Budget Statement 2019 - FULL STATEMENT AS ADOPTED AS AMENDED

BUDGET

STATEMENT 2019

(P.114/2018)

AS AMENDED FOLLOWING THE STATES DEBATE OF 3 – 6 DECEMBER 2018

Proposition

Draft Budget Statement 2019

(as adopted on 6 December 2018)

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

1. to approve, in accordance with the provisions of Article 10(3)(a) of the Public Finances (Jersey) Law 2005, the estimates of income from taxation and duties during 2019 of £757,812,000 as set out in Summary Table A of the Budget Statement, with the sum to be raised through existing taxation measures and the proposed changes to income tax, impôts duty, goods and services tax, stamp duty, land transactions tax and vehicle emissions duty for 2019 as set out in the Budget Statement; except that, in relation to personal income tax, the estimate of income from taxation during 2019 shall be reduced by £100,000 by commencing the targeted income tax reliefs for non-residents from the 2018 year of assessment rather than the 2019 year of assessment as originally proposed.
2. to approve in accordance with the provisions of Article 10(3)(c) of the Public Finances (Jersey) Law 2005 the appropriation of £20,533,000 in 2019 from the amount appropriated to growth in the MTFP Addition 2017 to 2019 (P.68/2016 as amended) to the revenue heads of expenditure of those States funded bodies as set in Summary Table B, noting that these sums incorporate the £9,400,000 growth funding approved by the States in their Act dated 30th November 2017 (as detailed in paragraph (b) of P.90/2017 as amended);
3. to approve, in accordance with the provisions of Article 10(3)(d) of the Public Finances (Jersey) Law 2005, a capital head of expenditure for each of the capital projects for States funded bodies to be started or continued in 2019 (other than States trading operations) as set out in the proposed programme of capital projects in Summary Table D with the net allocation from the Consolidated Fund totalling £32,975,000;
4. to approve, in accordance with the provisions of Article 10(3)(e) of the Public Finances (Jersey) Law 2005, each of the capital projects that are scheduled to start during 2019 in the recommended programme of capital projects for each States trading operation, as set out in Summary Table E that require funds to be drawn from the trading funds in 2019;
5. to  refer  to  their  Act  dated  8th  October  2015[1] in  which  they  agreed  in accordance with Article 4(2) of the Public Finances (Jersey) Law that in 2019 a transfer of £50,000,000 would be made from the Consolidated Fund to the Strategic Reserve Fund; and to vary that decision and instead transfer that same amount from the Consolidated Fund to the Stabilisation Fund in 2019 in line with the requirements of Article 4A(1) of the aforementioned Law.

Minister for Treasury and Resources

Contents

 ..................................................................................................................................... ADDENDUM TO BUDGET STATEMENT 2019 .......................................................... 5

Addendum .............................................................................................................. 6 PART A ...................................................................................................................... 7 Minister's Foreword ................................................................................................ 8 PART B – BUDGET STATEMENT 2019 ................................................................. 20

1. Summary of Tax Proposals ......................................................................... 21
2. Taxation Proposals – Personal Taxation ..................................................... 23
3. Taxation proposals – Stamp duties/land transaction tax (LTT) ................... 34
4. Taxation Proposals – Business Taxation .................................................... 38
5. Taxation proposals – Impôts duties............................................................. 45
6. Taxation proposals – Summary of financial implications ............................. 49
7. Taxation proposals – Tax administration ..................................................... 50
8. Ongoing taxation work – update on Budget 2018 Reviews ......................... 56

PART C – GROWTH................................................................................................ 60

9. Proposals for the Allocation of Growth for 2019 .......................................... 61

PART D – CAPITAL PROGRAMME ....................................................................... 66

10. Proposals for Capital Programme - Introduction ......................................... 67

PART E – FINANCIAL FORECASTS ...................................................................... 86

11. Financial Forecasts 2018 - 2023 ................................................................. 87

PART F – THE ECONOMIC OUTLOOK................................................................ 102

12. Economic Background and Outlook .......................................................... 103

PART G – SUMMARY TABLES ............................................................................ 110 PART H – APPENDICES ....................................................................................... 117

Appendix 1 – Income Forecasting Group (IFG) Report on the Revised Forecast of States Income from Taxation and Duty for September 2018 .............................. 118

Appendix 2 – Income tax forecast note............................................................... 142 Appendix 3 – Other Income Forecast Update 2018-2023................................... 162 Appendix 4 – Social Security Funds Forecasts .................................................. 166

ADDENDUM TO BUDGET STATEMENT 2019

Addendum

Amendments Approved

At the conclusion of the States debate on the 2019 Budget on 6December 2018, the States approved the Budget as amended by one amendment (the Fourth Amendment) to the original proposition from the Minister for Treasury and Resources. This amendment will have an impact on States revenues in 2019.

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

This amendment commenced the targeted income tax reliefs for non-residents from the 2018 year of assessment, rather than the 2019 year of assessment as originally proposed.

Summary

The approved amendments to the 2019 Budget will reduce the estimate of total taxation revenue in 2019 by £100,000 from £757,812,000 to £757,712,000.

The balance on the Consolidated Fund at the end of 2019 is estimated to be £136,319,000. The full 2019 Budget statement P.114/2018 (as amended) can be viewed at

www.statesassembly.gov.je

PART A

Minister's Foreword

Introduction

As the new Minister for Treasury and Resources, I have approached my first Budget with three core principles in mind: the government must ensure that its actions are affordable, we maintain a balanced approach and we apply common sense in all that we do.

As a result, this Budget contains no surprises, with no major tax measures, and will not seek to disturb the sensible long-term fiscal framework of achieving a balanced budget that was pursued by my predecessors.

However,  it  also  highlights  that  decisive  action  will  be  required  to  maintain  the efficiency and savings target that were set for the MTFP2 period

This approach is entirely appropriate, considering the new Council of Ministers has only recently lodged our Proposed Common Strategic Policy 2018-2022 (CSP) which sets out our collective ambition to make a positive difference for Islanders.

At the heart of the CSP are five strategic priorities:

• We will put children first
• We will improve Islanders' wellbeing and mental and physical health
• We will create a sustainable, vibrant economy and skilled local workforce for the future  
• We will reduce income inequality and improve the standard of living
• We will protect and value our environment

Underpinning these priorities are four ongoing initiatives, which build on work already started under the previous government – as well as changes we initiated on taking office – to improve how Jersey is governed and how our services are delivered.

1. We are developing a new, long-term strategic framework that extends beyond the term of a Council of Ministers.
2. We are seeking to improve how the States Assembly and Council of Ministers work together for the common good.
3. We are developing "one government" – a modern, innovative public sector that meets the needs of Islanders effectively, efficiently and affordably.
4. And,  crucially  for me as  Minister  for Treasury  and  Resources,  we  are developing a sustainable long-term fiscal framework for public finances that make the best use of our public assets.

The CSP explains why these priorities are important and sets out what the Council of Ministers intends to achieve through our term of office. We want to work in close partnership  with  States  Members  and  with  wider  stakeholders  in  achieving  the ambition outlined in the CSP. We therefore intend to develop, in partnership over coming months, the detailed, costed proposals, that will form a Government Plan (Medium-Term Plan) 2020-23, which will be lodged in summer 2019.

Budget 2019 is therefore not the vehicle via which the Council of Ministers will introduce major changes, since the fully-costed proposals that we need to make to pursue our five strategic priorities will come before the Assembly in 2019 and in later years.

Nevertheless Budget 2019, it is still an important event in our Island's economic calendar, it updates the economic outlook, outlines positive news regarding our national income, increases income tax allowances to benefit lower and middle income taxpayers, provides help to first time house buyers and to those buyers who will require mortgage finance in future. It also signposts consultations on important aspects of our tax system.

This is an affordable, balanced and common sense Budget, which is right for our current circumstances.

Economic outlook

As ever, we are indebted to the expertise afforded to the Island through the Fiscal Policy Panel (FPP). Their latest comments on the Island's economy (released in August 2018), although forecasting flat growth in GVA for 2017, are more positive about the future, highlighting:

• A strengthening labour market – reflected in official statistics released by Statistics Jersey and in Social Security contribution numbers for 2018 to date. The total number of people registered as unemployed and actively seeking work was 820 in June 2018 – the lowest level since December 2008 and marks an 18 per cent fall from the same time last year.
• An encouraging Business Tendency Survey for June 2018 – with the key activity indicators showing an improvement in the current situation, alongside increased optimism and confidence about future trends.

On the basis of the new economic assumptions endorsed by the Panel, the FPP has stated that by 2019 they consider that Jersey's economy may be slightly above its non- inflationary potential' level and suggest that we should be seeking to endeavour to run a surplus of General Revenues receipts over departmental expenditure in 2019, with serious consideration being given to starting to replenish the Stabilisation Fund. This is prudent advice, which I intend to follow.

It is important to recognise that whilst Budget 2019 addresses principally General Revenues (largely taxation and duties) and Departmental expenditure, the States of Jersey Group consists of more than this. Future plans will address the financial plans and performance, not only of departments and taxation receipts but also those of major funds, investments and arm's length organisations such as the utility companies.

Finally the FPP continues to recommend caution in our fiscal planning due to the uncertainties that remain around the medium-term outlook for the economy – in particular the impact of Brexit, regulatory challenges to the financial services sector and the ongoing challenges regarding productivity.

As Minister for Treasury and Resources I intend to build on the strong relationship established with the FPP, respecting their independence and heeding their advice, even when it is challenging.

Income forecasts

The positive news about the current and immediate future of the Island's economy has been reflected in the latest forecasts produced by the Income Forecasting Group (IFG)

– details of which are presented in the Budget statement.

A combination of the following factors have resulted in markedly stronger income forecasts over the forecast period than those produced in September 2017 for Budget 2018:

better-than-expected tax receipts in 2017 – in respect of personal income tax, corporate income tax and stamp duty

the stronger economic assumptions endorsed by the FPP for the next few years

– resulting in increased revenue from personal income tax, corporate income tax and GST; and

the impact of the decisions made in Budget 2018 to raise additional revenue from certain companies operating in the Island.

Based on the latest IFG's forecasts of tax revenues, Total States Income for 2018 is forecast to be £30m higher than predicted in Budget 2018, while for 2019 that figure is projected to be £36m higher. The forecasts beyond 2019 are based upon long-term trends, rather than specific forecasts for each of those years.

The IFG reemphasise the caution expressed by the FPP, highlighting once again that the risks are to the downside, particularly from Brexit uncertainty and that the forecast should be considered as a range.

I am not complacent about these forecasts, and the FPP's advice will be heeded as we develop the new Government Plan.

Expenditure forecast/financial forecast

As  we  work  towards  the  development  of  a  new  Government  Plan,  expenditure forecasts will continue to be refined.

The rolling four-year Government Plan will be fully-integrated, bringing together in one place policies, actions and funding needed to deliver on priorities. It will provide the detailed measures, costings and forecasts.

In the meantime, a report will be presented to the States before the end of the year, which will reallocate Budgets for 2019 within the existing limits set in the current Medium Term Financial Plan (MTFP).

The reallocation will reflect the new Team Jersey, one government' structure and the transition towards the new Government Plan.

Ahead of this work, high-level core forecasts have been developed for 2020-23, based on existing total budgets, allowance for inflation, commitments by the previous Council of Ministers and policies agreed by the States.

It is known that not all of the savings and efficiencies of the current MTFP have been delivered, but these forecasts assume that they, or measures equivalent to them, will be delivered.

Overall financial forecast

Ahead of finalising the transition plans for 2019, the forecasts demonstrate that budgets  will  be  broadly  balanced for  2019,  thanks  in part  to  increased  income forecasts. Nonetheless, the forecasts for 2020 onwards demonstrate the considerable challenge ahead.

Making  allowance  for  inflation  and  commitments  made  with  ongoing  financial consequences, the lack of commercial waste charges, along with the unwinding of other provisions in the current MTFP will, if action is not taken, lead to a deficit of up to £30m in 2020.

This does not include additional investments to deliver the CSP priorities.

Inflationary pressures and investment in health (both to transform services and to address an ageing population), will mean that expenditure grows more quickly than income and the gap will increase.

This  cannot  be  allowed  to  occur.  This  government  is  committed  to  delivering sustainable public finances and as we finalise the savings opportunities that the new Target Operating Model will deliver, I look forward to announcing efficiencies and savings to public services to close this gap and to provide for investment in priorities. It is important that this is delivered, but equally I am convinced that if Islanders want to continue to enjoy high-quality services, the Government will need to consider revenue-raising measures for the future.

Key taxation proposals

However, in considering taxation proposals for Budget 2019, the Council of Ministers and I have been cognisant of this position, but also of the rising cost of living and other policies of the States.

Personal income tax

I am proposing to increase the standard tax-free income allowance by 3.5%, in line with the increase in average earnings. This will benefit more than 42,000 taxpayers, reducing a single person's annual tax bill by £130 and that of a married couple or civil partnership by £221.

This measure will take Jersey's personal tax-free income allowance (for a single person) to £15,400 in 2019, which compares very generously to Guernsey's allowance in 2018 of £10,500, the UK's of £11,850 and the Isle of Man's of £13,250.

I also intend to increase the second earner's allowance by £150 to £6,000, which maintains the equality (achieved by my predecessor in his last Budget) in allowances between married and cohabiting couples, where both partners are earning. This measure will benefit approximately 10,000 households.

As part of the package agreed by the States Assembly to introduce new Higher Education funding proposals, I am proceeding with the removal of the Higher Child Allowance given to parents with children in higher education. These funds will be added to the existing funding for the new package of Higher Education grants available to the young people of the Island.

Aware of the Assembly's desire that lower-income households should be no worse-off as a consequence of the changes to higher education funding, I have also taken steps to  ensure  that  the  Additional  Personal  Allowance  remains  available  in  most circumstances where it is currently available.

The removal of non-residents' relief in Budget 2016 has caused hardship for a small number of lower-income former residents now living in jurisdictions where tax credits are not given in respect of any Jersey income tax paid on Jersey-sourced income. This Budget provides for a scheme to be introduced, which will allow appropriate relief from taxation in Jersey, targeted at those with a low worldwide income or who suffer double taxation on their income.

It will require claimants to demonstrate that they are paying any taxes lawfully due in their country of residence and claiming any double tax credits to which they are entitled in the jurisdiction in which they now live.

Review of personal taxation

I am also announcing an Island-wide consultation on changing Jersey's system for taxing personal income. The government will publish a summary of emerging findings and launch the consultation before the end of November 2018. While driven by the need to address anachronistic features of our existing system, the consultation and review will involve a much broader review of the personal tax system.

Impôts

Jersey has traditionally taxed alcohol, tobacco and road fuel largely for revenue purposes, but like governments around the world, we have increasingly recognised that these products are damaging to health, to wellbeing and to the environment. Price affects both the supply of – and demand for – these products. It is therefore right that we  use  taxation  to  incentivise  people  to change  behaviour  in line  with  existing strategies, and also that we seek to recover some of the costs of dealing with the harm that alcohol, tobacco and car usage create for our society.

Ordinarily, the minimum increase in duties would be the latest RPI figure of 4.5%, although  many  recent  Budgets  having  implemented  above-inflation  increases  in duties.

Having  regard  to  the  globally-evidenced  impact  on  health,  but  also  the  current inflationary environment and the views expressed to me by representatives of the hospitality sector, I am proposing that alcohol duties are not increased by RPI (4.5%). Instead, I propose to increase the duty payable on alcohol by 3.5% – in line with the increase in average earnings. This will add just over a penny to a pint of beer.

Petrol/diesel will increase a little more, by the equivalent of 2p on a litre of standard petrol/diesel – although this still represents a below-inflation increase.

Given the considerable impact of smoking on people's health, and its associated cost to government, the duty on tobacco will increase in line with RPI (4.5%) plus 5%. This represents an extra 59 pence on a pack of 20 cigarettes.

In light of last year's material changes to Vehicle Emissions Duty (VED), I am bringing forward no measures this year with respect to VED. However, I have asked officials to review the future taxation of car ownership and usage, with a view to determining the fairest and most sustainable ways of raising revenue in the longer run. This will take into account likely future shifts in consumer choices, such as moves towards more environmentally-friendly hybrid and electric cars. For the avoidance of doubt, the temporary relief from the 2018 VED increases for hire car businesses will expire as planned, and forewarned, on 31 December 2018.

Stamp Duty

I am mindful of the housing challenges that currently face Islanders and which feature as a strategic priority in the CSP. In recognition of concerns over housing affordability, I am taking steps in Budget 2019 to reduce stamp duty and land transactions tax (LTT), which will help first-time buyers purchasing their first home up to the average house price. From 2019, properties valued up to £500,000 will qualify for first-time buyer's relief.

I am also conscious of additional stamp duty/LTT (up to 0.5%) that currently has to be paid by homebuyers requiring mortgage finance to pay for their home. This is a tax cost that is not borne by homebuyers with the cash funds to buy a property. I plan to address this inequity by phasing out stamp duty/LTT charges on mortgages over time and in Budget 2019 I am taking the first steps in this process. Stamp duty/LTT on mortgages for homes costing up to £600,000 will be abolished completely and the charge will be tapered for homes valued between £600,000 and £700,000.

To fund these two targeted measures, all standard stamp duty/LTT rates will be raised by 0.5%, for homes valued over £500,000.

The States Treasury and Exchequer/Revenue Jersey will also launch a consultation on a new Stamp Duty anti-avoidance provision for enveloped' properties (i.e. those placed within a company structure to avoid Stamp Duty arising on transfers) before the end of November 2018.

Economic substance

Following a significant period of review and consultation with key stakeholders, the Crown Dependencies and the European Union's Code of Conduct Group (Business Taxation), I will be lodging legislation later this month that will ensure that Jersey resident companies undertaking certain identified activities can demonstrate economic substance in Jersey from 2019 onwards.

I am confident that our open dialogue with the Code of Conduct Group, in continuation of our "good neighbour" policy with the EU, means that the legislation lodged will ultimately be assessed favourably by the EU Economic and Financial Affairs Council (ECOFIN) in early 2019 – ensuring that Jersey continues to remain off the list of non- cooperative jurisdictions first published by the EU in December 2017.

GST de minimis

Since GST was introduced in 2008, it has been recognised that there is a level below which it is neither practical nor cost-effective to seek to collect the tax on postal/packet importations for personal (non-business) purposes. The current "De Minimis" level is £240 of goods by value (including any customs-and-excise duties), which equates to £12 in forgone tax.

The government recognises that the existence of this exemption level conflicts with Jersey's tax-policy  principles  that  taxation  must  be  low,  broad,  simple  and  fair, because it creates an "unlevel playing field" between domestic and off-island retailers. The exemption exists solely to avoid the position where the States would be paying more in administrative costs to collect the tax than that tax would yield.

It is the long-standing position of previous Treasury Ministers that the exemption will be abolished when Ministers are satisfied that creating an obligation for off-island online retailers to charge, collect and remit GST to Jersey would not result in those retailers withdrawing online shopping services, which could harm consumer choice and reduce price competition. Such exemptions are being cut – or removed entirely – around the world where they create distortions in retail trade.

We  expect  that  time  will  come  (possibly  in  2021)  when  the  EU  abolishes  its corresponding VAT exemption for personal importations from outside the EU and introduces a system where retailers from outside the EU must account for (and pay over) taxes due in the country of residence of their customers. Once major online retailers have invested in systems to meet EU requirements, we believe that they will be more willing and able to put similar processes in place for smaller jurisdictions such as Jersey.

I am mindful that smaller retailers on the high street are struggling and I have listened carefully to their representations with regard to the impact of internet shopping and the impact of the de minimis level. While I am most sympathetic to their representations, I have – after consultation with Ministerial colleagues – decided not to adjust the de minimis level in this Budget. I will consider whether to reduce the de minimis level in my subsequent Budgets, as a transitional step towards its inevitable abolition in the future.

My officers are continuing to lobby UK retailers to try to stop the practice (prevalent among some of them) of charging VAT on supplies of goods into Jersey even though UK tax law allows those to be dispatched free of VAT. A brief report on progress can be found in this Statement.

Other business-related measures

Following advice from officers, based on review and consultation with stakeholders, I do not propose to pursue measures to tax the profits of large alcohol vendors or certain bookmakers. The review of whether to reduce the quantity of tobacco which can be imported into Jersey by individual travellers (the duty-free allowance) is ongoing, with no changes proposed in this Budget; more time is required to allow officers to collate evidence regarding the amount of tobacco imported duty-free, and we are sensitive to the fact that negotiations regarding the Island's future trading relationship with the UK are ongoing.

I am delighted in this Budget to be able to announce my intention to place care provided in the home by regulated providers on the same GST footing as care provided in a care home. Regulated domiciliary care will be exempt from GST with effect from 2019 and I expect any savings from this measure to be passed on to consumers through price reductions, where possible. Again, we will be monitoring the impact of this measure on consumer pricing for care services.

In addition, I am pleased to propose changes that will allow the financial services sector the opportunity to compete for business in the growing area of the provision of international employer saving schemes.

I can confirm that reviews will commence in 2019 into the taxation of the profits of mutual  trading  and  the  feasibility  of  applying  GST  to  imported  digital  services (including television and music services).

Building Revenue Jersey – the Revenue Administration Law

We are making good progress with modernising Jersey's tax system. The Council of Ministers has confirmed the creation of Revenue Jersey (as part of the restructuring of the States) which will bring together the work of the Taxes Office and teams dealing with Social Security contributions and customs revenue matters over the coming years.

The project to replace the Taxes Office's 35 year old computer systems with a new revenue management system is on time and within budget. The new systems will be in place in early 2019 and will be tested through 2019, processing new-format tax returns for the 2018 year of assessment. I expect Islanders to have access to online filing capabilities in 2020 – a significant step forward in the development of digital public services.

Following public consultation in 2017, as part of this Budget, I am presenting the first part of a new Revenue Administration Law, together with a number of administrative changes to the Income Tax Law, which will enable and give effect to a number of modernisations. These include changes to certain due dates for returns to facilitate online filing for personal taxpayers, better penalties around non-submission of tax returns  to  incentivise  compliance, new  tax  payment dates for  corporate  income taxpayers, and – for the first time – provisions to charge interest on outstanding tax debts. New civil penalties are also introduced for those who choose to evade taxes.

Around 200 taxpayers took the opportunity to set their tax affairs in order during our Tax Disclosure Opportunity, which ran from April to Christmas 2017. This has yielded around £1.6m.

Growth proposals

The  current  MTFP  identified  considerable  additional  funding  for  Health  and Community Services, including £5.6m in this Budget, including some for Children's Services.

While not all the savings measures of the current MTFP have been delivered, neither have all revenue-raising measures, in particular commercial waste charges.

This measure directly leads to an £11m shortfall in budgets for the Growth, Housing and Environment department.

In order to meet part of this funding requirement, growth in excess of the above £5.6m for Health has been deferred. This is possible as considerable funding already made available for investment in transforming our Health & Community Services remains available.

It is intended that once the existing programme of Health transformation has been delivered, additional funds released as a result of the reforms to the public sector would be made available to reinstate the planned investments in health care.

Diverting some of the growth allocation is insufficient to meet all of the shortfall in our infrastructure services budgets. It is intended that this gap will eventually be eradicated through the efficiencies and savings arising from the implementation of the Target Operating Model, however pending the delivery of these measures I will transfer £6.9m from existing resources.

This clearly exacerbates the financial position as we move into 2020 and exemplifies the importance of making changes to the Public Finances Law to agree expenditure measures at the same time as the revenue-raising measures that fund them.

Capital spending

The MTFP identified £168m for capital projects over the four years of the plan. Budget 2018 agreed the latest tranche of that programme, as well as a further £21m to address additional priorities and costs further to feasibility works and inflationary pressures.

This required transfers from unspent capital and revenue expenditure to supplement the funds available, resulting in amendments to the indicative 2019 allocations.

Those allocations have been re-examined and we have made small adjustments in Budget 2019.

The most significant of these is the inclusion of an allocation towards Public Realm improvements to commemorate Liberation 75. We propose that this is funded from slight changes to the capital programme and an allocation of £1.4m from existing resources.

The full investment in 2019 will be £36m, including: £20.7m across vital infrastructure, including roads and sewage works; £5.4m for assets, including a CT scanner for Health; and £3.8m to complete the latest phase of the development of Grainville School.

Considerable investments remain to be made in our Island's infrastructure, to benefit the community, regeneration and the economy.

The overly prudent, "cash up front" means of funding capital must change if we are to meet these challenges and I look forward to the development of an  investment framework which makes the best use of our strong balance sheet.

Reserves

The current MTFP was developed heeding the advice of the FPP and it ensured that we continued to invest in our vital infrastructure and schools in particular. It also supported the economy as it continued its recovery from the global financial crisis and delivered balanced budgets.

With the States Assembly's agreement, this was achieved in part through transfers from the Strategic Reserve. As part of that strategy, it was also agreed to transfer back £50m back to the Strategic Reserve in 2019.

Considering the strong growth in the Strategic Reserve in recent years and the flexibility  required  to  be  able  to  adjust  to  any  consequences  arising  from  the uncertainties that face the global and local economies, I propose, with the support of the Council of Ministers, to transfer this sum instead to the Stabilisation Fund, to act as a buffer against those risks.

According to the forecasts, considerable excess balances will remain in the States' current account, the Consolidated Fund, even after this transfer. Given the need to be flexible as we advance the Government Plan, not least because of the considerable capital investment required, I propose to consider the use of those funds once the Government Plan is finalised.

Conclusion

Jersey  has  a  strong  financial  base  and  economy  from  which  to  harness  the opportunities presented by the uncertainties in the near term – such as Brexit – and the  challenges  in  the  longer  term  arising  from  the  consequences  of  an  ageing population.

It is important that we act upon those opportunities, delivering measures to ensure that our books remain balanced, investing to deliver the savings which the new Team Jersey  -  one  government'  structure  promises  from  modernised  public  services, together  with  developing  and  implementing  a  new  approach  to  investment  in infrastructure, the economy and housing, making the most of that robust balance sheet.

A new Government Plan will set out the detailed actions arising from the priorities of the Council of Ministers in the CSP, as well as their costs and funding proposals, including the new Economic Framework, supported by the establishment of a new Investment Fund.

Underpinning those plans will be the transformation, not only of the services of Revenue Jersey, but also financial management across the States, aiming to ensure that taxpayers' money is used wisely to deliver positive outcomes for Islanders and that the financial implications of decisions are fully understood. These two major work streams within the States Treasury and Exchequer will deliver an efficient and effective customer-focused department.

The ambitious programme of work includes restructuring the finance functions of the States into a single department with common and improved reporting and processes, robust business case methodology, and a modern fit for purpose Public Finances Law and Manual.

We will also shortly open the most fundamental conversation with Islanders about the future of our personal taxation system.

Budget 2019 anticipates these vital and exciting changes, while maintaining necessary investment in infrastructure and services. From this stable platform I look forward to developing and implementing the new Council of Minister's priorities to improve the lives of Islanders, within an affordable and sustainable financial framework.

The package of proposals in Budget 2019 completes the current MTFP and prepares the way for the new Council of Ministers to start work on the priorities it has set out in the recently launched CSP.

Deputy Susie Pinel

Minister for Treasury and Resources

PART B – BUDGET STATEMENT 2019

1. Summary of Tax Proposals

The Minister for Treasury and Resources considers annual Budget measures within the context of the fiscal strategy, the advice of the Fiscal Policy Panel, spending plans, the economic situation, current income forecasts and the States' strategic priorities, including those proposed by the Council of Ministers in the Common Strategic Policy namely:

• We will put children first
• We will improve Islanders' wellbeing and mental and physical health
• We will create a sustainable, vibrant economy and skilled local workforce for the future
• We will reduce income inequality and improve the standard of living
• We will protect and value our environment.

A summary of the taxation proposals contained in the 2019 Budget has been provided below:

Personal tax proposals

• Income tax exemption thresholds for working age people taxed at the marginal rate (26%) to be increased by 3.5%, delivering a tax reduction of £130 for most single people, and £221 for most married couple/civil partnerships. This follows a standing policy of increasing thresholds by the lower of average earnings and the Retail Price Index (RPI)
• Second earner's allowance to be increased by £150 to £6,000 delivering a further tax reduction of £39 for married couples/civil partnerships where both are earning
• Higher Child Allowance to be removed as part of the measures agreed by the States  Assembly  (P33/2018)  to  introduce  new  Higher  Education  Funding Proposals, without restricting the Additional Personal Allowance for single parents
• Measures to address hardship arising for those with low worldwide income and those suffering double taxation, as a result of the withdrawal of Non-Residents Relief in the 2016 Budget
• Minor  amendments  to  the  rules  applying  to  pensions  and  pension  schemes including greater flexibility in accessing small pension funds
• Minor amendment to the calculation of the Minimum Annual Tax Charge for High Value Residents rules so that Jersey rental income is taken into account when determining the £725,000 taxable income threshold
• Minor amendments to ensure that the tax treatment of foreign charities aligns with new Charities Law

Impôts duty proposals

• A limited 3.5% increase in impôts duties charged on alcohol, in line with the increase in average earnings. This broadly represents a duty increase of 50p on a litre of spirits, 5p on a bottle of wine and just over a penny on a pint of beer or cider.
• Impôts duties on tobacco increased by 59p for a packet of 20 cigarettes. This represents an increase of RPI +5%, with a greater increase on hand rolling tobacco as a continuation of the policy to equalise the duty rate.
• A below RPI increase of 2p per litre on impôts duties charged on road fuel.
• No increase in VED rates and a review to take place of the taxation of car ownership and usage (including fuel duty) for Budget 2020.

Stamp duty proposals

• In recognition of the housing challenges set out in the Common Strategic Policy, Budget 2019 contains a package of stamp duty/LTT measures. The changes are targeted at helping first time buyers and those purchasing lower value properties with borrowed funds.
• From 2019, properties valued up to £500,000 will qualify for first time buyer's relief and  the  bands  qualifying  for  lower  rates  up  to  £500,000  will  be  extended accordingly.
• Stamp duty/LTT on mortgages (currently up to 0.5%), will be abolished for those buying houses valued up to £600,000. A reduced rate of stamp duty/LTT will be payable on mortgages for properties valued between £600,000 and £700,000.
• To fund these two targeted measures, all standard stamp duty/LTT rates will be raised by 0.5%, for houses valued over £500,000.

Business tax proposals

• New legislation introducing an economic substance test for companies in line with negotiations with the EU Code of Conduct Group.
• Regulation making powers in respect of the taxation of new type of legal bodies.
• Extension of the current GST exemption for care in care homes to domiciliary care.
• Minor technical amendments to the 2018 Budget measures.

Reviews and consultations being announced in Budget 2019

• Announcement of an Island-wide Consultation on Personal Income Tax to be published by the end of November 2018.
• Consultation  on  a  new  Stamp  Duty  anti-avoidance  provision  for  "enveloped" properties.
• A review will commence in 2019 into the taxation of the profits of mutual trading (commissioned by the States Assembly during the Budget 2018 debate).
• A review will commence in 2019 into the feasibility of applying GST to imported digital  services  (including  television  and  music  services).   This  was  also commissioned by the States Assembly during the Budget 2018 debate;
• Review of the taxation of car ownership and usage (including fuel duty) for Budget 2020.

2. Taxation Proposals – Personal Taxation

Income tax exemption thresholds

The income tax exemption thresholds set the income level at which an individual or married couple/civil partnership[2] start paying personal income tax. An individual or married couple with income below the income tax exemption threshold that applies to them will not pay any personal income tax.

In addition, every individual/married couple taxed at the marginal rate calculation benefits from the income tax exemption thresholds; with the relevant income tax exemption threshold reducing the amount of income which is subject to that rate of tax. This represents close to 90% of taxpayers and therefore increasing the income tax exemption threshold benefits the vast majority of Islanders.

Consistent with established policy, the Minister proposes to increase the standard income tax exemption thresholds[3] by 3.5% which is the lower of: (i) the most recently published increase in the Retail Price Index (4.5% June 2018 RPI figure per Statistics Jersey[4]); and (ii) the most recently published increase in average earnings figure (3.5% June 2018 figure per Statistics Jersey[5]).

The approximate cost to the States' General Revenues of this proposal is £5.8m.

The impact of this proposal on standard income tax exemption thresholds is shown in the table below:

Figure 1 – Standard income tax exemption thresholds for 2018 and 2019 years of assessment

Type of taxpayer  2018  2019  Proposed  Tax

Actual  Proposed  increase  reduction

@ 26%[6]

Single Person  £14,900  £15,400  £500  £130 Married  Couple  /  Civil  £23,950  £24,800  £850  £221 Partnership

As the following table highlights, the income tax exemption thresholds in Jersey are generous compared to the equivalent tax allowances in Guernsey, the UK and the Isle of Man.

Figure 2 – Single person exemption thresholds/personal allowance across comparable jurisdictions

Jersey  (2019  Guernsey (2018)  UK (2018/19)  Isle  of  Man proposed)  (2018/19)

£15,400  £10,500  £11,850  £13,250

Consistent with the established policy of moving towards a single set of income tax exemption  thresholds  for  all  taxpayers  regardless  of  when  they  were  born,  the enhanced income tax exemption thresholds for those born on or before 31 December 1951 are being maintained at their current level. It is anticipated that there will be a single set of income tax exemption thresholds within the next couple of years.

On the basis that the Minister's proposal is consistent with established Budget policy, the financial impact of the proposed increase in income tax exemption thresholds is reflected in the September 2018 updated income forecast.

Second earner's allowance

Married couples are entitled to the married couple's income tax exemption threshold (see above) and, where both spouses are in receipt of earnings (i.e. employment income, self-employment income or pension income[7]) they are also entitled to an allowance  known  as  "second  earner's  allowance".   Second  earner's  allowance reduces the income tax payable on the earnings of the lower-earning spouse.

This differs from co-habiting (unmarried) couples, where each partner is entitled to the single person's income tax exemption threshold.

This differing treatment of married couples and co-habiting couples means that it had previously been tax beneficial for couples where both partners were in receipt of earnings to co-habit rather than get married.

In the 2018 Budget the Minister for Treasury and Resources increased the second earner's allowance so that the married couple's income tax exemption threshold plus the second earner's allowance was equal to two single person's income tax exemption thresholds. See the table below:

Figure 3 – Comparison of 2018 taxpayer allowances – married vs co-habiting Type of taxpayer  Income tax  Second earner's  Total

exemption  allowance (2018)

threshold (2018)

Single person x 2  £29,800  N/A  £29,800 Married  Couple  /  £23,950  £5,850  £29,800 Civil Partnership

The Minister proposes to maintain this policy so that for the 2019 year of assessment the  married  couple's  income  tax  exemption  threshold  plus  the  second  earner's allowance is equal to two single person's income tax exemption thresholds. In light of the Minister's proposals regarding income tax exemption thresholds (see above), to maintain this policy requires a £150 increase to the allowance, taking it to £6,000 for the 2019 year of assessment.

Figure 4 – Second earner's allowance proposal for 2019

Second earner's  Proposed  second  earner's  Increase (and tax benefit allowance (2018)  allowance (2019)  at 26%)

£5,850  £6,000  £150 (£39)

Figure 5 – Comparison of proposed 2019 taxpayer allowances – married vs co- habiting

Type of taxpayer  Income  tax  exemption  Second earner's  Total

threshold (2019) proposed  allowance (2019)

proposed

Single person x 2  £30,800  N/A  £30,800 Married  Couple  /  £24,800  £6,000  £30,800 Civil Partnership

This increase, as existing policy, is assumed in the latest 2018 income forecast, however has an estimated cost of £0.6m.

While an improvement on the position previously, the established policy does not fully equalise the tax treatment of married couples and co-habiting couples in all situations

– for some households it will remain tax beneficial to be married, while for other households it will remain tax beneficial to co-habit. A consultation in relation to the review of the Personal Income Tax system will be published by the end of November 2018.

Removal of Higher Child Allowance

The Higher Education Funding Proposal (P.33/2018 as amended) voted by the States Assembly on 9 April 2018 provides Jersey students with a new, more generous, grant scheme.

Parents of people over the age of 17 and receiving full-time higher education are currently entitled to a Higher Child Allowance (HCA) within their tax assessment. As part of the funding mechanism for the new grant scheme it was agreed to remove the availability of this allowance from the 2019 year of assessment.

Additional Personal Allowance (APA) is an allowance given to unmarried taxpayers with children. Currently, one of the conditions that must be met in order to claim APA is that the taxpayer is entitled to either "normal" child allowance (given in respect of school-age children) or HCA. To prevent an adverse economic effect on those taxpayers who would be unable to claim APA after the removal of HCA, it was agreed by the Assembly to alter the conditions of APA eligibility such that the claiming of HCA was no longer a requirement for APA entitlement.

This Budget proposes to give effect to the removal of HCA approved in (P.33/2018) and the changes to APA above.

Furthermore,  in  order  to  align  the  principle  of  APA  with  the  definition  of  an "independent student" under the Education (Discretionary Grants) (Jersey) Order 2018, the Minister proposes that the eligibility criteria for APA in respect of the parents of children in higher education is extended to include circumstances where:

1. The child is under the age of 25 years;
2. The child is not married or in a civil partnership; and
3. The child has not been living financially independently of his or her parents for the last 3 years.

Removing the availability of HCA results in additional income tax revenues. On the basis that the removal of HCA had been agreed by the States Assembly in April 2018, the additional income tax revenue has already been accounted for in the September 2018  income forecast  –  increasing  personal  tax  revenues for  the 2019  year of assessment onwards (resulting in additional States income in 2020 onwards).

From 2020 onwards, these increased revenues will be used to fund the increased cost of the new Higher Education Scheme.

Foreign charities which can benefit from tax relief in Jersey  

Article 115, Income Tax (Jersey) Law 1961 currently determines which foreign (non- Jersey registered) charities benefit from Jersey tax relief. This tax provision is similar, but not identical, to the definition of "Excepted Foreign Charity" in the new Charities Law (Jersey) 2014 and this could potentially lead to uncertainty.

Therefore, tax law is being amended to align with the Charities Law on the issue of foreign  charities,  thus  easing  the  administrative  burden  and  eliminating inconsistencies. This is also in keeping with the One Gov' and Tell us once' approach. The Minister proposes to amend Article 115(aa) and (ab) of the Income Tax (Jersey) Law 1961, so that an entity which is an "Excepted Foreign Charity" according to the definition in the Charities Law will qualify for tax relief.

This change is expected to impact only a small number of foreign charities that currently benefit from tax relief.

Taxation of non-residents individuals – introduction of targeted tax relief

In the context of non-residents, Jersey, consistent with many jurisdictions across the globe, operates a source-basis of taxation (i.e. non-residents are subject to Jersey tax on their income arising in Jersey). A number of types of Jersey source income are statutorily exempt from income tax in the hands of non-residents, including: (i) interest paid by Jersey banks; (ii) distributions from Jersey resident companies and (iii) the Jersey Old Age Social Security pension. These exemptions are not available to Jersey residents who are taxed on all these forms of income.

Two key types of Jersey source income remain taxable in the hands of non-residents: (i) pension income from Jersey pension schemes (excluding the Jersey Old Age Social Security pension); and (ii) rental income from Jersey property.

Prior to 2016 non-resident individuals were entitled to a form of tax relief known as "non-residents relief" (NRR) which they could offset against sources of taxable income when calculating the amount of Jersey income tax they were obliged to pay.

NRR was a complicated form of tax relief which broadly sought to apply a proportion of the tax allowances/reliefs that the individual would have been entitled to if they were tax resident in the Island, determined by reference to the amount of their Jersey source income vis-à-vis their non-Jersey source income.

The calculation of NRR was complicated (for example the interaction between NRR and the way in which Jersey taxes married couples produced a number of anomalies), poorly understood and tax officials were concerned about the risk that non-resident individuals may not have been declaring their Jersey source income in the jurisdiction in which they were tax resident.

NRR was also available to all non-resident individuals irrespective of their connection to the Island. This approach was generous on an international comparison basis. Many jurisdictions (such as the US, Australia and New Zealand) do not give an allowance to non-resident individuals. Many European jurisdictions only give an allowance to non-resident individuals where the individual has a significant economic connection to that jurisdiction. While the UK prima facie only give an allowance to non-resident British nationals.

In the 2016 Budget the Income Tax Law was changed to remove the availability of NRR. In removing the availability of NRR it was known that non-resident individuals in receipt of Jersey pension income (except the Jersey Old Age Social Security pension) or Jersey property income would be subject to the standard rate of income tax in Jersey (i.e. 20%) on all of that income. However based on the claims made for NRR  through  the  tax  returns  submitted  by  non-residents  in  earlier  years  of assessment, it was also known that the vast majority of those claimants should not pay more tax, when looked at on a global basis, as a consequence of the removal of the availability of NRR.

This is because the effect of the removal of the availability of NRR (i.e. that the individual would pay more tax) could be negated in one of three ways:

(i) The individual is resident in a jurisdiction which has a double taxation agreement (DTA) with Jersey under which Jersey cedes taxing rights over the Jersey source income to the jurisdiction in which the individual is resident (i.e. the income is exempt from tax in Jersey under the DTA) – for example, pension income paid from Jersey to residents of France/the UK can only be taxed in France/the UK respectively; or

(ii) The individual is resident in a jurisdiction which has a DTA with Jersey under which the individual is entitled to double tax relief in the jurisdiction in which they are resident such that the amount of tax payable by the individual in the country of residence is reduced by the amount of tax payable in Jersey

– for example Guernsey/the Isle of Man must give double tax relief in respect of Jersey tax paid on pension income paid from Jersey to residents of Guernsey/the Isle of Man respectively; or

(iii) The individual is resident in a jurisdiction which gives double tax relief unilaterally under its domestic tax law (i.e. in these jurisdictions there is no requirement for a DTA in order for the individual to obtain double tax relief) such that the amount of tax payable by the individual in the country of residence is reduced by the amount of tax payable in Jersey.

Based on analysis of the jurisdiction of residence of NRR claimants, it was determined that, for the vast majority of NRR claimants, the effect of the removal of the availability of NRR would be negated (i.e. they should pay no more tax when looked at on a global basis).

However the Minister has expressed concern regarding the impact of the removal of the availability of NRR in two areas: (i) those individuals with a low worldwide income; and (ii) situations in which Jersey source income is subject to genuine double taxation. The Minister therefore requested that targeted tax relief should be brought forward to address these specific concerns. The Minister's resulting proposals are outlined below:

The basic tax position under the Minister's proposals remains that non-residents in receipt of Jersey source pension and/or property income will be subject to tax at 20% on the full amount of income received. In many circumstances this tax will be deducted at source. However targeted reliefs will be introduced which non-resident individuals will be entitled to claim to reduce the amount of Jersey income tax that they pay on that income.

Low worldwide income relief

Where a non-resident can demonstrate that their worldwide income (both Jersey source and non-Jersey source) is less than the standard income tax exemption thresholds available to Jersey residents, the Jersey tax payable on the Jersey source income will be reduced to nil. The introduction of this relief will prevent the removal of the availability of NRR impacting on any non-resident with a low worldwide income.

For example: an individual resident in the UK receives property rental income from Jersey of £5,000 and has other sources of income from the UK of £3,000. As the individual's worldwide income is less than the standard income tax exemption threshold in Jersey of £15,400 (as proposed for 2019); the Jersey tax on the Jersey property rental income will be reduced to nil, provided that the individual makes a claim for relief and provides any evidence required by the Comptroller.

Reduced rate relief

Where  a  non-resident's  worldwide  income  exceeds  the  standard  income  tax exemption threshold, the Jersey tax rate paid on their Jersey source income may be reduced below 20% under this relief. Where this relief is claimed, tax will be refunded such that the Jersey tax rate payable on the Jersey source income will be the higher of:

1. A graduated Jersey tax rate – calculated by reference to their worldwide income and the standard income tax exemption thresholds for the relevant year of assessment – the graphs below indicate the proposed graduated income tax for a single person and a married couple (both in receipt of earnings) utilising the proposed exemption thresholds for 2019 ; and
2. The individual's foreign effective tax rate[8] if the individual is resident in a jurisdiction that provides for double tax relief on their Jersey source income (irrespective  of  whether  double  tax  relief  has  been  claimed  by  the individual)[9]

Figure 6 – Graduated Jersey tax rate for single person – proposed exemption threshold of £15,400 for 2019

25.0% 20.0% 15.0% 10.0%

5.0% Graduated Jersey tax rate

0.0%

£1,000 £3,000 £5,000 £7,000 £9,000

£11,000 £13,000 £15,000 £17,000 £19,000 £21,000 £23,000 £25,000 £27,000 £29,000 £31,000 £33,000 £35,000 £37,000 £39,000 £41,000 £43,000 £45,000 £47,000 £49,000

Worldwide Income

Figure 7 – Graduated Jersey tax rate for married couple (both in receipt of pension income) – proposed exemption threshold of £30,800 for 2019

25.0% 20.0% 15.0% 10.0%

Graduate5.0%d Jersey tax rate

0.0%

£1,000 £4,000 £7,000

£10,000 £13,000 £16,000 £19,000 £22,000 £25,000 £28,000 £31,000 £34,000 £37,000 £40,000 £43,000 £46,000 £49,000 £52,000 £55,000 £58,000 £61,000 £64,000 £67,000 £70,000

Worldwide Income

Example 1: An individual is resident in France and receives £20,000 of rental income from Jersey and has other sources of income from France of £5,000; French tax law does not provide for double tax relief for any Jersey tax paid on the Jersey source rental income; before claiming any relief the individual would pay £4,000 of tax in Jersey on the rental income (£20,000 x 20%); however their graduated Jersey tax rate on their worldwide income of £25,000 is 15.4% and hence relief of £920 can be claimed to reduce the tax on the Jersey rental income to £3,080 (£20,000 x 15.4%).

Example 2: An individual resident in Spain is in receipt of £20,000 of pension income from Jersey and has other sources of income from Spain of £5,000; before claiming any relief the individual will pay £4,000 of Jersey tax on their pension income (£20,000 x 20%); their graduated Jersey tax rate on their worldwide income of £25,000 is 15.4%, assuming  (for  illustrative  proposes)  that  their  effective  Spanish tax  rate  of  their worldwide income is 17.5%, and hence relief of £500 can be claimed to reduce the Jersey tax on the Jersey pension income to £3,500 (£20,000 x 17.5%); however the individual should be able to claim double tax relief for all of this tax in Spain.

To claim these reliefs the non-resident will have to disclose to the Comptroller:

1. The jurisdiction in which they are resident;
2. Their worldwide income for the relevant year;
3. Whether they have disclosed their Jersey source income to their local tax authority – if not, an explanation should be provided; and
4. The amount of tax paid (before any claim for double tax relief) on their worldwide income in the jurisdiction in which they are resident for the relevant year

The non-resident may be required to submit their overseas tax return and/or other documentation evidencing their worldwide income in support of their claim.

The financial implication of this proposal is estimated at £100k per annum. As a result of an amendment made to the Budget by the Minister for Treasury and Resources, the reliefs will take effect from the 2018 year of assessment and will first impact on States income in the financial year 2019 (and subsequent years). The Minister had originally proposed that the reliefs would take effect from the 2019 year of assessment.

Minor amendments to pension rules

A small number of minor amendments are proposed to the tax rules relating to pensions and pension schemes contained in Part 19 of the Income Tax Law to ensure that the rules operate as intended. These amendments are briefly outlined below.

Taxation of commutation of "trivial" pension scheme

In Budget 2018 additional flexibility was introduced into the pension rules to allow pension holders to access small pension funds. It is possible for a pension holder to access 30% of their pension fund as a tax free lump sum and, following last year's changes, if this results in the value of the remaining pension fund falling below £35,000, they can commute that remaining value and also treat 30% of this latter commutation as tax free – prima facie this allows a pension holder to access more than 30% of their pension fund value in a tax free manner, this was not the intention of the changes made in Budget 2018.

The Minister therefore proposes that, from the day that the 2019 Budget is lodged, changes will be made to the Income Tax Law to prevent pension holders from utilising the different commutation provisions to access more than 30% of the pension fund tax free.

Commutation – transfers between Jersey approved schemes

Under the current rules, where a pension fund has been part-commuted (meaning that the pension rights have been part exchanged for a cash lump sum) before being transferred between pension schemes, the whole of the amount transferred cannot be taken into account when determining the amount that can be commuted as a tax free lump under Art 131CF of the Income Tax Law.

After listening to feedback from the pension industry the Minister proposes to relax this restriction where the scheme from which the transfer occurs is an approved Jersey scheme and the scheme manager of the receiving scheme has received full details of any previous commutations from the scheme manager of the transferring scheme. For the avoidance of doubt, this approach will not be permitted where the transferring pension scheme is not an approved Jersey scheme.

Minor legislative amendments

There is an erroneous legislative reference within the rules applying to occupational pension schemes and it is considered that the wording of Art 131CF would benefit from the inclusion of the words "lump sum". The Minister proposes to make these minor legislative amendments.

High value residents (HVRs): Amendment to the calculation of the Minimum Annual Tax Charge

Following changes made in Budget 2018 newly arriving HVRs are expected to have taxable income of £725,000 per annum which in turn generates an annual tax liability of £145,000. Where a HVR fails to generate this level of taxable income, they are treated as receiving deemed income, topping-up their taxable income to £725,000 and ensuring a tax liability of £145,000.

Under the Income Tax Law as currently drafted, rental income from property located in Jersey is not taken into account when determining whether a HVR's taxable income has reached the £725,000 threshold.

Without a change in the tax rules a HVR could have taxable income (including Jersey rental income) in excess of £725,000 (paying Jersey tax in excess of £145,000) yet still be subject to a deemed income charge which would result in additional tax to pay. This is not the intention of the deemed income charge.

The Minister therefore proposes to change the tax rules so that Jersey rental income can  be  taken  into  account  when  determining  whether  a  HVR  has  reached  the £725,000 taxable income threshold.

For the avoidance of doubt, Jersey rental income is always subject to tax at the rate of 20% when received by a HVR (i.e. it does not benefit from the preferential rate applied to other forms of income above £725,000). No changes to this position are proposed in this Budget.

This proposal has no financial implications.

3. Taxation proposals – Stamp duties/land transaction tax (LTT)

In the Common Strategic Policy (CSP), the Council of Ministers has committed that:

"We will reduce income inequality and improve the standard of living by improving the  quality  and  affordability  of  housing,  improving  social  inclusion  and  by removing barriers to and at work."[10]

The reason why the quality and affordability of housing has been identified as one of the government's five strategic priorities is that home ownership:

" is increasingly out of reach of local families with average incomes. The high cost of housing can make it difficult to attract health and education professionals to move to Jersey."[11]

A Policy Development Board is being established by the government to prepare a long term view for this complex policy issue. In the meantime, the Minister is proposing to support the CSP priority in Budget 2019 with a package of three key stamp duty/LTT measures.

First time buyers and stamp duty/LTT

Islanders broadly qualify as First Time Buyers (FTBs) for the purposes of stamp duty if they have 'entitled' residential status and have never owned a house or flat anywhere in the world (whether on their own or with someone else).

FTBs who meet these criteria qualify to pay reduced rates of stamp duty on houses they buy currently for a value of £450k or less.

Figure 8 - Current rates of Stamp Duty/LTT for FTBs[12]

The Minister proposes to provide additional support to FTBs by extending the bands for these nil, 1% and taper rates of stamp duty/LTT as follows:

Figure 9 - Proposed rates of Stamp Duty/LTT for FTBs

Stamp duty/LTT on mortgages

In addition to the stamp duty/LTT payable on the purchase of a residential property, homebuyers who take out a mortgage to fund the purchase of that property are also liable to pay stamp duty/LTT on the mortgage instrument. At present, the standard rate of stamp duty/LTT payable on mortgages is 0.5%. However a lower rate of stamp duty/LTT applies where certain conditions are met:

1. The borrowing relates to a dwelling that the purchaser will occupy;
2. The borrowing and the contract relate to the same property;
3. The borrowing and the contract are passed on the same day; and
4. The gross value of the property against which the loan is secured is £450k or less.

If all these conditions are met[13] then the purchaser can avail of the following reduced rates of stamp duty/LTT on the mortgage taken out to fund the transaction.

Figure 10 - Rate of Stamp Duty/LTT on mortgages[14]

The Minister recognises that homebuyers who need mortgage finance to fund the purchase of their homes are paying additional stamp duty/LTT on those mortgages compared with individuals who have the resources to fund the house purchase from their own equity resources.

To remove this additional cost for all homebuyers who need mortgage finance would be prohibitively expensive. However, the Minister is proposing to equalise the position for those taking out a mortgage on a house valued up to £600k, by eliminating entirely the stamp duty/LTT charge on the mortgage that attaches to those properties. She also proposes reducing the stamp duty/LTT charge on mortgages of property valued between £600k and £700k, by means of a tapering relief.

Stamp duty/LTT on any mortgage that relates to a property valued above £700k will continue to be payable at the standard rate of 0.5%.

The standard stamp duty/LTT rate on residential property

For homebuyers who do not qualify as FTBs, the standard rates of stamp duty/LTT on residential property currently range from 0.5% (£1 to £50,000) up to a top rate of 9% for transactions above £6m.

In order to fund the targeted relief for FTBs and mortgagees outlined above, the Minister proposes increasing the standard rates of stamp duty/LTT on residential property valued over £500k by 0.5%.

Figure 11 - Proposed increase to the standard rate of stamp duty/LTT on residential property

It is proposed that the increases in stamp duty will take effect at midnight on 31 December 2018.

While acknowledging that stamp duties are transactional taxes and therefore difficult to forecast with accuracy, it is anticipated that these proposals will have a broadly neutral Exchequer impact.

Enveloped properties

Under current rules neither stamp duty nor land transaction tax[15] is due where ownership of Jersey commercial real estate is transferred by way of a share transfer. As a result there is a tax incentive to hold Jersey commercial real estate within a company (the real estate is said to be "enveloped" within the company), so that no stamp duty/land transaction tax is payable when the ownership effectively changes due to the transfer of the shares in the company.

The Treasury has previously agreed to look at whether there is a way of removing the tax incentive to envelop commercial property and has correspondingly sought external professional advice on the potential approaches available, together with an estimate of the amount of additional revenue potentially at stake.

The external advice has been received and there appear to be options available to the Treasury to address the existing tax incentive. The Treasury will issue a public consultation on this issue before the end of November 2018; seeking the views of interested parties on the impact of any changes, including the impact on the Island's commercial property sector.

4. Taxation Proposals – Business Taxation

Economic substance - concerns of the EU Code of Conduct Group

On 1 December 1997, the Council of the European Union adopted a resolution on a Code  of  Conduct  for  business  taxation  with  the  objective  to  curb  harmful  tax competition[1]. In 1998 the Code of Conduct Group (Business Taxation) (COCG) was set up to assess tax measures and regimes that may fall within the scope of the Code of Conduct for business taxation.

In 2017 the COCG investigated the tax policies of countries, in and out of, the European Union (EU) to reinforce global standards on tax matters. As part of the associated screening process jurisdictions were assessed against the following tax good governance criteria[2]:

• tax transparency,
• fair taxation, and
• implementation of anti–BEPS measures[3]

No  concerns  were  raised  by  the  COCG  regarding  Jersey's  standards  of  tax transparency and implementation of anti-BEPS measures.

Jersey was regarded by the EU as fully compliant with the general principles of "fair taxation" as its business tax regime had been assessed against the Code of Conduct for business taxation and determined non-harmful in 2011.

As part of the screening process, jurisdictions with low or zero rates of corporate income  tax  were  also  assessed  against  "criterion  2.2"  (under  the  "fair  taxation" heading) which states:

"The jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction."

Following this screening process the COCG expressed concern that Jersey did not have a "legal substance requirement for entities doing business in or through the jurisdiction". The COCG recognised substance requirements in respect of regulated entities but were concerned the absence of a clear general statutory requirement "increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial economic presence".

1. Further information on the Code of Conduct for business taxation can be found here: https://ec.europa.eu/taxation_customs/business/company-tax/harmful-tax-competition_en
2. Full detail of the tax good governance criteria can be found here: http://data.consilium.europa.eu/doc/document/ST-14166-2016-INIT/en/pdf
3. Anti-BEPS (Base Erosion Profit Shifting) measures are measures aimed at addressing tax planning strategies of multinational companies that rely on mismatches and gaps between the tax rules of different jurisdictions.

In response Jersey made a commitment to address these concerns by the end of December 2018. The Chief Minister made a statement to the States Assembly in December 2017 updating States Members and providing a copy of the letter sent to the Chair of the COCG containing the commitment made by the Government of Jersey[4].

Jersey was placed in "Annex II" of the list of jurisdictions produced by the Code Group for the EU Economic and Financial Affairs Council (ECOFIN) in December 2017[5]. Annex II lists jurisdictions that were identified as raising concerns to the Code of Conduct Group but had made commitments to address and resolve them. Within Annex II Jersey is listed under criterion 2.2, which states that the jurisdiction committed to address concerns relating to the economic substance of companies tax resident in Jersey.

Identical concerns were raised in respect of Guernsey and the Isle of Man, and so the Crown Dependencies have been working closely together to develop proposals which aim to meet the commitment.

In order to meet its commitment to address and resolve the identified concerns, the Government  of  Jersey  has  explored  the  potential  impact  of  imposing  statutory substance requirements in Jersey. In response to requests from the 2.2 jurisdictions for technical guidance on how to comply with criterion 2.2, on 22 June 2018 the COCG published a Scoping Paper on criterion 2.2[6] ("the Scoping Paper").

The Government of Jersey has also engaged closely with the OECD through the Global Forum on Transparency and Exchange of Information for Tax Purposes, the Inclusive Framework on BEPS and a specific voluntary group established to progress discussions on the issue of economic substance. This is particularly relevant as the Scoping Paper broadly asserts "that those expected substance requirements should mirror those used in the [OECD's] Forum on Harmful Tax Practices (FHTP) in the context of preferential regimes".

The FHTP guidance on substance requirements in the context of preferential regimes can be found in the "Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5  - 2015 Final Report"[7] and the "Harmful Tax Practices - 2017 Progress Report on Preferential Regimes".[8]

4. See: /assemblystatements/2017/2017.12.11%20chief%20minister%20- %20eu%20blacklist'%20of%20non- cooperative%20jurisdictions%20for%20tax%20purposes%20consolidated.pdf
5. See: http://data.consilium.europa.eu/doc/document/ST-15429-2017-INIT/en/pdf. A consolidated and up-to- date version of the report is available at: http://www.consilium.europa.eu/media/35567/st_6236_2018_rev_3_en_pdf
6. See Annex 4 (pages 45-54) of this document: http://data.consilium.europa.eu/doc/document/ST-9637- 2018-INIT/en/pdf
7. See: http://www.oecd.org/tax/countering-harmful-tax-practices-more-effectively-taking-into-account- transparency-and-substance-action-5-2015-final-report-9789264241190-en.htm
8. See: http://www.oecd.org/tax/beps/harmful-tax-practices-2017-progress-report-on-preferential-regimes- 9789264283954-en.htm

As outlined above the Government of Jersey has been working closely with the governments of the Isle of Man and Guernsey to collectively develop proposals to address the concerns raised by the COCG. This work has included dialogue with the European Commission (Taxation and Customs Union - TAX UD) and the COCG both in plenary sessions (with other jurisdictions) and bilateral meetings. Discussions have also taken place with individual EU Member States (this work being co-ordinated by the Channel Islands Brussels Office) and with the OECD Global Forum and the FHTP.

Outline proposals were developed in partnership with the Crown Dependencies to address the concerns of the COCG, consisting of three distinct stages:

• Stage one: identify companies carrying on relevant activities

• Stage  two:  impose  substance  requirements  on  companies  undertaking relevant activities

• Stage three: enforce the substance requirements

In  August  a  consultation  document  was  issued  entitled  "Consultation  on  the introduction of substance requirements for companies tax resident in Jersey"[9], which summarised  Jersey's  outline  proposal  regarding  the  introduction  of  substance requirements and sought feedback from interested parties.

There were 35 responses, 25 from corporate groups, 4 from individuals, and 6 from Industry Groupings. The consultation suggests that industry perceives that good corporate governance in Jersey, and high professional standards means that most companies will be able to demonstrate they meet the substance requirements.

The consultation produced few real concerns but several suggestions were made for improvements and areas to develop which the Taxes Office will consider. However the major theme throughout was the need for the provision of guidance both in a timely fashion, but also which was clear and unambiguous.

Following the conclusion of the consultation, draft legislation has been prepared (the Taxation (Companies – Economic Substance) (Jersey) Law 201-) and provided to the COCG, in order for the content of that draft legislation to be considered at the meeting of the COCG on 21 September 2018. The Government of Jersey is reflecting on the feedback received from that meeting and considering whether any changes need to be made to the draft legislation.

The Minister proposes to lodge the final version of the Taxation (Companies  – Economic Substance) (Jersey) Law 201-, alongside the other legislative changes relating to the 2019 Budget, on Monday 22 October 2018 for debate in the States sitting that commences on Tuesday 4 December 2018. In advance of the debate on the legislation the Taxes Office will also release elements of the guidance notes to aid understanding and start to explain how this will operate in practice; comments will be invited on these draft guidance notes.

9. See: https://www.gov.je/Government/Consultations/Documents/Consultation%20on%20the%20introduction%20o f%20substance%20requirements%20for%20companies%20tax%20resident%20in%20Jersey.pdf

The initial costs of this program have been absorbed by utilising the resources of the Tax  Policy  Unit.  The  further  additional  costs  for  this  program  in  2019  will  be concentrated  on  the  changes  required  to  systems,  in  particular  the  Revenue Management System. Initial estimates of these costs are £50,000.

For future years there will be ongoing monitoring, and enforcement of the legislation which will require the funding of a dedicated team within the offices of Revenue Jersey, in addition the legislation will lead to increased spontaneous exchanges of information which will require additional staff for the International team of Revenue Jersey.

Regulations making powers for the taxation of new types of legal bodies  

In May 2018 the Chief Minister lodged a proposition P.85/2018 "Draft Limited Liability Companies (Jersey) Law 2016", which establishes a Limited Liability Company (LLC). This proposition was debated and adopted by the States Assembly on 11 September 2018.

This new legal body, joins a number of bodies created over recent years including Limited Liability Partnerships and Incorporated Limited Partnerships. Each of these new bodies has required specific legislative tax provisions, and once incorporated into Jersey Law there will also be a need to provide specific tax provisions for LLCs.

To maintain Jersey's position as a dynamic financial centre there will be an ongoing demand for regular innovations, including the possibility of further new bodies in the future. To ensure there is full flexibility, in both timeously bringing in the required provisions for LLCs, and anticipating future developments, Budget 2019 includes a power in the Income Tax Law to make regulations in respect of the taxation of new type of legal bodies, which did not exist previously.

Tax provisions made under these regulations will still receive scrutiny from the States Assembly, but the process will become more efficient and flexible, in line with best international practice.

In light of the number of legal bodies now available under Jersey Law, the exemption applicable to non-residents in respect of interest has been extended to interest paid by wider range of bodies.

International employer saving schemes

Many jurisdictions across the world, such as the UAE, require employers to make payments to employees when their employment ceases – helping these employees in the transition between jobs or the transition into retirement. Many employers fund these payments out of their current assets/cash flow. Increasingly however employers are considering establishing saving schemes, which are designed to ensure that they make  suitable  financial  provision  for  funding  such  payments;  furthermore  it  is understood that a number of jurisdictions are considering obliging employers to establish adequately funded saving schemes in order to reduce the risk for employees of non-payment.

Jersey is an ideal location in which to establish such saving schemes – with its long track  record  of  providing  secure,  well-regulated fiduciary  services  to  businesses across the world. To help Jersey meet the needs of employers who are obliged to make payments to employees when their employment ceases, the Minister proposes to make amendments to the Income Tax Law to ensure that the investment income arising to such savings schemes is tax free and the payments made by such savings schemes are ordinarily outside the scope of Jersey tax.

GST on care costs

The  Goods  and  Services  Tax  (Jersey)  Law  2007  currently  makes  provision  for exemption from charging GST on specified medical and paramedical supplies. These are set out in Group 4 of Schedule 5 of the 2007 Law and generally relate to the supply of goods and services supplied by registered care professionals in the course of their occupational practice and similarly for goods and services provided by a registered person to patients and residents in a nursing or residential care home.

Specifically exempted under Group 4 is the supply of any service or goods:

• by a doctor, in the course of his/her practice as a doctor
• by a dentist, in the course of his/her practice as a dentist
• by an optician (Opticians (Registration) (Jersey) Law 1962)
• by a person registered under the Health Care (Registration) (Jersey) Law 1995 made in the course of his or her registrable occupation
• to patients or residents in a care home registered under the Nursing and Residential Homes (Jersey) Law 1994 ("the 1994 Law")

The GST Law however makes no provision for exempting goods or services provided by private domiciliary care agencies, as these agencies do not currently fall under any regulatory framework. This results in a different GST treatment when individuals receive personal care in their own home as opposed to a residential home.

The Regulation of Care (Jersey) Law 2014 ("the 2014 Law") provides a framework for the regulation of all health and social care in Jersey. The first phase of implementing the 2014 Law will focus on aligning the regulation of care homes, care at home (domiciliary care) and adult day care services. The Regulations required to achieve this  alignment  are  scheduled  to  come  into  force  from  1  January  2019.   As  a consequence  of  these  Regulations  coming  into  force,  the  equivalent  existing provisions for care homes in the 1994 Law will no longer apply.

With the alignment of the regulation of care homes, care at home (domiciliary care) and adult day care services, the Minister proposes that the GST treatment applicable on the supply of goods or services in these contexts should also be aligned (i.e. the supply of goods or services by regulated persons in these contexts should be exempt from GST) from 1 January 2019.

As a consequence of this proposal a number of entities which are currently charging GST on the supplies that they make will no longer charge GST, it is estimated that this will reduce GST revenues by approximately £203k per annum from 2019 onwards.

Minor administrative measures

As part of the Island's annual Budget process the Minister for Treasury and Resources makes minor amendments to various taxation legislation in order to: 1) provide clarity of the application of the rules; or 2) ensure that the rules are operating as intended.

Transitional arrangements relief from taxation for Large Corporate Retailers (LCR) and certain financial services companies

In  the  2018  Budget  the States Assembly; 1)  introduced  a  tax  on  LCR;  and 2) broadened the definition of financial services companies so that more companies are subject to the 10% rate.

Companies impacted by these changes became subject to the tax for the year of assessment 2018.

The ordinary basis for calculating the profits chargeable to tax is the accounting period ending in the year of assessment (i.e. the profits for the accounting period ending 30 June 2018 are taxable for the year of assessment 2018). Accordingly companies which have an accounting date other than 31 December 2018 could be taxed on the profits which arose prior to 1 January 2018.

Under the "transitional arrangements" introduced in the 2018 Budget companies are entitled to claim relief in respect of the tax due on profits which arose prior to 1 January 2018 provided certain conditions are met.

One of those conditions is that the company must have an accounting date of 31 December 2018.

The Comptroller of Taxes is aware that for some companies to benefit from the transitional arrangements they have to change their accounting date to 31 December 2018, this is a particularly burdensome and costly undertaking for those companies which are part of a larger group. And accordingly such companies cannot easily benefit from the transitional arrangements.

Accordingly it is proposed to amend the transitional arrangement so that a company may elect to calculate its tax liability for the 2018 year of assessment as if it had a 31 December 2018 accounting date. For the avoidance of doubt 31 December will prima facie be regarded as its accounting date for subsequent years of assessment and any change in that accounting date will be dealt with under Article 64B of the Income Tax Law.

Large Corporate Retailer (LCR) rules

There are a small number of amendments required to the rules relating to the taxation of LCR in order to ensure that they are clear and operating as intended.

The amendments include:

• Clarification that when calculating the amount of profit for the purposes of determining the rate of tax to be applied to a LCR, there is no deduction made in respect of unilateral relief.
• Clarification of the rules relating to the payment of dividends by a LCR and also the rules relating to the amount of credit a LCR may claim when receiving a dividend.

It is proposed that the changes to the rules relating to the payment of dividends will take effect in respect of the payment of dividends from the date the budget is lodged.

International Services Entity (ISE)

In the 2018 Budget the scope of entities that were able to register as an ISE was broadened. Having had the rules in operation for one ISE return cycle a small number of minor amendments have been identified which will clarify the rules and ensure they are operating as intended.

5. Taxation proposals – Impôts duties

Background

Each year, in advance of the Budget, the proposals for impôts duties are reviewed against the prevailing economic conditions, the Island's financial position and the States health and environmental policies.

To inform her decision the Minister has considered the following:

• The most recent rate of inflation
• The  States  existing  tobacco  and  alcohol  strategies,  as  well  as  the  States' environmental and transport objectives
• Consultation with the Council of Ministers
• Representations from industry and stakeholders

It is proposed that the increases in impôts duty will take effect at midnight on 31 December 2018.

Alcohol

The Minister is proposing increases in alcohol impôts duty of 3.5% in line with the most recently published increase in average earnings at June 2018. This reflects the fact that increases in average earnings during 2018 have not kept pace with RPI (recorded at 4.5% to June 2018). Figure 6 outlines the proposed increases to alcohol impôts duty rates for the specified products:

Figure 12 – Proposed increases in alcohol impôts duty

Commodity  Impôts  duty  Impôts  duty

2019  proposed  2019  proposed

increase (%)  increase (p) Spirits – litre bottle at 40% abv  3.5%  50.4p

Wine – 75cl bottle of table wine  3.5%  5.3p

Pint of beer/cider exceeding 2.8% abv but  3.5%  1.3p

not exceeding 4.9% abv (standard)

Pint  of  beer/cider  exceeding  4.9%  abv  3.5%  2.2p

(strong)

As a result of these proposals, it is estimated that the impôts duty collected on all alcohol will total close to £22m in 2019. The IFG forecast is based on the assumption that all alcohol impôts duties will increase in line with inflation in 2019, in accordance with minimum expected increases under recent policy. Therefore this lower increase in alcohol impôts will result in an estimated States Treasury and Exchequer cost of approximately £0.2m in 2019 against forecast.

Tobacco

Being  cognisant  of  the  significant  harm  to  health  posed  by  tobacco  and  the associated costs to the Health and Social Services Department, it is proposed that the policy of increasing impôts duty on tobacco at a level above the cost of living is continued. As a result the Minister is proposing to increase the rate of duty on tobacco products by 9.5% (equal to the increase in the RPI to June 2018 plus 5%). This amounts to 59p increase in the impôts duty on a packet of 20 cigarettes.

In the previous Budget the then Minister established a policy of closing the significant differential between the impôts duty on hand rolling tobacco and cigarettes based upon Health policies. In order to continue the policy of closing the gap it is proposed to increase the duty on hand rolling tobacco by 11.5% (equal to the increase in the RPI to June 2018 plus 7%). It is intended to equalise the impôts duty over the next few years.

As a result of these proposals, it is estimated that the impôts duty collected on all tobacco will total close to £16m in 2019. This will raise an additional £765k over and above the IFG forecast update resulting in additional States income in 2019 onwards.

Road fuel

The Minister considers all issues regarding the duty for road fuel, including the current worldwide price of hydrocarbon oil and the retail price of fuel at garages in the island.

Having taken this into account it is proposed to increase the duty on road fuel in line with the increase in the RPI to June 2018, this will result in an approximate 2p increase in the impôts duty on a litre of unleaded petrol/diesel.

As a result of these proposals, it is estimated that the impôts duty collected on all road fuel will total over £23m in 2019. This will raise an additional £0.9m over and above forecast figures.

Budget Statement 2019 (as amended)

Detailed impôts duty increases for 2019

Figure 13 – Impôts duty increases proposed for 2019

Bottle of table wine  £1.53  3.5%  £1.58 Pint of beer/cider exceeding 2.8% abv but not exceeding  37p  3.5%  38p 4.9% abv (standard)

Pint of beer/cider exceeding 4.9% abv (strong)  63p  3.5%  65p 20 king size cigarettes  £6.18  9.5%  £6.77 Litre of unleaded petrol/diesel  48p  4.1%  50p

Figure 14 – 2018 retail price margins – comparisons with the UK (June 2018)

Jersey  Jersey  GST  Jersey  Jersey  Duty  UK  UK  UK  UK  UK  Duty Retail  Duty  duty +  pre-tax  and  Retail  Duty  VAT  duty +  pre-tax  and

Price  GST  price  GST  as   Price  VAT  price  VAT  as a  %  of  a  %  of

Jersey  UK price  price

70cl of whisky  £21.26  £10.07  £1.01  £11.08  £10.18  52%  £15.10  £8.05  £2.52  £10.57  £4.54  70% Pint  of  standard  £3.72  £0.37  £0.18  £0.55  £3.17  15%  £3.06  £0.49  £0.51  £1.00  £2.06  33% beer

20  king  size  £8.87  £6.18  £0.42  £6.60  £2.27  74%  £10.25  £5.78  £1.71  £7.49  £2.76  73% cigarettes

Litre  of  unleaded  £1.23  £0.49  £0.06  £0.55  £0.68  45%  £1.34  £0.58  £0.22  £0.80  £0.54  60% petrol

47

Figure 15 – Comparison of typical 2018 tax and duty levels for a range of commodities (June 2018)

Jersey Duty  Jersey GST at Jersey  Duty  +  Guernsey  UK Duty  UK  VAT  at UK duty + VAT

5%  GST  Duty  20%

70cl of whisky  £10.07  £1.01  £11.08  £9.98  £8.05  £2.52  £10.57 at 40% abv

Pint  of  £0.37  £0.18  £0.55  £0.45  £0.49  £0.51  £1.00 beer/lager  at

4.5% abv

20  king  size  £6.18  £0.42  £6.60  £4.76  £5.78  £1.71  £7.49 cigarettes

Litre  of  £0.49  £0.06  £0.55  £0.67  £0.58  £0.22  £0.80 unleaded

petrol

Note: The figures above are before the impact of the 2019 Budget proposals. The prices shown are based on a narrow range of sources but are for equivalent products. There will be considerable price variations in each jurisdiction. Fuel prices are also subject to rapid change.

Customs duties

It is calculated that the customs duty collected on goods imported from outside the EU will total £145k in 2019 – goods imported from the EU are not currently subject to customs duties due to the relationship between Jersey and the EU under Protocol 3. The effect of Protocol 3 will cease following Brexit – where upon goods imported into Jersey from the EU will be regarded as imports from "3rd countries". Jersey's future trading arrangements relating to goods remains the subject of on-going negotiations with the UK; the conclusion of these negotiations and the progress of Brexit negotiations between the UK and the EU may impact on the amount of customs duties collected by Jersey in 2019 and/or later years.

48

Budget Statement 2019 (as amended)

6. Taxation proposals – Summary of financial implications

Estimated financial implications of 2019 Budget proposals

Figure 16 – Estimated financial implications of 2019 Budget proposals compared to September 2018 IFG forecast

Note 1: As a result of Budget Amendment No. 4 (Minister for Treasury and Resources), non-residents relief changes will first impact on States' income in the financial year 2019.

Manpower implications

Administration of the Economic Substance regime for companies – an estimated sum of £50,000 is required from 2019, for systems upgrades. Further resources in terms of staff costs will also be needed from 2020 onwards; this figure has yet to be determined.

The remaining proposals within the Budget Statement will be implemented without an increase to current approved staffing levels.

7. Taxation proposals – Tax administration

Building Revenue Jersey and the Revenue Administration Law

The new States Target Operating Model confirmed Ministers' intention to create Revenue Jersey, a new revenue administration within the States Treasury and Exchequer department, bringing together the administration of the States revenue streams.

Revenue Jersey will initially bring together work and officers from the Taxes Office, Social Security Contributions teams and Customs Revenue teams.

This section reports progress in Building Revenue Jersey, building upon the existing Taxes  and  Social  Security  Contributions  Programme;  and  the  Taxes  Office Modernisation Programme.

New Revenue Management Systems

We announced in 2018 that the States had signed a contract to acquire new computer systems to administer Jersey's tax system which also had the capability to administer more of Jersey's revenue streams. The new systems are expected to go live in Revenue Jersey in early 2019 and will be used to process tax returns for the 2018 year of assessment.

The new systems will provide Revenue Jersey with much greater "functionality" to administer revenue streams more efficiently and more effectively, in the case of taxes replacing the current ITAX system which has served Jersey for over 35 years.

Online filing for personal taxpayers

Companies and other businesses can already file various tax returns online.

We expect to offer islanders the facility to file personal tax returns online in 2020 (in respect of the 2019 year of assessment). Later in 2020, we plan to incorporate the collection of social-security contributions into the personal-tax system, in the same way that Long-Term-Care Contributions are collected now.

2018 is therefore the last year of assessment when all islanders will be expected to file a paper tax return. From 2020 all islanders and non-resident taxpayers will have the ability to file online. Tax assessments and effective rates for ITIS will thereafter be issued automatically, significantly reducing the waiting times which taxpayers have historically encountered.

Revenue Jersey will be raising awareness levels of these changes among taxpayers during autumn 2018 and through 2019.

Because new computer systems are being installed early in the New Year, the paper tax return for the 2018 year of assessment will be issued later in January 2019 than usual and its format will be different.

Budget Statement 2019 (as amended)

New Revenue Administration Law

Budget 2018 announced work on a new Revenue Administration Law which brings together many of the administrative provisions currently distributed among various tax laws. The new law enables the creation of Revenue Jersey; establishes the office of Comptroller of Revenue (in place of the existing office of Comptroller of Taxes); and  introduces  important  modernisations  to  the  administration  of  Jersey's  tax system, much of which has not been updated since 1961.

Existing tax law relies heavily on criminal approaches for wrongdoing and persistent non-compliance (for example, even with filing obligations); and assumes significant manual  intervention  by  tax  officers  to make  it  work  properly.   The  number of taxpayers has, of course, increased significantly over the intervening 6 decades making the existing law difficult to administer. Most tax administrations now routinely rely on non-criminal (civil) approaches; and greater automation of processes to reduce the need for tax officers to intervene manually.

This new Revenue Administration Law will enable Jersey to optimise the value it can get from its new Revenue Management System.

This first tranche of the new draft law – which is presented to the States Assembly as part of Budget 2019 – deals with administrative matters relating to all taxes and increasingly it may apply to other revenue streams administered by Revenue Jersey. It  will  be  built  upon  over  coming  Budgets,  subject  to  the  States  Assembly's agreement.

In due course Ministers will also propose new law to deal with the technical aspects of taxation, replacing the 1961 law establishing the framework of income tax with something more modern.

The first tranche of new law makes the following changes:

• Prepares the way for online filing and tax assessment (in 2020) by changing record-keeping requirements. For the first time, individual taxpayers will be obliged to keep records to support their tax returns instead of today's practice where certain records have to be sent to the Taxes Office every year.
• Enables the Comptroller in future to charge interest on tax debts; and to pay interest on any payments that he makes late. This removes the current incentive not to pay taxes on time and provides "commercial restitution" to the people of Jersey for taxes paid late by keeping the real value of the tax debt.
• Also enables the Comptroller to levy penalty interest where someone does not pay their tax bill within 3 months of the due date, further incentivising prompt payment. The rate of penalty interest will be set by Ministerial Order before 1 January 2020.
• Changes the legal title of the Comptroller of Taxes to Comptroller of Revenue, to assist creating Revenue Jersey and to reflect the wider remit of Revenue Jersey.

• Enables the Comptroller to entrust functions to third parties where he judges that appropriate. This will enable him better to implement the new States Target Operating Model.
• Introduces new civil penalties to deal with under-declaration of tax, geared according to the behaviour exhibited[1]. This was formally consulted upon in 2017  and  the  responses  to  –  and  outcome  of  -  that  consultation  were published in 2018. Deliberate acts of tax evasion will be subject to the highest penalties (up to 100% of the tax evaded). Careless acts will result in penalties of 10% to 30% of the tax due. Innocent error will not be penalised at all.
• Modernises some of the arrangements for supporting the Commissioners of Appeal who can review the Comptroller's decisions.
• Retains and modernises the various Oaths of Office guaranteeing taxpayer confidentiality and impartiality in the tax system.
• Creates legal gateways to allow greater sharing of taxpayer information where it is necessary and proportionate to do so – both to improve customer service and to tackle fraud.
• Also creates new penalties which apply equally to people who come into possession of tax information but who cannot – or should not – take the Oaths of Office.
• Gives tax officer's flexibility to set off a credit balance in one revenue stream against a debit in another.

Budget Statement 2019 (as amended) Additional administrative changes included in Budget 2019

In addition to the changes proposed within the new Revenue Administration Law the Minister proposes a series of other administrative changes, primarily to the Income Tax Law, which have been summarised below. The majority of these changes are being made to in order to facilitate the introduction of the new Revenue Management System (see above), facilitate the move to online filing of personal income tax returns from 2020 and create a better tax compliance framework within the Island.

Filing dates – 2020 change

The deadline for personal income tax returns will be set at 31 May in the year following the year of assessment where a paper return is filed, and 31 July where an online return is filed – incentivising the uptake of online filing.

Late filing penalties – 2020 change

The penalty for the late filing of an annual tax return will be increased from £250 to £300 (the quantum of this penalty was last increased in 2010). The penalty for the late filing of GST and ITIS returns will be set at £100.

Additional penalties for long overdue tax returns – 2020 change

Under the current penalty regime once a taxpayer has incurred the standard penalty for late filing, there are no further financial incentives for the taxpayer to bring their tax affairs up to date; this is being addressed with the introduction of additional penalties which are charged when a tax return is filed very late as follows:

• The first additional penalty will be charged when a return is 3 months late;
• Additional penalties will then be charged for each further month that the return is late – up to and including the 12th month that the return is late;
• Ordinarily the additional penalty is £100 every time it is charged, except in the context of long overdue personal income tax returns where the penalty is £50 every time it is charged;
• Additional penalties can be abated with the exception of the late filing of corporate income tax returns;
• Once a return is more than 12 months late the Comptroller will consider using the currently available criminal sanctions in order to ensure the submission of tax returns

Tax payments by companies – 2020 change

The tax payments required by companies will be changed such that they need to make two instalment payments in the year following the year of assessment. Except for "large corporates" (see below), the first instalment payment – representing 50% of the expected liability - will be made by the end of May in the year following the year of assessment, and the second instalment payment – representing the remaining 50% of the tax liability – will be made by the end of November in the year following the year of assessment.

Tax payments by "large corporates"[2] – 2020 change

"Large corporates" will make their instalment payments slightly earlier. The first instalment payment will be made by the end of March in the year following the year of assessment, and the second instalment payment will be made by the end of September in the year following the year of assessment.

Late payment surcharge date – 2020 change

The late payment surcharge date will be moved from "the first Friday following the first Monday in December" in the year following the year of assessment to 30 November in the year following for the year of assessment. For "large corporates" the late payment surcharge date, consistent with the second tax instalment payment, will be 30 September in the year following the year of assessment.

Tax due date's personal income tax – 2020 change

Consistent with the above bullet, the 30 November in the year following the year of assessment will become the "due date" for the payment of income tax, while the due date for the instalment payment will be moved back from last Friday in April in the year following the year of assessment to 31 May in the year following the year of assessment.

Interaction between surcharge and the payment of tax under ITIS – 2020 change

The Income Tax Law will be changed to make it clearer that a person who pays less than 70% of their tax by way of ITIS deductions may be subject to a late payment surcharge.

Provisional ITIS effective rate calculation – 2019 change

The calculation of provisional ITIS effective rates currently contained in the Income Tax Law is too prescriptive and can result in the Taxes Office being legally obliged to issue sub-optimal ITIS effective rates to employees. Additional flexibility is being introduced into the calculation to allow the Taxes Office to issue better ITIS effective rates. There are already provisions in Article 41C Income Tax (Jersey) Law 1961 that give  the  Comptroller  more  flexibility  to  calculate  the  rate  by  reference  to  the circumstances of the person. The change will extend this flexibility to the provisional rate.

Annual ITIS filing for some directors – 2019 change

The  ITIS  regime  will  be  changed  such  that  directors  who  are  also  significant shareholders can opt for annual ITIS filing in order to reduce the administration burden on their companies.

Budget Statement 2019 (as amended)

Tax Disclosure Opportunity 2017

In  preparation  for  these  important  changes,  Budget  2017  announced  a  Tax Disclosure Opportunity ("tax amnesty") which ran from April to December 2017. This gave taxpayers the opportunity to get their tax affairs in order before the Comptroller would begin to exercise the new powers proposed in the Revenue Administration Law.

The Disclosure Opportunity has raised over £1.6m in additional tax revenues from around 200 taxpayers.

Brexit – consequential Income Tax Law changes

As part of "Brexit Legislation Programme" the Taxes Office were requested to review the Income Tax Law in order to identify any changes that might be required as a consequence of the UK's decision to leave the European Union. During the course of this review two required changes to the Income Tax Law were identified. The Minister proposes that amendments are made so that the Income Tax Law continues to operate as intended post-Brexit.

8. Ongoing taxation work – update on Budget 2018 Reviews

Duty free tobacco allowances

During the course of the 2018 Budget debate the Minister for Treasury and Resources agreed to complete a review of the impact of reducing the duty free allowance from 200 cigarettes to 40 cigarettes (with a corresponding reduction in the duty free allowance for other types of tobacco products).

This  approach  is  also  consistent  with  the  Jersey  Tobacco  Strategy  (lodged  in November 2016[3]) in which there is a commitment to explore the costs and benefits of reducing the amount of duty free allowance both outbound and inbound at Jersey's borders and, in partnership with the States of Guernsey, to investigate options for restricting the tobacco duty allowance between the Channel Islands, with the aim of contributing to both fiscal and public health goals.

A cross-government working group with representation from the States Treasury and Resources, Jersey Customs and Immigration Service, Statistics Jersey and Economic Policy was brought together in January 2018 under the leadership of Strategic Public Health. Its aim was to look at the issues associated with reducing the duty free tobacco allowance and provide some estimate of the benefits and impacts on States revenue (fiscal impact), the Island's economy and on the health of the local population (public health impact).

The working group focussed its initial work on two aspects: (i) estimating the amount of duty free tobacco being brought into Jersey; and (ii) establishing the legality of reducing the duty free tobacco allowance below 200 cigarettes.

Estimation of duty free being brought into Jersey

No reliable data is currently available regarding the amount of duty free tobacco being brought into Jersey. The working group therefore considered different approaches to estimating that amount. Conducting inbound airside surveys was considered, but the working group determined that these would be biased and unrepresentative samples which would not provide robust or accurate data to support a decision.

The working group determined that it is possible to estimate the total amount of duty free tobacco brought into through asking a series of questions in the 2018 Jersey Opinion and Lifestyles Survey. The information received could be compared against tobacco  consumption  data  from  other  OECD  countries,  and  data  regarding  the importation of "duty paid" tobacco in Jersey from the Jersey Customs and Immigration Service. The information from the Jersey Opinion and Lifestyles Survey will become available to the working group in November 2018.

Budget Statement 2019 (as amended)

Legality of changing duty free allowances

The legality of changing Jersey's duty free allowances has been considered in the context of the Island's international obligations. Having reviewed those international obligations the working group understands that there are no current international obligations which would prevent the Island from choosing to reduce its duty free tobacco allowance below 200 cigarettes.

However there are recommended minimum duty free allowances for travellers (set at 200 cigarettes) within Specific Annexes to the Revised Kyoto Convention. Although these  recommended  minimums  are  not  binding  on  Jersey,  the  working  group understands that the World Customs Organization considers it reasonable to expect customs administrations (such as the Jersey Customs and Immigration Service) to commit to implementing all of the 600 Standards, Recommendations and Practices contained in the Revised Kyoto Convention.

The working group is also aware of the ongoing negotiations between Jersey and the UK regarding a future customs arrangement post-Brexit and recognises that any potential changes to duty free allowances need to be sensitive to those negotiations.

Next steps:

• The working group will receive the data collated through the 2018 Jersey Opinion and Lifestyles Survey and seek to produce a best estimate of the amount of duty free tobacco brought into the Island; and
• The working group will continue to liaise with the team negotiating the future customs  arrangement  with  the  UK  to  understand  the  impact  that  those negotiations may have on duty free allowances in Jersey.

Corporate  taxation  of  profits  of  Class  1  Bookmakers  and  "Large  Liquor Vendors"

During the course of the 2018 Budget debate the Minister for Treasury and Resources agreed to review the case for extending positive rates of corporate income tax to two additional  categories  of  business:  (1)  companies  holding  Class  1  bookmakers licenses; and (2) "large liquor vendors" (broadly companies which turnover more than £2m from the sale of alcohol in the Island and generate more than £500,000 of profits from that activity).

The  Treasury  has  undertaken  reviews  during  2018  which  have  involved:  (a) establishing the potential additional corporate tax revenue at stake; (b) determining the change in the balance of profits between companies subject to tax at 0% and companies subject to tax at a positive rate of corporate income tax; (c) consultation with relevant stakeholders; (d) estimating the additional administrative costs arising from the potential tax changes; and (e) seeking economic impact and distributional analysis from the Economics Unit.

Having considered all the information collected the advice from Treasury Officials is that the amount of additional tax revenues (estimated at approximately £500k from both measures combined) does not justify the additional administration costs that are likely to be incurred – the additional administration costs being particularly material in the context of the "large liquor vendors" proposal, where companies within scope of the measure would have to allocate their central costs across their different business activities in order to identify the profits arising for the sale of alcohol. This type of "income streaming" is not a feature of the Jersey tax system and other jurisdictions which do apply this type of approach have indicated the high administrative costs associated with ensuring compliance.

Consistent  with  the  recommendations  made,  the  Minister  is  not  proposing  any changes to the taxation of the profits of Class 1 Bookmakers or "Large Liquor Vendors" in the 2019 Budget.

Although not strictly in scope of the review of the taxation of the profits of Class 1 Bookmakers, a recommendation arising from the review is that the taxation of online gambling in Jersey should be included within the scope of the review of the taxation of digital services consumed within the Island, which is due to be completed by Budget 2020.

UK VAT on imports

As a result of an amendment agreed to the 2018 Budget, the Minister for Treasury and Resources was required to undertake a programme of engagement and awareness- raising with UK businesses who levy UK VAT on goods delivered to Jersey. This programme would encourage them to apply the correct VAT treatment and explore with those businesses the opportunities to collect any GST due from consumers based in Jersey and remit that GST directly to the Taxes Office in order to expedite the delivery of goods.

The Minister was required to report on the progress of this work by 10 April 2018; this progress  report  was  presented  to  the  States  and  can  be  found  here: /assemblyreports/2018/r.51-2018.pdf.  Since  the progress report was presented, the programme of engagement has continued, with ongoing correspondence with a number of major UK based retailers.

To date, consistent with the realistic expectations set in the Minister's comments in the 2018 Budget[4], there have been limited results from the programme of engagement as it relies on UK retailers agreeing to engage with the Taxes Office to discuss the issues raised, and voluntarily changing the way in which they sell goods to Jersey consumers. However the Taxes Office will continue with its efforts – with a focus on the largest retailers – and update the Assembly on a periodic basis.

Budget Statement 2019 (as amended)

Consultations/Reviews before next Budget Personal Tax Review

The first stage of the personal tax review was completed with the issuance of a series of documents which formed the "Review of Personal Tax Stage 1 – Data Analysis". This important series of documents included a detailed study of the distributional impact of the changes made to the Island tax system over the period 2006-2015 produced by Oxera[5].

The next stage of the personal tax review will involve the issuance of a public consultation process before the end of November 2018; seeking the views of Islanders on how the personal income tax system might be changed in the future.

GST and digital imports

As a result of an amendment agreed to the 2018 Budget, the Minister for Treasury and Resources agreed to undertake a review into the feasibility of extending the scope of GST to include the supply of digital services into Jersey by businesses with no establishment in Jersey. As specified in the amendment, this review will be completed such that any recommended legislative changes arising from the review can be included in Budget 2020.

Taxation of mutual trading profits

During the course of the 2018 Budget debate the Minister for Treasury and Resources agreed to review the Jersey tax treatment of profits arising from mutual trading activities. As outlined in the comments lodged by the Council of Ministers[6] this review will be completed such that any recommended legislative changes arising from the review can be included in Budget 2020.

Taxation of car usage and ownership

It is acknowledged that the increasing purchase/usage of electric and hybrid vehicles will ultimately result in reducing road fuel duty revenue at some point in the future, together with reducing revenues from Vehicle Emission Duty (VED). Although this reduction in revenues is unlikely to occur in the short term, the Council of Ministers agrees that now is the appropriate time to identify the fairest and most sustainable ways of taxing car usage/ownership in the longer run – facilitating an appropriate transitional period between the existing tax measures and any future tax measures. This review will be completed such that initial recommendations are put to the Council of Ministers in summer 2019.

PART C – GROWTH

Budget Statement 2019 (as amended)

9. Proposals for the Allocation of Growth for 2019

In the debate of the MTFP Addition (P68/2016) in September 2016, the States agreed a central growth allocation in 2019 and indicative allocation to department heads of expenditure.

The MTFP 2016-2019 (P70/2015) agreed investment in strategic priorities to be funded by a package of expenditure efficiencies and savings, benefit changes and new funding streams. The objective was to establish sustainable investment in priorities which were affordable and delivered broadly balanced budgets by 2019.

Setting aside central growth within the overall expenditure limits provided the Council of Ministers, and the States, with flexibility to reflect the progress on measures within the overall strategy when determining the affordability of 2017, 2018 and 2019 growth expenditure allocations in the respective Budgets.

The significant investment in funding of the strategic priorities for health, education and promoting economic growth were to be funded by the package of measures proposed in the MTFP Addition.

The target for the package of measures was £123m p.a. by 2019, made up of:

• £77m of efficiencies and savings (including £4m user pays);
• £10m of benefit changes;
• £11m of waste charges; and
• £15m from a health charge.

This left £10m of other measures, which in the MTFP Addition were made up of £5m from the Health Insurance Fund (HIF) and £5m from reducing the original central provisions for Restructuring and EPGDP in 2019.

Update on the package of measures

Funding measures

The proposed health charge was rejected as part of the MTFP Addition debate (September 2016) and this funding was largely replaced by a number of additional revenue raising measures in Budget 2018.

Expenditure measures

The £77m target of expenditure measures for efficiencies, savings and user pays and  £10m  of  benefit  changes  have  been  reflected  in  department  heads  of expenditure. Whilst hard-wired' into cash limits it is known that not all measures have been  delivered  and  work  continues  to  identify  efficiencies  not  delivered  on  a sustainable  basis.   As  well  as  the  contribution  to  investment  required  for transformation of public services and emerging Corporate Strategic Priorities (CSP), some  of  the  significant  savings  arising  from  the  implementation  of  the  Target Operating Model may be required to fund any shortfall in delivering against these savings.

In addition measures are outstanding to address:

• The withdrawal of the transfers from the HIF to support health expenditure of £5m p.a.; and
• The non-domestic waste charges of £11m by 2019

The £5m shortfall in health funding in 2018 has been met from underspends in 2017 carried forward for 2018. The current departmental forecasts for 2018 suggest that the underspend forecast could provide for the £5m required in 2019 if necessary.

The  Growth,  Housing  and  Environment  (GHE)  net  expenditure  limit  for  2019 assumed that £11m of new non-domestic waste charges would be raised in that year. The decision regarding the introduction of those charges was deferred in 2018 and continues to be deferred in 2019.

The GHE net expenditure limit also included provision for £0.9m expenditure for the States payment of rates which, following the amendment by the Constable of St Helier in the last Budget (as amended) was increased to include the payment of Island Wide Rates.

Review of Central Growth Indicative Allocations for 2019

The allocation available for growth in 2019 totals £20.53m, including £9.4m agreed in Budget 2018 for the recurring element of new growth awarded in respect of 2018.

States Treasury and Exchequer has worked with departments to review the original allocations of central growth for 2019 to determine whether the original allocations are still required and would be spent in 2019 and reflection of the deferral of non- domestic waste charges has also required adjustments. As a result of the review a number of variations have been identified:

Health and Community Services – reduced by £4.589m in 2019

• 2% investment requirement is unchanged at £5.3m

• The P82/2012 Programme is behind schedule and underspent against available budget, therefore under review so no new money is to be allocated at this time. The 2018 allocation has been allocated recurringly from 2019.

• The 2018 P82 allocation of £615k for the Children's Service was transferred recurringly  to  Office  of  the  Chief  Executive  along  with  the  transfer  of functions in February 2018. From 2019 the functions will transferred to Children, Young People, Education and Skills. The additional 2019 growth money of £378k to extend the Short Breaks service will be allocated in 2019.

Strategic Policy, Performance and Population

• A  small  reduction  in  the  allocation  for  Healthy  Lifestyle  reflects  latest estimates.

Budget Statement 2019 (as amended)

Children, Young People, Education and Skills – increased by £993k in 2019

• The revenue costs for schemes in the capital programme taking into account the delays at Les Quennevais and Grainville schools capital schemes reduces the amount needed by £285k.

• £993k transferred from Office of the Chief Executive, as explained above under Health and Community Services with respect to Children's Services.

Growth, Housing and Environment – increased by £3.096m in 2019

• Original request for tipping fees was to reflect pressure on fees which were on a downward trend in 2015 and also recognising a new private site planned for 2018. The new private site has not progressed and is not likely to in 2019. Allocation removed.

• Revenue consequences of capital schemes has been reduced to reflect the actual requirement.

• The decision taken by the Assembly to include the States paying the Island Wide Rate was not anticipated and further funding is therefore required.

• The further delay to the introduction of non-domestic waste charges creates an £11m deficit in GHE's head of expenditure.

States Assembly – removed in 2018 Budget

• Following a communication from Chairman of Privileges and Procedures, confirmed by the Greffier, the States Members' Pensions request was removed.

The review of central growth for 2019 has therefore identified insufficient funding available  of  £6.9m.   The  shortfall  is  to  be  met  from  unallocated  reserves  or departmental underspends, pending the delivery of savings from the implementation of the Target Operating Model.

Once efficiencies of the Target Operating Model are delivered, the Health Growth can be reinstated provided the backlog of existing growth priorities are delivered.

The proposed allocations for new growth expenditure for 2019, in addition to the recurring 2018 amount, are as follows:

• Health and Community Services - 2% investment in Service Standards and Healthcare Inflation - £5.3m

The 2% funding for Health and Social Services is provided to help the department respond to changes in standards of care recommended by the Royal Colleges and other  professional  bodies;  to maintain  services  at  a  comparable  standard to neighbouring jurisdictions; provide for increases in demand for specific care, meet healthcare specific inflation costs (e.g. drugs) and make new drugs, treatments and therapies available to Islanders where appropriate. Therefore, the exact allocation of this funding each year is variable and dependent on factors outside the control of the department.

• Strategic  Policy,  Performance  and  Population  -  Reducing  Preventable Disease,  Healthy  Lifestyles  (Transferred  from  Health  and  Community Services) - £84k

Further  investment  in  health  improvement  is  planned  to  introduce  targeted programmes on key initiatives, such as weight management programmes with family and multi-disciplinary referral including through primary care, UNICEF baby friendly initiative supporting increased and sustained breast feeding. The short breaks service will also be extended with the additional money.

• Children, Young People, Education and Skills - Services for Children (Early Interventions) – Short Breaks £933k

Investment in early intervention can have a profound impact on a broad range of socio-economic, health and wellbeing factors. This includes future development, learning, behaviour, health and the ability to build positive, secure attachments. It can also affect truancy, conduct disorder and risk-taking behaviours such as substance misuse and mental illness. The further funding allows an opportunity to provide community short breaks, meaning more groups have increased access to universal provision and a wider choice for 1:1, 2:1 overnight and domiciliary to support this particularly vulnerable group of children and families.

• Growth, Housing and Environment - Contribution towards deferred non- domestic waste charges in 2019 - £6.456m

The revenue consequences of the Infrastructure Investment from the Currency Fund to build the new Sewage Treatment works has now been quantified and the amount  required  for  2019,  when  repayments  of  the  investment  are  due  to commence is £1,584,000.

The States decision during the Budget debate last year to pay Parish and Island Wide rates will require additional funding of £794,000 in 2019, over and above the £900,000 originally agreed to pay Parish Rates only.

The decision to "move on" during the debate on the introduction of non-domestic liquid waste charges in 2017 resulted in deferral of the proposed charges for 2018 and 2019. In the MTFP 2016-19, it was also proposed to introduce non-domestic solid waste charges in 2019, however, pending decisions on the preferred way forward for liquid waste, these further proposals have not been brought to the Assembly for consideration. This leaves a gap in the departmental budget of £11m in total which requires re-prioritisation of the growth requests originally funded by the  charges.   A  contribution  of  £4.078m  is  therefore  made from  the  growth allocation.

The balance of funding required to address this shortfall (£6.9m) will be met out of savings to be delivered from the implementation of the Target Operating Model or unallocated reserves if necessary.

Budget Statement 2019 (as amended)

Figure 17 - Proposed Allocation of Growth Expenditure for 2019

*Shortfall - to be funded by unallocated reserves/Target Operating Model Savings

PART D – CAPITAL PROGRAMME

Budget Statement 2019 (as amended)

10. Proposals for Capital Programme - Introduction

Introduction

A Long Term Capital Plan (LTCP) was developed in advance of the first Medium Term Financial Plan (MTFP) to identify capital project requirements over a 25 year planning horizon. This allowed sight of the States capital requirements to enable financial and operational planning and to manage affordability and the impact on the local economy. The LTCP forms the basis for the capital programmes of the future.

The LTCP will be updated and is now proposed to cover the next 20 years, which is in line with many other jurisdictions. The States Treasury and Exchequer will work with all departments offering the opportunity to evaluate the scope, format and processes to ensure that the States asset management and replacement programmes are in line with the long term vision, strategic priorities and demographic and legislative changes.

Delivering the infrastructure, regeneration and housing required will require a different approach to investment and accordingly, as part of the Finance Transformation, a new framework  for  funding  these  investments  will  be  brought  forward  in  the  new Government Plan.

The MTFP 2016-2019 set out the indicative capital programme for each of the years 2016-2019 and the debate on the MTFP approved the total capital allocations for each of these years. The annual Budget for each of these years then approves the detailed list of projects. To comply with the Public Finances (Jersey) Law 2005, therefore, the States is asked to approve the detailed list of capital projects for 2019 as set out in this document.

Budget 2018 presented a revised capital programme for 2018 and an indicative one for 2019, which responded to increased demand for investment and inflationary pressures. The 2019 programme now presented has been further examined, with few changes.

Updates since Budget 2018

Figure 18 shows a list of the changes from the indicative capital programme identified in the Budget 2018 to that submitted by departments most recently for the Budget 2019.

Figure 18 – Changes from the Budget 2018 Indicative Capital Programme to Budget 2019

The three largest movements are removal of further funding for Corporate Data (platforms), the removal of a further allocation to Digital Care Strategy and the introduction of the Urban Regeneration - Public Space project.

The new initiative, Urban regeneration - Public Space, has been included to deliver improvements in Public Realm, the first project is a request of the Bailiff 's Chambers. This project contributes towards the wider public realm improvement that the Council of Ministers have prioritised as one of the six common themes in the Common Strategic Policy document. It will join Liberation Square and Weighbridge Place to create a large open space to commemorate and help celebrate the 75th anniversary of the Liberation of the Island.

The funding allocation for Corporate Data (platforms) was originally earmarked to upgrade the citizen database and to create the business directory. However, due to the level of change within IT, and subsequent change to the SoJ IT/digital strategy, the requirement for the upgrade of the citizen database and creation of the business directory as described by the original business case has now been superseded and the earmarked funding for this project is not currently required.

Due to the level of change currently being experienced within IT, and subsequent change to the SoJ IT/digital strategy, the requirement for a data warehouse as

Budget Statement 2019 (as amended)

described by the original business case has now been superseded and the funding is no longer required.

The further allocation for Digital Care Strategy is no longer required in the capital program. The project is still underway but further spend is revenue in nature and will be provided from Health and Community Services' revenue budgets.

Two Heads of Expenditure are also being created but no funding allocated at this time. The creation of these will allow funding from existing resources to be reallocated towards these in 2019 only once final business cases have been considered.

An Investment Appraisal Board has been created whose objective is to provide a robust and objective mechanism for the consideration of all requests for additional funding and to make recommendations for approval (or otherwise) to the Minister for Treasury and Resources, Chief Executive Officer and the Treasurer of the States. Alongside this, work progresses to introduce more robust and consistent business case methodology to inform decision-making.

A new finance/accounting system or Enterprise Resources Planning (ERP) system, which  integrates  further  operational  areas  of  the  organisation  such  as  HR  and procurement, is an essential enabler to deliver the new target operating model and to modernise public services across the States. This has been a consistent theme in the reviews carried out on financial management and reporting; investment in this area is needed, starting in 2019.

Investment is also urgently needed in the organisation's digital solutions development and modernisation initiatives. There are a number of areas that will require funding in this initiative and the creation of a Head of expenditure allows any capital elements of these solutions to be accounted for correctly once the programme is understood and agreed.

Balancing the 2019 Capital Programme Unspent Capital Allocations

As part of the quarterly monitoring of capital project spend which is reported back to the Executive Management Team and the Council of Ministers, departments are asked to identify any unspent allocations and those no longer required for the purpose for which they were approved for.

Any unrequired balances are either returned to the Consolidated Fund or can be reallocated to manage priorities. In 2017, as part of the work on the Budget 2018 capital programme, £5.8m was identified as unspent capital to be used to fund the shortfall in capital funding requirements, £1.6m of that related to 2019 funding.

The latest review identified a further £3.7m across a number of existing capital project allocations. £1.4m will be allocated to contribute to the 2019 Capital Programme, £0.5m will be transferred to the existing Orchard House Capital scheme to increase the scope of that scheme and the balance will be available once funding pressures have been prioritised.

The proposed programme therefore becomes:

Figure 19 – Proposed 2019 Programme

Programme Transfers  Consolidated (Gross) from  Fund Unspent  Allocation

Capital Head of Expenditure

Capital (Net)

£'000 £'000 £'000 2019 2019

Office of the Chief Executive

Desktop Upgrades 1,000 - 1,000 Corporate Web Platform Refresh Cycle 500 - 500 Content management system refresh (SharePoint  100 - 100 Hardware Refresh 281 - 281 Open Data 77 - 77 CRM Platform Renewal 80 - 80 Replacement Assets - CMD 1,050 - 1,050 ERP Solution - Modernisation and Digital - Office of the Chief Executive Total 3,088 - 3,088

Children, Young People, Education and Skills

Grainville Phase 5 * 3,778 (1,505) 2,273 Minor Capital  250 - 250 Children, Young People, Education and SkillsTotal 4,028 (1,505) 2,523

Health & Community Services

Equipment & Minor Capital 1,073 - 1,073 Child Health IT System 202 - 202 Replacement Assets RIS / PACS IT assets 1,900 - 1,900 CT Scanner 2,225 - 2,225 Health & Community Services 5,400 - 5,400

Growth, Housing and Environment

Replacement Assets 2,000 - 2,000 Infrastructure Rolling Vote 18,188 - 18,188 La Collette Waste Site Development 500 - 500 Urban Regeneration - Public Space 2,000 (1,420) 580 Equipment, Maintenance and Minor Capital 80 (68) 12 Fisheries Vessels 25 (25) - Growth, Housing and Environment Total 22,793 (1,513) 21,280

Justice and Home Affairs

Minor Capital 505 - 505 Justice and Home Affairs Total 505 - 505

Non Ministerial

Replacement Assets - Non Mins  179 - 179 Non Ministerial Total 179 - 179

Total Capital Programme 35,993 (3,018) 32,975 Notes: * Denotes projects to be completed by Jersey Property Holdings on behalf of the relevant service department.

Budget Statement 2019 (as amended)

2019 Proposed Programme

The below analysis provides details from sponsoring departments to support bids for and update Capital Programme projects.

Office of the Chief Executive Desktop Upgrades (£1,000,000)

This is a recurring programme of work to ensure the State's end-user operating system and office suite remain up to date and delivering the best productivity, and compatible environment for applications.

Devices for users' desktops/laptops and increasingly mobile will continually need to have their software upgraded to keep current and aligned with other platforms used in the States.

Anticipated Spend in 2019: £1,000,000 Corporate Web Platform Refresh (£500,000)

This capital project is to fund a rolling programme of investment in the States of Jersey websites and the technology behind them. Sites include www.gov.je, the MyStates intranet, statesassembly.gov.je, petitions.gov.je and the new one.gov.je customer services portal, amongst others. It reflects that digital is now the default channel for government services. The specific allocation of funds is made according to priorities and may include new and enhanced functionality, improvements to the look and feel of sites, and technical changes such as moving from on-premise infrastructure to the cloud.

Anticipated Spend in 2019: £500,000

Content Management System Refresh (£100,000)

This project is a technology refresh of the underlying technology that runs a number of government websites. This platform is called the Content Management System and the requirement is to keep current with other States of Jersey platforms.

The web content management system that powers www.gov.je, parish.gov.je, ports.je, statesassembly.gov.je,  all  of  the  States'  intranet  sites,  and  others  is  Microsoft SharePoint 2013. This budget is used to fund an upgrade of the public facing sites to a new release – SharePoint 2016, and to part-fund the migration of intranet sites from SharePoint 2013 on-premise to the cloud version, SharePoint Online, which is part of Office 365.

Anticipated Spend in 2019: £100,000

Hardware Refresh (£281,000)

This is a rolling programme to ensure hardware is replaced at the end of its life. Standard  lifecycles  exist  for  all  hardware  types  and  this  is  used  to  create  a replacement plan for PCs, laptops, servers and network infrastructure.