Long-Term Care Scheme (P.99/2013): third amendment

STATES OF JERSEY

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LONG-TERM CARE SCHEME (P.99/2013): THIRD AMENDMENT

Lodged au Greffe on 19th November 2013 by Deputy M. Tadier of St. Brelade

STATES GREFFE

2013   Price code: B  P.99 Amd.(3)

LONG-TERM CARE SCHEME (P.99/2013): THIRD AMENDMENT

PAGE 2 –

After the words "dated 22nd August 2013" insert the words –

"except that in section 1.12, delete the third paragraph which says –

Unlike  income  tax,  an  upper  income  limit  will  apply  when calculating the LTC contribution. LTC liability for individuals with a  gross  income  above  the  Social  Security  upper  earnings  limit (£152,232 p.a. in 2013) will be capped.' ".

DEPUTY M. TADIER OF ST. BRELADE

REPORT

Would the Minister not acknowledge that there was continuing controversy about the cap and it was only with great reluctance that his predecessors raised it? Would he not acknowledge that this was a perfect opportunity to remove the cap and to show that the much better-off in society were taking the strain, notwithstanding I should add, the excellent work he is doing with his project?'

– Deputy R.G. Le Hérissier of St. Saviour ,

Question without notice to the Minister for Social Security

-o0o-

The plan to introduce a Long-Term Health Scheme is not in itself controversial. Indeed, the principle of the scheme is most welcome. However, in time of widespread austerity and  belt tightening, the issue of  who shoulders the burden for this new payment (tax?) is very important.

It has been known that the consequence of an aging population is a challenge for all of us in society; however, the brunt of burden will fall on the lower- and middle-earners in Jersey. The highest-earners, who are most able to pay, will have their liability capped at £152,232. This is most peculiar, given the fact that those on these six-figure earnings  tend  to  be  those  with  the  greatest  proportion  of  disposable  income  and therefore the most able to pay.

However, it is not too late to put this right. Deputy Le Hérissier hit the nail on the head when he said this proposition (P.99/2013) was the perfect opportunity' to introduce a more progressive method of raising funds for the much-needed Long-Term Health Scheme.

This is exactly what the amendment does – it asks the States to agree that earnings above £152, 232 will also be liable for the additional [1%] tax/contribution.

Effective Rate

The rationale for this amendment is quite simple: to spread more evenly the burden of this new payment and to make sure that the most wealthy in our society pay the same effective rate' as the rest. Indeed, I suggest it would be perverse if those most able to pay, in our society, were to have a lower effective rate than those less able to pay (see Figure 2.5, below).

Regressive' or Progressive'?

Page 16  of  the  Economic  Impact  Assessment  reminds  of  the  3 definitions  of regressive, proportionate and progressive –

Page 2  of  the  Economic  Impact  Assessment,  circulated  by  the  Minister  on  5th November 2013, states –

The amendment seeks to improve this assessment by removing the regressive' aspect of  this  new  [tax]  so  that  it  will  be  proportional'  for  those  with  earnings  above £152,232.

In this sense, the amendment is very much moderate. A more radical member would have perhaps sought to make higher earners pay a higher rate; however, given the historic  tendency  of  successive  States  Assemblies  to  shy  away  from  progressive taxation, I believe proportional rate seems to be more likely to be acceptable to the majority.

Advantages

There are 3 main advantages to this amendment –

1. It is fairer. What is often referred to as middle Jersey' has seen a general reduction in their disposable income in recent years, with the tax system pushing the burden increasingly onto personal and workers' incomes. This amendment will mitigate some of that burden so that it is shared more equally by those most able to pay.
2. It will help to frontload the costs by raising an extra £3.37 million p.a.1, thereby reducing future liabilities and allowing for greater flexibility if future income proves uncertain.

1 Figure provided by Social Security Department, based on 2011 figures.

3. It isin keeping with the broad objectives of the strategic plan and the election pledges of the Minister.

The current strategic plan states that –

The Council of Ministers is committed to delivering strong leadership, to valuing our community and promoting fairness.'

It also goes on to state (p.18) that, Taxes should be low, broad and simple.' However, it seems that the breadth of this new tax would only be applied up to £152,000. This is neither fair' nor broad'.

Similarly,  we  know  that  Senator F. du H. Le Gresley  himself  is  a  supporter  of progressive taxation, where those who earn the most in our society would pay a higher rate of tax than those on lower incomes. It is therefore strange, that a proposition coming out of his Department is in direct contradiction to his stance of continued support for the principle of progressive taxation. This proposition allows the Minister a mechanism by which to pursue the much-needed long-term health care scheme without having to break his election promises.

When is a tax not a tax?

Several questions have been asked about whether this is a tax or not.

If contributions are to be levied on earned and unearned income, will the Minister confirm that the effect will be to the Island's headline income tax rate of 20 per cent to increase to 21 per cent?'

– Deputy of St. Ouen , 18th June 2013

The Minister says this is not to be regarded as a new tax, but new Social Security payments. But he appears to be treating it exactly like tax in his proposals.'

– Deputy G.P. Southern of St. Helier , 18th June 2013

The Minister has stated that it is the very presence of the upper cap that prevents this from being a tax. However, unlike Social Security Contributions, this levy is collected via the tax system and will capture unearned income too, which would not otherwise be liable for Social Security Contributions. So in that respect, it does not act like an ordinary contribution either.

However, if the rationale is that this new charge is not a tax simply because there is an upper limit, then that is a very narrow and fragile definition. It stands to reason, that to all intents and purposes, for all those earning under the ceiling, that it feels and acts like a tax. And a tax which disproportionately hits middle income households – see Figure 2.7 below.

You will note from this graph above that for those in the red £150,000+ category, the yield is much less than those in the £30,000–£50,000 and those in the £50,000– 150,000 categories. In fact, the yield is almost identical to that paid by those in the £20,000–£30,000 brackets, and still less when <£30,000 earners are taken as a whole.

Further supporting graphs and explanations can be found in the Appendix (attached) taken from the Economic Impact Assessment circulated by the Minister. I encourage members to read these in conjunction with this report as they will be referred to in the debate.

Conclusion

As a society, we often hear phrases from politicians that imply, we are all in this together.' However, it is difficult for the public to believe this when in their daily reality they continually experience the divide between rich and poor increase – and when government actively pursues funding mechanisms that perpetuate this divide.

As  a  government,  we  have  the  perfect  opportunity  to  realign  the  burden  of  this otherwise worthy scheme, to make sure that its funding mechanisms are much fairer than they are under the current proposals.

I also make a personal plea to the Minister, himself, to stick by the principles of his election pledges and support this move to make the system less regressive and more progressive.

Financial and manpower implications

This  amendment,  if  adopted,  will  increase  the  payment  for  the  Long-term  Care Scheme by £3.37 per annum (based on the 2011 figures provided by Social Security Department).

APPENDIX

Extract from –

Response from Minister for Social Security to the Economic Impact Assessment of long-term care scheme