease in a2erage earnings in the period to June 2012 was 1.5%. In 201! the thresholds were increased b5 the June 2013 &%(fig4re of 1.5% but in /on?unction with a decrease of 1% in the marginal rate. It is p#oposed that for 2015 the exemption thresholds a#e increased by 1.7% (the Ma#ch 2014 &PI fig4re).

The rate of inflation facto#ed into the MT*%for 2015 is 3.0% and it was ass4med that exemption thresholds wo4ld in/#ease at the same rateI therefore a 1.. % in/#ease in the tax exemption thresholds will generate a net saving against the MTFP of F2.1m. The exemption thresholds are rounded to the nearest F100 after the inc#ease has been applied for simplicity.

The people affected will include all marginal rate taxpayers and a small number of standard rate taxpayers who become ma#ginal rate taxpayers as a /onseq4en/e of the increase in the exemption thresholds.

The /ost of in/#easing the exemption thresholds by 1.. % will be app#oximately £2.9m. FIGURE 2.1 EXEMPTION THRESHOLD FOR 2014 AND 2015

!$14 2015

Single%e#son F14,000 F14,200 Single%e#son (aged ) 5+) £15I600 F15,900 Ma##ied $ouple/Civil Partne#ship £22I400 F22,800

Ma##ied $ouple /Civil Partne#ship (aged ) 5+) £25,700 F26,100

Freezing Income tax allowances

The  Minister  p#oposes  that  the  in/ome  tax  allowances  are  unchanged  for  the  2015  year  of assessment. Details of the allowan/es a#e set o4t in *igure 2.2 below.

FIGURE 2.2INCOMETAX ALLOWANCES

2014 2015 $hildR £3,000 £3,000 $hild in highe#ed4cationR £6,000 £6,000 SingleParent* £4,500 £4,500 :ife/Civil Partne# GB" Earned (n/ome Allowan/eRR £4,500 £4,500 $hildcare ta0 #eliefRR £6,150 (ma08 £6,150 (ma08 Enhan/ed /hildcare ta0 #elief 7"#e>s/hool /hild#en8RR £12,000 (ma08 £12,000 (ma08 Enhan/ed /hild allowance 7highe#education8RR £3,000 £3,000

*These allowances benefit standard rate and marginal rate tax"a5ers

**These allowan/es s"ecifically benefit marginal rate tax"ayers by enhancing e0em"tion th#esholds

The basic $hild Allowance fig4res of F1I000 and F)I000 ha2e #emained unchanged since 2008. The enhanced $hild Allowance (higher ed4cation8rate was introduced in Budget 2014. The Single Parent allowan/e and the Wife's Earned (n/ome Allowance have not changed since 1,99. $hildca#e tax relief has #emained unchanged since 2003. The enhanced childcare tax #elief in #espect of "#e>school children has remained un/hanged since it was introd4ced in Budget 2012.

Figure !'( illustrates the impact of these proposals on sample households.

FIGURE 2.3IMPACT ON SAMPLEHOUSEHOLDS

)ncome 2014 liability 2015 liability Saving SingleI no /hild#en £20,500 £1,690 £1,638 £52

Ma##iedI 2 /hild#enI wife not working £36,000 F1,,.) £1,872 £104 Ma##iedI 2 /hild#en (1 /hild at uni2e#sity), wife £40,000 £286 £182 £104

working

Ma##iedI 2 /hild#enI £240k mortgage (at 5% inte#est), £62,000 F!I!!) £4,342 £104 wife wo#king

Ma##iedI 2 /hild#en (1 /hild at uni2e#sity), wife £70,000 £8,086 £7,982 £104 working

Ma##iedI 2 /hild#en (1 /hild at uni2e#sity), wife £140,500 £26,300 F26,300 N(6 working

Ma##iedpensione# £26,000 £78 Fnil £78

Tax facts

The following tax facts "#ovide an ill4stration of the existing "ersonal tax struct4re, and also "#ovide relati2e com"arisons against other j4risdictions.

The tax threshold (i.e. the "oint abo2e which an individ4al starts to pay income tax) is dete#mined by the tax"ayer's "ersonal ci#cumstances. *o# exam"le, a mar#ied co4"le, who are both working and have two child#en 7one at university), "aying mo#tgage interest of F.,50 0, do not become liable to income tax in 201! until their income exceeds F!),!00. For 2015 this wo4ld increase to F!),+00 under the c4##ent pro"osals. Figure 2.4 refers.

FIGURE 2.4INCOMETAX THRESHOLDS

2014 2015 Married $ouple Exem"tion £22,400 F22,800 :ife's Earned (ncome (max) £4,500 F4,500 $hild Allowance £3,000 F3,000 $hild Allowance 7higher) £6,000 F6,000 $hild in highe#ed4cation enhanced exem"tion £3,000 F3,000 Mortgage(nte#est £7,500 F7,500 Total £46,400 *46,-$$

Tax $om"arisons

The  income  tax  thresholds  in  9ersey mean that  many  #esidents  "ay  less tax  than  in  most neighbo4ring territories. Figure 2.5 refe#s.

FIGURE 2.5 COMPARISIONS OF TAX PAYABLE

The income tax "ayable by a married co4"le in 201! with a joint income of F!1,000, witho4t children or a mortgage, is as followsK

9e#sey £3,666 (sle of Man F2,300 Gue#nsey F4,330

UK 2014/15 7based on one pe#son having an income of £40k) F6,000 UK 2014/15 7based on each person having an income of £20k) F2,000 each

The in/ome tax "ayable b5 married "ensioners in 2014 (aged )5Q8with an in/ome of F2)A witho4t a mortgage, is as followsK

9erse5(wife not working8(aged ) 5Q8 F.+ (sle of Man (aged ) 5Q8 £600

Guernse5(aged 64Q8 £620 UK 2014/15 7based on one person having an income of £26k) (age )5 74) F1,100

  UK 2014/15 7based on each person having an income of £13k) (age )5 74) £500 each

Additional Income Tax %#oposals for 2015

The Minister proposes the following amendments to the (ncome Tax (9erse586aw 19) 1 (Gthe (ncome Tax 6awH8-

Amendments to tax rules applying to pensions and pension schemes

Alongside the Budget 201! a consultation document was iss4ed rega#ding proposed changes to the tax #4les relating to pensions and pension schemes. The changes o4tlined in the consultation document sought to achie2e the following aimsK

• simplification of the tax #4les;
• modernisation of the tax #4les  includingI in partic4la#I the introduction of flexible retirement in the context of occupational pension schemes; and
• achie2ing greater consistency between the tax #4les applying to occupational pension schemes and personal pension schemes, and between the tax #4les applying to different forms of personal pension schemes, such that the tax incenti2es to transfer funds between pension schemes a#e minimised-

The ove#whelming ma?orit5 of #espondents to the consultation were supporti2e of the general aims of modernisation and simplificationI but the5 also challenged the initial proposals and identified different options. ; aving re2iewed the consultation responses, a &epo#t was presented to the States on 22 Ma5 2014 which summarised the consultation #esponses and o4tlined the changes that wo4ld be made to the initial proposals. The Aey changes to the initial p#oposals are:

• allowing pension schemes greater flexibility over the payment of tax>free l4mp s4ms;
• allowing individ4als to access the flexibility of appro2ed drawdown contracts ir#espective of whether they ha2e al#ead5taken a tax>f#ee l4mp s4m from their pension scheme; and
• #emo2al of the proposed caps on tax>free l4mp sum payments-

This Budget contains the amendments to the (ncome Tax 6aw necessary to int#oduce the new tax #4les. If agreed b5 the States these new tax #4les will create a modern, flexible set of #4les for pensions and pension schemes, which ha2e been completely rewritten in a coherent and straightfo#ward manner. If ag#eed these tax rules will come into effect on 1 Jan4ary 2015.

Importation and supply of Hydrocarbon 0il – further amendment

The (ncome Tax Law was amended in Budget 201! to ens4re that there was a le2el playing field between companies that impo#t and supply h5d#ocarbon oil and those companies that supply h5drocarbon oil but do not impo#t it. Whilst the amendment achieved this aim in respect of all existing impo#ters and s4ppliers of h5d#ocarbon oil, the#e #emains a potential scenario where a company that does not import and does not supply to foreco4rtsI co4ld #eo#ganise its affairs so as to pay tax at 0% on p#ofits generated f#om the supply of h5drocarbon oil- This amendment will ens4re this is not possible.

The )ncome Ta. )nstalment System – amendment to ensure returning previous year basis ta.payers are put on a current year basis on their return to the )sland

$4rrently where a taxpayer who pays hisEher tax by way of the in/ome tax instalment system 7GITISH) on a "#evio4s year basis 7G%=BH8lea2es the (sland for an extended "eriod of time and then returns to the IslandI he/she will /ontinue to "ay tax by way of PYB (TIS. This /om"ares to the tax"ayer who ar#ives in the Island for the ve#y fi#st time and is a4tomatically #eq4ired to "ay his/her tax by way of ITIS on a /4#rent year basis 7G$=BH).

It is "ro"osed that the (n/ome Tax 6aw is amended such that the returning tax"aye#I "#ovided heEshe has been non>ta0 #esident in the Island fo# at least one year, "ays their tax by way of $=B ITIS. This results in a cash flow benefit for the Treas4ry, as the returning taxpayer sta#ts "aying his/her tax liability sooner.

1ouble Tax Credit – extends entitlement to claim double tax credits to marginal rate ta.payers

Where a double taxation agreement is in fo#/eI standard rate taxpaye#s are entitled to #eceive double tax /#edit relief /onsistent with that ag#eement, however marginal rate tax"ayers are not entitled to such relief. It is acknowledged that, as a result of changes in the "ersonal in/ome tax system, the ma?ority of "ersonal in/ome taxpaye#s are now ma#ginal rate tax"ayers. To /ontin4e to deny the ma?ority of "e#sonal in/ome taxpayers double tax /#edit relief is ina"" ro"riate. It is therefore "ro"osed that entitlement to double ta0 credit relief is e0tended to marginal rate tax"ayers f#om the 2015 year of assessment.

Cap Mortgage )nterest Tax Relief

As the e/onomic #e/o2ery begins to gain ground in other ?4risdictions, it is in/#easingly translating into rising ho4se "rices. This is /oncerning for a number of reasons, "rinci"ally because ho4sing bubbles were a key facto# of the financial crisis which has been "aralysing economies a#ound the world for a n4mber of yea#s.

Ra"id increases in ho4se "rices can also make it mo#e diffic4lt for "eo"le to be able to afford to buy homes, and enco4rage them to take on unsustainable le2els of debt to fund "4#/hases. This is "artic4la#ly true fo#fi#st>time buyers. The dangers "osed by higher ho4sehold debt at a time when interest rates are predicted to rise a#e well 4nderstood.

*inally, rising ho4se "rices /ontribute to inflation, which "4ts pressu#e on all se/tors of the e/onomy.

9ersey's ho4sing market has not suffered the same ill>effects as other ?4risdictions, although it has certainly been affe/ted by the global downturn.  Pri/es have #emained #elatively stable sin/e 200+. ;oweve#I there is a risk that as the Island's economy #e/oversI "ro"erty "rices will begin to rise swiftly, as has been the case in the so4th>east of England and Switzerland.

Two main factors affe/t the "rice of "ro"e#ties in 9e#sey. *irstly, the "#ovision of ho4sing stock; to address this, the States has taken ste"s to ens4#e g#eater and sustained su""ly through the "oli/ies a""roved in the Island %lan and the c#eation of Andi4m ;omes Limited.

The se/ond main facto# affecting "ro"erty "rices is the availability of debt. The more credit is extended to homeb4yers, the higher "rices become. Other ?4risdictions have #e/ognised the extent to which the availability of credit is an im"o#tant fa/to#in in/#easing ho4se "ri/es and governments have ado"ted a number of o"tions to t#y to /ont#ol this. The Bank of England has re/ently o4tlined measu#es to restrict the amount that banks can lendI and the Monetary %olicy $ommittee is giving serio4s /onsideration to raising interest rates to t#y to /ont#ol the market.

In 9erse5I the tax system has an im"a/t on the availability of mortgage debt through the "rovision of tax relief for mortgage interest.  In response the Minister "ro"oses that the amount of Mortgage (nterest Tax Relief that can be claimed in respect of a tax"ayer's only or main residence is ca""ed at F15,000 from the 2015 year of assessment. This meas4re wo4ld affect a""roximately 250 tax"a5ers o4t of around +I500 that benefit from the relief /4rrently. The measure wo4ld increase States reven4e by a""roximately F100I000.

Mortgage (nterest Tax &elief is available in respect of interest in/4rred on mortgages taken o4t to bu5 a tax"ayer's onl5 or main residence. Relief is available for interest in/4rred on the first F100I000 of mortgage debt. A cap of £15I000 on the interest relief that can be claimed wo4ld im"ly an annual interest rate on this level of borrowing of 5%, higher than most /4rrent variable and fixed rate mortgage levels.

This measure b5 itself is not therefore expected to have a large im"act on the mortgage marAet, and relatively few tax"a5ers will be affected. ;owever, it does re/ognise that the tax system can "lay a "art in f4elling ho4sing bubbles, and establishes the "rinci"le that Mortgage (nterest Tax Relief should not be allowed to do so. In additionI with interest rates "redi/ted to rise, the introduction of such a cap hel"s to limit the /ost of Mortgage Interest Tax &elief to the Treasury.

Revie2 of Mortgage )nterest Tax Relief

The green "a"er on "ro"erty taxationI published alongside this BudgetI sets o4t a number of as"e/ts to /onsider abo4t the Island's "ro"erty tax system. Among them is the @4estion of how, and whether, the States sho4ld su""ort ho4sing affordability.

Man5 ?4risdictions have removed the availabilit5 of tax relief for the interest in/4rred on "4rchasing a home; this refle/ts the growing understanding b5 e/onomists that government subsidies for home ownershi" in this way sim"ly increase the /ost of ho4sing rather than making homes more affordable.

The green "a"er does not "ro"ose that Mortgage (nterest Tax Relief sho4ld be abolished at this time; however it does ask whether the States should /ontinue to give this relief and whether there may be better ways to en/o4rage the "rovision of affordable ho4sing. These @4estions will be f4rther ex"anded on with the publication of the Strategic Ho4sing &eview in d4e /o4rse.

It is im"ortant that if the States decides to address the availability of Mortgage (nterest Tax Relief in the f4ture, that it should send a /lear message about what is "lanned and when it is likel5 to taAe "lace, so that homeowners, c4rrent and f4ture, and lenders can fa/tor it into their planning.

1-Goods and Ser2ices Tax %roposals

The Minister proposes the following amendment to the Goods L Services Tax (Jerse586aw 2007 7Gthe GST LawH8-

Refund of overpaid 3ST

In order to more closel5 align administrative aspects of the GST 6aw with the (ncome Tax Law it is proposed to shorten the period within which refunds of overpaid GST can be claimed from the $omptroller to the fifth anniversary of the due date of the GST return relating to the rele2ant period. $4rrently a refund can be claimed within six years of the payment or six years from the date of disco2ery of the mistake. If agreed, this measure wo4ld become effective from 1 94ly 2015.