States Meeting Transcript - 15th December 2015

STATES OF JERSEY OFFICIAL REPORT

TUESDAY, 15th DECEMBER 2015

COMMUNICATIONS BY THE PRESIDING OFFICER ......................................5

1. The Deputy Bailiff :......................................................................5

PUBLIC BUSINESS - resumption................................................................5

2. Draft Budget Statement 2016 (P.127/2015)..............................................5

1. Senator A.J.H. Maclean (The Minister for Treasury and Resources):....................5

2. Draft Budget Statement 2016 (P.127/2015): amendment (P.127/2015 Amd.)..........12

1. Deputy C.F. Labey of Grouville :........................................................12
2. Senator A.J.H. MacLean:...............................................................14
3. Connétable C.H. Taylor of St. John : ....................................................17
4. Deputy A.D. Lewis of St. Helier:.......................................................17
5. Senator P.M. Bailhache : ................................................................19
6. Deputy S.M. Wickenden of St. Helier:..................................................19
7. Connétable J.M. Refault of St. Peter:...................................................20
8. Deputy J.A.N. Le Fondré:..............................................................20
9. Deputy P.D. McLinton of St. Saviour:..................................................23
10. Deputy S.Y. Mézec of St. Helier:....................................................24
11. Deputy L.M.C. Doublet of St. Saviour : ..............................................25
12. Deputy M.R. Higgins of St. Helier:..................................................25
13. Deputy S.M. Brée of St. Clement:...................................................26
14. Deputy K.C. Lewis of St. Saviour:..................................................27
15. Senator P.F.C. Ozouf : ...............................................................27

16. Deputy R. Labey of St. Helier:......................................................30
17. Deputy M.J. Norton: ................................................................30
18. Connétable J. Gallichan of St. Mary:................................................31
19. Deputy G.P. Southern of St. Helier:..................................................32
20. Connétable M.P.S. Le Troquer of St. Martin : ........................................35
21. Senator I.J. Gorst : ...................................................................35
22. Deputy M. Tadier of St. Brelade:....................................................38
23. Deputy T.A. Vallois of St. John : ....................................................41

LUNCHEON ADJOURNMENT PROPOSED..................................................43 LUNCHEON ADJOURNMENT..................................Error! Bookmark not defined.41

The Deputy of St. John:.....................................Error! Bookmark not defined.41

24. Deputy S.G. Luce of St. Martin:....................Error! Bookmark not defined.42

25. Deputy G.J. Truscott of St. Brelade:................Error! Bookmark not defined.43
26. Senator P.F. Routier:...............................Error! Bookmark not defined.43
27. The Deputy of Grouville : ..........................Error! Bookmark not defined.44

3. Draft Budget Statement 2016 (P.127/2015): fifth amendment (P.127/2015 Amd. (5)) ............................................................Error! Bookmark not defined.46

1. The Connétable of St. John:...........................Error! Bookmark not defined.46
2. Deputy E.J. Noel of St. Lawrence:....................Error! Bookmark not defined.48
3. Deputy S.M. Wickenden:..............................Error! Bookmark not defined.49
4. Deputy M.R.Higgins:.................................Error! Bookmark not defined.50
5. The Deputy of St. John:...............................Error! Bookmark not defined.50
6. The Deputy of St. Martin:.............................Error! Bookmark not defined.51
7. Deputy P.D. McLinton: ...............................Error! Bookmark not defined.54
8. The Connétable of St. Peter:..........................Error! Bookmark not defined.54
9. Deputy R. Labey : .....................................Error! Bookmark not defined.55
10. Connétable A.S. Crowcroft of St. Helier : ..........Error! Bookmark not defined.56
11. Deputy S.M. Brée: .................................Error! Bookmark not defined.57
12. Senator A.J.H. Maclean:............................Error! Bookmark not defined.57
13. Deputy J.A.N. Le Fondré: ..........................Error! Bookmark not defined.58
14. Deputy A.E. Pryke of Trinity : ......................Error! Bookmark not defined.59
15. Senator A.K.F. Green:..............................Error! Bookmark not defined.59
16. Deputy G.P. Southern : .............................Error! Bookmark not defined.59
17. Senator I.J. Gorst : ..................................Error! Bookmark not defined.60
18. The Connétable of St. John : ........................Error! Bookmark not defined.60

4. Draft Budget Statement 2016 (P.127/2015): third amendment (P.127/2015 Amd.(3)) ............................................................Error! Bookmark not defined.62

1. Deputy D. Johnson of St. Mary:.......................Error! Bookmark not defined.62
2. The Deputy of St. Martin:.............................Error! Bookmark not defined.64
3. Deputy J.A.N. Le Fondré:.............................Error! Bookmark not defined.65
4. Senator L.J. Farnham :.................................Error! Bookmark not defined.65
5. The Connétable of St. Mary:..........................Error! Bookmark not defined.66
6. Deputy R. Labey : .....................................Error! Bookmark not defined.67
7. Deputy R.J. Renouf of St. Ouen:......................Error! Bookmark not defined.68
8. The Connétable of St. John:...........................Error! Bookmark not defined.68
9. Deputy E.J. Noel: .....................................Error! Bookmark not defined.68
10. The Deputy of St. Mary:............................Error! Bookmark not defined.70

5. Draft Budget Statement 2016 (P.127/2015): Second Amendment (P.127/2015 Amd.(2)) ............................................................Error! Bookmark not defined.70

1. The Connétable of Grouville :..........................Error! Bookmark not defined.71
2. Deputy S.M. Wickenden:..............................Error! Bookmark not defined.72
3. Deputy E.J. Noel: .....................................Error! Bookmark not defined.72
4. The Connétable of St. John:...........................Error! Bookmark not defined.73

5. The Deputy of Grouville :..............................Error! Bookmark not defined.73
6. The Deputy of St. Martin:.............................Error! Bookmark not defined.73
7. Deputy J.A.N. Le Fondré:.............................Error! Bookmark not defined.74
8. The Connétable of Grouville :..........................Error! Bookmark not defined.74 The Connétable of St. John:.................................Error! Bookmark not defined.74

6. Draft Budget Statement 2016 (P.127/2015) - as amended..Error! Bookmark not defined.75

1. Deputy J.A.N. Le Fondré:.............................Error! Bookmark not defined.75
2. Deputy G.P. Southern :................................Error! Bookmark not defined.75
3. Senator P.F.C. Ozouf :.................................Error! Bookmark not defined.75
4. The Connétable of St. John:...........................Error! Bookmark not defined.76
5. Deputy S.Y. Mézec :...................................Error! Bookmark not defined.76
6. Deputy A.D. Lewis :...................................Error! Bookmark not defined.77
7. Deputy M.R.Higgins:.................................Error! Bookmark not defined.77
8. The Connétable of St. Helier:..........................Error! Bookmark not defined.77
9. The Deputy of Grouville :..............................Error! Bookmark not defined.78
10. Deputy S.M. Wickenden:..........................Error! Bookmark not defined.78
11. The Deputy of St. John:............................Error! Bookmark not defined.78
12. Senator A.J.H. Maclean:............................Error! Bookmark not defined.80

3. Draft Finance (2016 Budget) (Jersey) Law 201- (P.129/2015)......Error! Bookmark not defined.82

1. Senator A.J.H. Maclean (The Minister for Treasury and Resources):..Error! Bookmark not defined.82
2. Senator A.J.H. Maclean:..............................Error! Bookmark not defined.82

1. Deputy J.M. Maçon of St. Saviour:....................Error! Bookmark not defined.83
2. Senator A.J.H. Maclean:..............................Error! Bookmark not defined.83

4. Draft Finance (2016 Budget) (Jersey) Law 201- Acte Operatoire (P.129/2015) ...Error! Bookmark not defined.85

4.1 Senator A.J.H. Maclean (The Minister for Treasury and Resources):..Error! Bookmark not defined.85

5. Draft Income Tax (Amendment No. 45) (Jersey) Law 201- (P.128/2015)..........Error! Bookmark not defined.86

5.1 Senator A.J.H. Maclean (The Minister for Treasury and Resources):.. Error! Bookmark not defined.86

1. Deputy G.P. Southern :................................Error! Bookmark not defined.86
2. Senator A.J.H. Maclean:..............................Error! Bookmark not defined.86 Deputy J.A.N. Le Fondré:...................................Error! Bookmark not defined.87 Senator I.J. Gorst :...........................................Error! Bookmark not defined.87

6. Social Security Tribunal: appointment of Chairman (P.143/2015).Error! Bookmark not defined.87

6.1 Deputy S.J. Pinel of St. Clement (The Minister for Social Security):.. Error! Bookmark not defined.88

1. Deputy G.P. Southern :................................Error! Bookmark not defined.88
2. Deputy S.J. Pinel:.....................................Error! Bookmark not defined.88

7. Social Security Medical Appeal Tribunal: appointment of chairman (P.144/2015) ............................................................Error! Bookmark not defined.89

7.1 Deputy S.J. Pinel (The Minister for Social Security):..Error! Bookmark not defined.89

8. Income Support Medical Appeal Tribunal: appointment of chairman (P.145/2015) ............................................................Error! Bookmark not defined.89

8.1 Deputy S.J. Pinel (The Minister for Social Security):..Error! Bookmark not defined.89

9. Draft Double Taxation Relief (Arrangement with the United Kingdom) (Jersey) Act 201- (P.147/2015)..........................................Error! Bookmark not defined.90

9.1 Senator P.M. Bailhache (The Minister for External Relations):....Error! Bookmark not defined.90

Senator I.J. Gorst :...........................................Error! Bookmark not defined.90 The Connétable of St. Mary:................................Error! Bookmark not defined.91 The Connétable of St. Martin:...............................Error! Bookmark not defined.91

11. Draft Social Security (Amendment of Law No. 10) (Jersey) Regulations 201- (P.136/2015)...............................................Error! Bookmark not defined.91

11.1 Deputy S.J. Pinel (The Minister for Social Security):..Error! Bookmark not defined.91 The Deputy of St. Ouen:....................................Error! Bookmark not defined.92 Deputy J.A.N. Le Fondré:...................................Error! Bookmark not defined.93 Mr R.J. MacRae , H.M. Attorney General:...................Error! Bookmark not defined.93

ADJOURNMENT.................................................Error! Bookmark not defined.94

[9:30]

The Roll was called and the Dean led the Assembly in Prayer. COMMUNICATIONS BY THE PRESIDING OFFICER

1. Welcome to His Excellency The Lieutenant Governor

The Deputy Bailiff :

An opportunity again obviously to welcome His Excellency to the Chamber this morning. [Approbation]

PUBLIC BUSINESS - resumption

2. Draft Budget Statement 2016 (P.127/2015) The Deputy Bailiff :

We now continue with Public Business. We come to the Draft Budget Statement 2016 - P.127/2015 - lodged by the Minister for Treasury and Resources and I ask the Greffier to read the proposition.

The Greffier of the States:

The States are asked to decide whether they are of opinion (a) to approve in accordance with the provisions of Article 10(3)(a) of the Public Finances (Jersey) Law 2005 the estimate of income from taxation during 2016 of £622,155,000 as set out in Summary Table A of the Budget Statement with the sum to be raised through existing taxation measures in the proposed changes to income tax, impôts duty, stamp duty, land transaction tax and vehicle emissions duties for 2016 as set out in the Budget Statement; (b) 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 2016 other than States trading operations as set out in the recommended programme of capital projects in Summary Table C totalling £26,691,000; (c) to approve in accordance with the provision of Article 10(3)(e) of the Public Finances (Jersey) Law 2005 each of the capital projects that are scheduled to start during 2016 in the recommended programme of capital for each States trading operation as set out in Summary Table D that require funds to be drawn from the trading funds in 2016.

1. Senator A.J.H. Maclean (The Minister for Treasury and Resources):

Budget 2016 takes a long-term approach that is necessary to secure strong public finances for future generations. It gives this Assembly the opportunity to create a sustainable financial future and continue the process to a fairer taxation system. This is not a Budget that proposes sudden change but instead takes a carefully considered phased approach that lays the foundations for Jersey's long- term needs. Budget 2016 proposes measures consistent with the aim of achieving fairness and sustainability in our public finances as well as supporting the Island's economic, environmental, social and health policies. I begin today by setting the record straight about the state of our public finances and let me be absolutely clear, our public finances are not in crisis and we are certainly not heading into the difficulties that some long running critics of Jersey like to suggest. [Approbation] We still have a very strong net balance sheet of £5.6 billion which is the envy of most jurisdictions, and that is after the impacts of the global financial crisis that began in 2008. The strength of Jersey's public finances were once again independently confirmed as recently as late November of this year by Standard and Poor's who reaffirmed our AA Plus credit rating. For the avoidance of doubt, that is the very highest that we could have been awarded. There is of course the much discussed £145 million potential shortfall in income over expenditure by 2019 emotively described by some as a "black hole". It is not a black hole and the measures in this Budget are not aimed specifically at resolving short-term funding shortfalls. I would like to put the £145 million into context. Firstly, it is a forecast that will fluctuate. Secondly, it includes a choice to invest approximately £62 million into new and improved services mainly in health and education. It includes, for the first time, depreciation of £55 million so that future generations do not have to deal with the costs of what could otherwise be unfunded replacement capital works. That leaves a core funding shortfall of £28 million recurring by 2019 if we do nothing, but doing nothing is not an option. If efficiencies and savings are not delivered to reinvest into our key priorities, then not all of the proposed investment will proceed as planned as we aim to deliver balanced budgets by 2019. We are taking a responsible, prudent and transparent long-term view and that is why we have included all potential costs and likely funding pressures into the Medium Term Financial Plan. The full details of how we will fund them will be presented in the Addition next June. It is a plan that will require change, reprioritising existing spending into key targeted areas of most need, cutting out unnecessary cost or wastage and redesigning services. Not just redesigning services but considering the way that we deliver them and, indeed, whether some are better delivered by the private or third sectors. Our focus is ensuring that every pound of taxpayers' money delivers the right services in the right place at the right price. Our detailed short, medium and long-term planning sets us apart from many other places and was certainly a positive factor in Standard and Poor's assessment of our fiscal strength. In recent years, Jersey has had to react to the global financial crisis and part of that response has been the need to invest heavily to protect jobs and support the economy towards recovery. This proactive strategy supported by the Fiscal Policy Panel has paid dividends as last year our economy returned to growth of 5 per cent for the first time since the global financial crisis hit in 2008 and that is even before interest rate rises. Global factors which have an impact on our Island are not limited to economic issues alone. The impact of an ageing population challenges the sustainability of public finances in Jersey and most other countries. Living longer may be good news presenting society and individuals with new opportunities but there are of course costs associated. These costs are ones to be borne largely by current and future working populations. It is important that we balance the needs of those of us who are lucky enough to live longer with the costs to be borne by current and future taxpayers. This Council of Ministers and its predecessors have chosen to face the challenges of the ageing population head-on introducing a long-term care scheme to protect the vulnerable from the high cost of care in old age and all of us from the potentially very high costs of that care. Our senior citizens in Jersey have the certainty of knowing they will be looked after at home or elsewhere and that their lifesavings will not be wiped out in the process. [Approbation] Equally, we have preserved the value of pensions compared to earnings growth and this has resulted in growth in pensioner incomes at well above the cost of living. Quite apart from the significant investment in Eco-Active that has insulated hundreds of pensioner households to reduce their energy costs helping them and the environment. We are also targeting investment in our children, particularly those children who face the greatest challenges. This includes £11 million on early intervention services for children and investment to improve the educational outcomes for the more disadvantaged young people in our society. In the long term, all these measures will improve equality and opportunity for individuals and benefit the wider community through improved

standards of living, productivity and economic growth. [9:45]

We must also not shirk away from the further important investment that will need to be made in the Island's infrastructure. While it may seem easier to put a sticking plaster on what we have and pass the bill down a generation, this is not the responsible thing to do and it is not what this Government is proposing. [Approbation] The responsible action is to prepare now for the funding that will be necessary for future capital replacement of our assets by putting aside money today from the income we receive. That is what we have done in the Medium Term Financial Plan proposals. I

would like to turn now to another misconception, this time regarding our tax system and Zero/Ten. There is a view of Jersey, a largely marginalised view, that lays our financial challenges at the door of the move to Zero/Ten and I would like to take a moment to clarify the position. Firstly, the pressures that we face in our public finances are not different to many other jurisdictions, other than the scale of course. Indeed, many countries are facing swingeing cuts to their public services and genuine austerity. In contrast, we are in the fortunate position to be able to plan to make significant investment in improving key public services. The dual impact of the global economic downturn since 2008 and the increasing costs of an ageing population can be seen the world over. Jersey has weathered that storm well and is able to plan for the future in a way that other jurisdictions can neither contemplate nor afford. Let me be absolutely clear. Jersey's economy would have been seriously damaged had we not taken the difficult measures we have to ensure the continued success of our finance industry by moving to the internationally competitive position offered by Zero/Ten. Economic growth has been and will continue to be driven by our flourishing financial sector and our increasingly diversified business services sector, much of it being driven by technology and innovation. That growth has been enabled by the principles of our long-term tax policy that are taxes should be low, broad, simple and fair. I turn now to Jersey's economic outlook. Globally, we have seen recovery over the course of this year. Continued improvement is anticipated but risks remain. Development in the euro area and China still give cause for concern. Jersey's own economy returned to growth in 2014 for the first time since the global financial crisis began in 2008. The financial services sector grew by 9 per cent and growth was broadly seen across the rest of the economy as well. Tourism saw staying visitor numbers up. Retails sales were up. Employment hit a record level in June 2015. Earnings have grown in real terms for the third year running. Jersey businesses continue to report increasing optimism through the Business Tendency Survey. The Fiscal Policy Panel's latest forecast shows that they expect economic growth to continue over the life of the Medium Term Financial Plan. Inflation is currently very low at 0.1 per cent but ever conscious about the need to ease the cost of living pressures for Islanders, we will look to fully implement the recommendations of the Oxera competition review to ensure that markets work in consumers' best interests. The new Income Forecasting Group, largely based on actual data, has now increased by 1.3 per cent the latest forecast for general revenues in 2015 to £673 million. How many other jurisdictions can say that? However, using a prudent approach, the group has taken a view that it would be premature to take all of this upside into its latest update of a forecast for the period to 2019. Despite this approach and ignoring the upside in forecast for the current year, Scrutiny continues to express concerns that the forecasting is too optimistic. There can of course be no guarantee with forecasting. However, I am satisfied that the updated forecast does not represent an imprudent planning assumption from which to base our financial plans. I am also pleased to note that the Corporate Services Scrutiny Panel's own professional adviser praises the work of the new Income Forecasting Group pointing out that the quality of the analysis has been robust and with the Taxes Office data being likely to lead us to significantly improved precision in the formulation of tax estimates. This Budget reinforces the approach taken in the Medium Term Financial Plan to lay the foundations for future economic growth and raise Jersey's productivity. We have therefore maintained investment of £14 million in key areas which support economic growth including employment schemes, financial services and the digital sector. Further investment in education, growing our economy and continuing to invest in infrastructure reflects the advice of the Fiscal Policy Panel that we should continue to support the economy while global conditions remain fragile and until such time as our economy strengthens sufficiently. This further reinforces the Medium Term Financial Plan which earmarks a £20 million drawdown provision for economic growth and productivity projects that cannot be funded from existing resources and which can make a significant contribution to raising our economic performance. Budget 2016 raises £1.8 million above the latest income forecasts of the Income Forecasting Group and, by 2019, will have the effect of raising £7.5 million. This additional revenue offers important

flexibility and will act as a safety net against income fluctuations. It could also allow us to reduce the level of future charges such as the planned health charge as long as current income forecasts are achieved. In addition, we have always been clear that we will drive the delivery of efficiencies in the public sector ensuring that we can cut the cost of delivering public services before we introduce any new additional public charges. The pace and scale of the Public Sector Reform Programme will accelerate over the course of 2016. All this year we have been looking at the organisation and asking ourselves: "Do we need so many departments, can we simplify service delivery and are we doing more for less or the same?" Change is hard but it is happening right now. We are reducing spending and improving efficiency. States departments saved 2 per cent from their budgets in 2015. That is £12 million and we are still forecasting underspends in all departments this year and Budget 2016 takes out a further £26 million. So far, 102 staff have agreed to take voluntary redundancy which will, deliver a recurring saving of £4.3 million per annum. On top of that, if we look at full-time equivalent posts, since February of this year, we have reduced 130 posts through more effective vacancy management. As well as reducing staff numbers, we are reviewing staff salaries to ensure they fairly reflect the jobs people are doing. We are simplifying staff policies and have reduced them from 70 down to 31. You can now pay your social security online. Police officers are moving to mobile working and sports bookings will be online soon. eGovernment is beginning to take hold. The Health Department has an impressive lean function that is reinventing services, improving patient experiences and cutting out unnecessary costs to reinvest in front line services. The public sector needs to be more productive so where and how we work needs to change as well. Our office modernisation programme will bring most of our office staff together into one main government building which will improve efficiency and, again, reduce costs. We have already started the process with Jersey Property Holdings reducing its office space by more than 5,000 square feet and Customs having reduced theirs by almost 3,000 square feet. That is better space utilisation and ultimately a cost saving. Last weekend, we co-located Economic Development, External Relations and Financial Services from 3 locations into one to improve output and again reduce costs. In my own department, plans are advancing to provide new technology for the Taxes Office which will give us the capability to integrate the collection of both taxes and social security contributions. Our ambition is to provide online tax filing for Islanders by the end of the Medium Term Financial Plan period. I would like to take this opportunity to thank Ministers and staff across the States for their significant efforts so far in driving reform and delivering the savings we need. There is of course much, much more to come. I will turn now to specific measures in this Budget starting with some of the changes to exemptions and allowances. These measures are based on the principles of fairness and affordability and the measures consistent with long-term tax policy have been recognised in the report presented by the Corporate Services Scrutiny Panel advisers. They are also aligned with our broader policies to support the most vulnerable members of our community. To deliver against these principles, we need to simplify our processes and address inequities that exist in the tax system. We all need to pay our fair share according to our means. Currently, around 17,000 individuals, married couples and civil partnerships in Jersey pay no income tax at all. Our relatively generous tax allowances mean that in 2014, the 40 per cent of lowest earning people contributed just 3 per cent of the £354 million of personal income tax raised to fund Jersey's public services. Eighty per cent of Jersey taxpayers enjoy effective rates of tax ranging from 7 to 15 per cent, well below the headline rate of 20 per cent. Our system of taxation is a comparatively generous one in relation to most other jurisdictions. However, given the known changes in demographics, improved health and life expectancy, there are inconsistencies in our current tax system which can no longer be justified or afforded. In addition, they do not fit with the principles of a low, broad, simple and fair tax regime as agreed by this Assembly. This Budget proposes the start of the gradual alignment of income tax exemption thresholds for people under 25 with those over that age. I will speak in detail about the rationale behind this measure during the amendment debate that will follow. However, briefly, I would like

to clarify that this measure will not take away the benefits from those 50 per cent of pensioners who pay tax who currently enjoy it. Pensioners who do not pay tax and who are on low incomes will also not be impacted at all by this measure. This Budget sees further gradual removal of some remaining allowances still available to the Island's 15 per cent of highest earners who pay income tax at the 20 per cent rate. This is without adjusting that headline rate of tax. In 2016, we will start phasing-out the standard child allowance and additional person allowance. Both allowances will be removed from standard rate taxpayers gradually over the next 3 years. This measure will not affect 85 per cent of taxpayers who are protected by the availability of marginal relief. A married couple with one child under 16 would need a joint income of £106,000 before they would be impacted by this measure. A single parent household would need an income of £78,000. The remaining allowance available to standard rate taxpayers who have children in higher education will remain in place for the time being while we fully explore the case and options for assisting Islanders with the costs of higher education. A Ministerial Oversight Group is looking at this in line with the Chief Minister's commitment to report back to this Assembly in the first quarter of 2016. Access to employment is a clear priority for this Council of Ministers and we are exploring all areas to provide the support Islanders need to reach their potential in the workplace. We know that, for parents, the cost of child care can create barriers to working and while we look at the wider issues we are raising the relief available on regulated child care for pre-school age children from £12,000 to £14,000 [Approbation].

[10:00]

This measure will cost taxpayers £100,000. In addition we will maintain the maximum tax relief available on child care for older children at £6,150. About 1,600 marginal rate taxpayers claim relief to help them with the cost of child care. Finally, in the area of exemptions and allowances we have proposed a reduction in the £1,000 tax exemption given on benefits in kind to £250. This protects those who receive modest benefits but ask those in receipt of more generous benefit packages to contribute more. This further improves fairness between taxpayers. The Taxes Office in conjunction with the Social Security Department will fully review the taxation of benefits in kind to ensure consistency. We are also proposing that Non-Residents' Relief is removed from 2016. This will result in non-resident individuals paying tax at 20 per cent on any income they generate from Jersey properties. I now turn to the measures in relation to the way Jersey subsidises and taxes property ownership. This Budget proposes the gradual phasing-out of mortgage interest tax relief over the next decade. We all, of course, want to help our loved ones on to the housing ladder if we can possibly afford to do so, but there is little justification today for the taxpayers of Jersey, many of whom rent property, to subsidise those who wish to purchase a property. It just is not fair. Moreover, international benchmarking research by the O.E. C.D . (Organisation for Economic Co- operation and Development) and work by PwC for Treasury conclude that mortgage interest tax relief is inefficient and counter-productive. It increases the cost of private sector housing and potentially increases costs in the rented sector. Some observers have criticised me for not undertaking specific research into housing markets in Jersey before embarking on this course of action despite the overwhelming evidence from elsewhere. I repeat: Jersey's housing market is not that different and the laws of economics apply here as well as they do in Guernsey, for example, where they have also made the decision to phase-out the same relief but starting sooner than we are. However, more fundamentally I believe it is no longer right to ask the taxpayers to subsidise house purchases, particularly if that subsidy increases house prices and thereby does not achieve its aim. Notwithstanding all that, I know this Assembly remains sympathetic towards helping young Islanders on to the housing ladder so with that objective in mind I propose to increase the Stamp Duty Land Transaction Tax, the tax exemption available in respect of registration of mortgage debt. This means that anyone buying a home costing not more than £450,000 will be able to benefit from reduced rates of duty tax on the registration of their mortgage. [Approbation] By outlining clear plans for the future of mortgage interest tax relief and by not starting the withdrawal until 2017 existing mortgage holders and potential first-time buyers will be able to plan their finances accordingly. The gradual withdrawal means that this measure will only affect a small number of taxpayers during this Medium Term Financial Plan period. Before leaving the subject of property- related taxes I did promise Members that I would provide an update on last year's property tax review as part of the delivery of this Budget. A summary of responses will soon be available online and it is fair to say the responses we received while not numerous were certainly heartfelt. The messages that we have received from those who responded were broadly: "Please do not radically reform the system particularly in relation to Parish rates." [Approbation] I was pausing expecting some more enthusiasm from the Constable's benches. [Laughter] I hope they will be more enthusiastic for my next comment, which is that this message we will heed. [Approbation] We will continue, however, the work we are doing with rates assessors in highlighting areas for future improvement including a better understanding of the Island-wide rate. However, with the exception of the phasing-out of mortgage interest tax relief, we currently have no plans for the introduction of any new property tax. [Approbation] Turning to duty measures proposed in the 2016 Budget, we are proposing a number of modest increases to duties for the coming year, all of which signal this Government's ongoing commitment to pursuing health, social and environmental policies. Jersey has the highest per capita consumption of alcohol in Western Europe save only for Lithuania. That, along with tobacco consumption, presents risks to Islanders' health and well- being, as well as raising the costs in our healthcare services. It is right therefore to maintain and where necessary increase the real value of alcohol and tobacco taxes. The duty inclusive of G.S.T. (Goods and Services Tax) on a standard pint of cider or beer will increase by one penny. Strong beer and cider will see a 3 pence per pint increase reflecting the potentially higher health risk they pose. We are proposing a 2 pence increase on a bottle of table wine and the duty on average strength spirits will increase by 90 pence per litre. The increase in duty on a packet of 20 cigarettes will be 35 pence. Jersey remains committed to meeting international targets to protect our natural environment and keeping Jersey's air clean for future generations. In this Budget we propose to modernise the way we tax vehicle emissions to incentivise the purchase of lower polluting vehicles and to ensure that the polluter pays when they exercise their choice to buy higher polluting vehicles. I also propose to remove the discount given to hire car operators from 1st January 2017, giving them a full year to adjust the composition of their fleet of cars accordingly. We, of course, welcome visitors with open arms but we should not be encouraging them to pollute the Island they have come to see. Taken together the changes to V.E.D. (Vehicle Emissions Duty) are expected to raise an additional £722,000 in 2016. Jersey knows the value of a healthy and growing business sector and we will continue to maintain an internationally competitive tax structure that encourages investment, growth and significant job opportunities particularly for our young people. However, I will take appropriate steps to address tax planning that reduces the amount of corporate income tax payable in the Island. From the day of lodging the Budget, and subject to Members' approval today, we have taken steps to prevent the repayment of tax credits to companies payable at the zero per cent rate, removing an opportunity previously available to foreign-owned groups to reduce the amount of corporate income tax paid in Jersey. Changes are also proposed to the distribution rules in order to improve their operation. The Taxes Office will continue to work with the tax adviser community to determine whether significant simplification of the rules can be brought

forward for next year's Budget. Turning to the future, I have indicated this Budget is one part of an ongoing programme of work to develop a longer-term approach to our tax system, an approach that needs to keep in-step with our changing society. Following the decision of this Assembly to approve the preparation of legislation to allow same-sex marriage in Jersey the Taxes Office has begun the work to prepare the income tax system for its introduction in 2017. A number of initial measures are proposed in this Budget. These include changing the Wife's Earned Income Allowance and Childcare Tax Relief from the 2016 year of assessment so they are given in respect

of the second earner in a married couple regardless of their gender. In addition, the department is working towards introducing the concept into the tax law of joint and several liabilities for the tax debts of married couples and civil partnerships. Further amendments will be required in next year's Budget to ensure that the income tax system is both ready in time for the introduction of same-sex marriage and able to reflect the needs of the modern taxpayer. To this end I have asked the Taxes Office to bring forward options alongside next year's Budget for the implementation of independent taxation for the 2020 year of assessment. This will outline the potential costs and benefits associated with a move towards independent taxation and must reflect any decisions made in preparing the income tax system for same-sex marriage. The introduction of independent taxation must also dovetail with the modernisation of the Taxes Office administrative procedures to ensure that they are efficient for both the Taxes Office and the taxpayer. We will be making significant investment in modernising the Taxes Office computer systems over the coming 2 years and proposing measures to simplify and strengthen the tax code to ensure the Taxes Office is able to do the best job possible for Jersey by treating all taxpayers fairly. As a result of our participation in numerous international tax treaties an increasing amount of data will be available to the Comptroller of Taxes from overseas tax authorities and financial institutions. We will propose similar measures to enable local financial institutions to provide equivalent data to the Comptroller. As a result the Taxes Office will more easily be able to detect error and evasion to correct it more quickly. In 2017 there will be a one-off Jersey tax disclosure opportunity that will enable people who believe they may have been getting their taxes wrong to set their affairs in order before new data sources, new technology and new legislation make the detection of tax error and evasion easier and before we increase the penalties and interest charges that may be levied on unpaid tax. Turning next to the capital programme, it has not changed from that proposed in the Medium Term Financial Plan. While the M.T.F.P. (Medium Term Financial Plan) sets the total funding envelope for each year in respect of the capital programme the actual schemes are proposed and agreed in the

Budget process. The 2016 programme includes funding for I.T. (information technology) investment that will be fundamental to improving efficiency within the States, providing the opportunity for changing our working practices. Notable investment will be delivered in the Taxes Office in improved H.R. (human resources) systems and notably for the wider eGovernment initiative. All these investments will support the aims of delivering a more innovative and lower- cost government. Consistent with the aims of delivering much needed investment in the Island's infrastructure, £10 million is provided to enable the Transport and Technical Services Department to deliver the next stage of improvement to the current inefficient sewerage treatment works as well as to maintain the road and sea defence networks. A further £2.5 million is proposed to be provided for the replacement of vital equipment within the health service and £1.7 million for the refurbishment of Sandybrook Care Home. To kick-start the planning and feasibility phase for the proposed new Les Quennevais School £1 million is provided with up to a further £39 million estimated for 2017 to be confirmed in next year's Budget. [Approbation] The total of the capital projects provided for in Budget 2016 is £26.7 million. In conclusion and perhaps rather unusually I would like to quote from the comments made by the Corporate Services Scrutiny Panel's professional adviser, C.I.P.F.A. (Chartered Institute of Public Finance and Accountancy). In the panel's report on the Budget the adviser had the following to say, and I quote:

[10:15]

"The relevant 2016 Budget proposals achieve improved alignment with the principles of the long- term tax policy principally through equitable simplification and set the foundation for some measured additional tax revenues over time. In respect of meeting those objectives we would commend the approach now taken." I thank the adviser for their positive comments. [Approbation] This Budget fully supports the Medium Term Financial Plan agreed by this Assembly. It further recognises the absolute necessity of building sustainable public finances as

one of the priorities in the Strategic Plan also approved by this Assembly. It begins to provide some of the much needed flexibility that will be needed over the period of the Medium Term Financial Plan. It clearly recognises the financial challenges the Island faces in a rapidly changing and highly competitive global environment. It seeks to balance the need for short-term fiscal support to maintain and build on the economic recovery with longer-term policies to underpin economic growth, diversification and job creation. It brings together our stated policies on health, on education, on housing and on reforming the public sector but also takes measures that will achieve our goal to develop our tax system so that it is simple and more equitable. This Budget is about the future. It is about some difficult decisions today that will ensure a safe, secure and affordable future for our grandchildren and future generations. I commend this Budget to the Assembly. [Approbation]

The Deputy Bailiff :

Thank you, Minister. Is the proposition seconded? [Seconded]

2. Draft Budget Statement 2016 (P.127/2015): amendment (P.127/2015 Amd.) The Deputy Bailiff :

There are a number of amendments. The first is by the Deputy of Grouville and I ask the Greffier of the States to read that amendment.

The Greffier of the States:

1. Page 2, paragraph (a) – After the words "as set out in the Budget Statement" insert the words – "except that the age enhanced income tax exemption thresholds for taxpayers aged over 65 shall be increased by 0.9 per cent in line with the increase for the standard exemption thresholds and not maintained at their current levels as proposed in the draft Budget Statement." 2. Page 2, paragraph

(a) – After the words "as set out in the Budget Statement" insert the words – "except that the age enhanced income tax exemption thresholds for taxpayers aged over 65 shall not be removed from the year of assessment 2018 from taxpayers reaching the age of 65 after 1st January 2017 as proposed in the draft Budget Statement but shall remain in place for all taxpayers reaching that age."

1. Deputy C.F. Labey of Grouville :

The first part of my proposition or amendment is asking the Minister for Treasury and Resources not to single out pensioners again by freezing their allowance thresholds but instead increase them as he is proposing to do for everyone else by 0.9 per cent. The second part is asking the Minister not to impose a ban on the age-enhanced income tax exemption thresholds on those who have worked, no doubt budgeted and are about to qualify for this allowance when they become a pensioner. The Minister spoke of the long-term tax policies. In July 2014 Senator Ozouf as Minister for Treasury and Resources in a statement to this Assembly on the Draft Budget said that the marginal rate will be at 26 per cent. The long-term tax policy report signals the goal of continuing to attempt to reduce that marginal rate to 25 per cent in the longer term. The 25 per cent goal was never reached then and neither does the Budget we have before us today even attempt to reach it. In fact it goes the other way and looks to reduce thresholds so pensioners will have to pay more. The proposal of the Minister for Treasury and Resources will affect pensioners and soon-to- be pensioners who have worked, saved, paid tax and have budgeted for their retirement, a cohort of pensioners who I would describe as middle-Jersey. Unfortunately when one starts to grapple with tax thresholds, enhanced thresholds, percentages and mechanisms for applying then it can become extremely complex, so much so I confused myself in my own report. I referred to the relative low income as survival income. It is not and the amount of £29,400 and £19,698 in my report are in fact the median value of relative low income and not the survival income rate. I am glad that has

cleared that up. [Laughter] So, I shall try to keep things simple to avoid any further confusion. Members need to know my amendment will affect about half the pensioners who pay tax at the marginal rate and by dint of that whose income is usually at the lower end of the spectrum. There are about 7,500 to 8,000 of them. The enhanced threshold allowance was introduced many decades ago in an age when the Government was nice to its pensioners, recognising their contribution to our economy and the fact that their incomes will for the most part become fixed at retirement. It was an attempt to help them adjust when they may very well be spending more time at home with increased heating and domestic costs. The Minister for Treasury and Resources will try to argue that pensioners are much better off this year because they received a 1.3 per cent increase in their State Pension in September and the R.P.I. (Retail Price Index) is minus 0.6 per cent. First, not all those paying tax at the marginal rate will have received 1.3 per cent rise on all of their income and only those with oil-fired central heating or who drive a car will benefit from the apparent fall in prices of fuel in Jersey. Those pensioners on electric or gas heating, as we well know, will not benefit from the minus inflation rate. However, even if we are to assume pensioners are much better off this year for minus 0.6 per cent inflation on some of their income the proposal intends freezing those allowances year-on-year when inflation may very well rise in the future. He also argues that he is not reducing pensioners' allowances but he is not increasing them either and he is not increasing them like everyone else's 0.9 per cent. He is freezing them so their tax liability will increase. The losses to those on the marginal rate, if the Minister's proposals remain, work out at about £60 for couples and £40 for singles in tax year-on-year. That may seem a small amount for some Members but to those who are trying to live on relatively low fixed incomes these amounts make a big difference. My issue, however, is out of the entire scope of places to go to balance the books the Minister for Treasury and Resources chooses middle-Jersey pensioners on the marginal tax rate. The household income report that was recently issued stated that one in 3 pensioners are already living in relative low income, twice that of the U.K. (United Kingdom). Twenty-eight per cent are at risk of poverty and the divide between rich and poor in Jersey is getting bigger. How does the Budget of the Minister for Treasury and Resources address any of these issues in his safe, secure Budget and his plan for Jersey? Indeed, it exasperates them. Members will not be surprised to learn that I have received a lot of correspondence from Islanders about this issue, not only because our pensioners feel like an easy target to this Council of Ministers but to those on fixed incomes they are feeling extremely vulnerable when this Government keeps on moving the goalposts to erode it away. I would like to read one such letter if I may that typifies the people the proposed changes will affect. "Dear Deputy Labey . Thank you for lodging the amendment to the Budget calling for the Minister for Treasury and Resources' plan to scrap higher thresholds for over-65s to be discarded. I am one of those that are paying tax on the marginal relief rate and even though my income in 2014 was £21,000 I cannot afford any luxuries like a holiday, I do not drink or smoke, I do not have a mortgage or rent to pay. I have just finished putting enough away to cover my funeral expenses but now need to start to save to replace my 15 year-old car. I am one of those who appreciates that you are standing up for the 8,000 pensioners who are in similar circumstances to my own." As Members will conclude, it affects pensioners who have worked, saved, paid their dues and have budgeted for their retirement. As I said, middle-Jersey; the very same people who have already been hit by the removal of the Christmas bonus, T.V. (television) licence allowances and will face increased stealth charges in the future. I am asking the Minister for Treasury and Resources that he does not take his saving from this cohort of pensioners at this time. If his objective is to align the tax allowance threshold perhaps he might consider increasing everyone else's to those of the plus-65s, thus reducing the promotion of the benefits culture that is

totally alien to the very pensioners he is targeting. I make my proposition amendment. [Approbation]

The Deputy Bailiff :

Thank you, Deputy . Is the proposition seconded? [Seconded] Does any Member wish to speak on the amendment?

2. Senator A.J.H. MacLean:

The 2016 Budget proposals support the strategic priority of delivering sustainable finances and address this in the context of the increasing ageing demographic. We are, on the whole, living longer, as I have previously said. This is of course absolutely good news but most good news comes with a cost and in this case a considerable cost that will accelerate over the coming years as the number of people over 65 rises rapidly. The Strategic Plan identifies investment in health care as a priority.  The need for extra spending is being driven principally by our increased longevity. These costs are not the only ones associated with an ageing demographic. Most evident is that the cost of providing the old age pension will increase as the number of pensioners increase. However it is little recognised that this increase in the number of pensioners will add further to the cost of income support in the years to come. The numbers are stark. Today there are nearly 4 working age people for everyone over 65. In 30 years' time there will be less than 2 working age people for everyone over 65. The number of those of working age per pensioner will halve over 30 years. The additional costs of an ageing population are well rehearsed and well understood. What is less understood is the impact upon who will pay for those current and rising costs. The current structure of our personal tax and social security contribution systems means that pensioners have a far more favourable treatment than people of working age with the same income. The combination of a static working age population and an increasing pensioner population and the favourable treatment of pensioners over younger working people create a multiplier effect upon the taxes of the children and grandchildren of that growing number of pensioners. While approximately 30 per cent of the total population do not pay tax, just under 50 per cent of the pensioner population do not pay tax.

[10:30]

Comparing 2 people on the same incomes, one being a pensioner and the other of working age, the pensioner currently pays less tax than the younger person. This is clearly unfair. There is no good policy reason as to why these 2 people should have different tax bills. In the future, the number of working-age people will not keep pace with the rapidly-increasing number of those aged over 65. This combines to mean that in the future the tax burden arising from the ageing population will hit the working-age population the hardest. The challenges for future public finances arising from the ageing population are huge, as costs rise and average tax take reduces with the numbers of pensioners increasing. Those future challenges will be very difficult to address, which should put the current decision in front of Members today into stark context. Obviously part of the reason that less pensioners pay tax arises from the lower incomes of pensioners but also the lower amounts of tax paid in the over-65s group comes from the unfair favourable tax treatment for which, as I have said, there are no good policy reasons. To illustrate, the current enhanced thresholds given to those over 65 costs other taxpayers about £4 million per annum. Because of the bulging numbers living into older age, the cost of this increases by £300,000 per annum in the coming years and then flattens out. Within the next 30 years the costs of maintaining the current level of enhanced exemptions would have more than doubled to nearly £10 million per annum and that would be in today's prices; that is to say, the future costs would of course be much higher. This additional cost would have to be borne by somebody at the same time as rising cost of pensions and health care will also need to be paid for. It is neither sustainable nor fair to future generations that arbitrary tax advantages are given to those over 65 when compared to their children and grandchildren. I suggest that the answer is: it is unreasonable. To address this unfairness and to make our finances more sustainable in the long term, I am proposing that over time there be only one exemption threshold, one that does not discriminate between generations. Crucially, I am not proposing that the current level of enhanced exemption thresholds be cut. I am proposing that it be maintained at

the current rate in 2016 while the exemption threshold of those of working age increases by 0.9 per cent. A system of continuing-to-increase enhanced exemption thresholds is unfair on working-aged taxpayers. It is unnecessary to insert a timeframe to this alignment at this particular stage. The exemption thresholds are reviewed  annually with regard to  R.P.I.  and the annual  increase  in earnings. It is not possible to forecast exactly what those figures will be for future years and set exemptions against them. To be clear, this proposal does not impose an additional tax. No taxpayer  will pay  more  as a direct  consequence of the proposals regarding the age-enhanced exemption thresholds contained within the Budget. No allowances are being cut. Yes, it is obviously the case that if we were to increase the exemption threshold, less tax will be paid than if we maintain it at its current level. But that does not mean that more tax will be paid than is currently the case. People will pay more tax but that would only be if their income were to rise. Someone with the same income next year compared to this year will pay no more tax. If tax exemption thresholds were benefits paid out rather than deductions from tax liabilities, the effect would be for that benefit to be the same this year as next. It must be a priority for Government to ensure that we take measures to address the income of the most needy in our society. Societies usually benchmark the relatively financial needy by reference to 60 per cent of medium income and it is absolutely right that our benefit system be tailored to provide assistance to those beneath this level of income to improve living standards and the level of equity in society rather than hand benefits out to all, regardless of income. The same must be true for exemptions and reliefs in the tax system and indeed is at the heart of how a marginal relief system works. It has been argued that because there are pensioners beneath this level of income that we should not move to equalise tax thresholds. That argument simply does not hold water. According to the recently-released Jersey Household Income Distribution Report 28 per cent of pensioners are beneath the relative low income level or 60 per cent of the medium income. It is quite right that we concentrate our efforts to reduce that number and emphasise the need to maintain the generous uprating of the Jersey old age pension. [Approbation] Indeed, this pension was increased in October by 1.3 per cent at a time when pensioners' R.P.I. was reducing by 0.6 per cent. None of those pensioners beneath the relative low income level would be impacted by the equalising of exemption thresholds, as none of them will be paying tax or be anywhere close to paying tax. A comparison with the Household Income Distribution Report shows that the current tax exemption thresholds are over £4,000 higher than the relative low income level for a single taxpayer and over £8,000 higher for a married household. Those with an income below the relative low income level do not pay income tax. Therefore, an increase in the age exemption threshold would not and could not benefit them. Just under 50 per cent of over-65s are already exempt from income tax. A pensioner solely in receipt of State pension does not pay income tax. The benefit of marginal rate taxpayers who do not pay tax and benefit from the exemption threshold is wide. An over-65 single taxpayer would have an income of up to £69,000 and still benefit from the enhanced exemption. For a married couple, they could have income up to £114,000 and still benefit from the enhanced exemption. Increasing the age exemption would therefore benefit a married taxpayer with an income between £26,000 to over £100,000. This illustrates that the amendment in front of us is not focused on low to middle income pensioners and most certainly is not focused on lower-income pensioners. As I have already noted, half the pensioners are already protected from the burden of income tax because

their income is below the enhanced exemption threshold and hence they do not pay any income tax. If their income is in excess of the enhanced exemption threshold, they only pay income tax on the excess, not on all of their income, as has been suggested by some. In summary, the Budget proposal to maintain the age exemption at the 2015 levels delivers more sustainable finances by providing equity between the generations of taxpayers in avoiding the current and much higher future costs of the current arrangements. We are, by the way, not alone in facing these challenges to our income and we are not alone in facing up to them and addressing them. The U.K. has already grandfathered its age-related allowance and now provides just £60 additional allowance to those born before 1938 - so 77-year olds or older - and this benefit represents £12 to each of them. The States of Guernsey has just agreed to freeze their age-related tax allowance until such time as a tax allowance for those under 65 reaches the same level. To be clear, in Jersey, a single person has the benefit of £1,700 of enhanced exemption and a married couple £3,300, of which marginal rate tax at 26 per cent applies. In 2013 there were about 700 taxpayers aged 64, the majority of whom would become entitled to the age exemption in 2014. This adds about £300,000 to the £4 million the enhancement already costs. Over a 3-year period this could add almost another £1 million cost to working-age taxpayers. To address the rising cost in the short term, the Budget proposes to limit eligibility for the enhanced exemption with effect for the 2018 tax year of assessment. Thereafter, anybody who turns 65 on 1st January 2017 onwards will not be eligible for the enhanced exemption. Of course, they will continue to be entitled to the standard exemption threshold. This approach will grandfather eligibility and the resultant beneficial tax exemption to those who are already 65 and those who will turn 65 next year. In any grandfathering arrangement there always has to be a cut-off point and for these purposes it is 31st December 2016. In summary, the cost of maintaining an increasing cohort of pensioners, only about half of whom pay tax at disproportionate cost to working-age taxpayers, is unfair and unsustainable, especially for our grandchildren and future generations. We rightly take pride, as does any community, in how we assist those in need and it is only right that we provide support to them. Indeed, that is why we are investing so heavily in health care, to provide care to those in need. In financial assistance terms, it is right that we provide assistance to those on the lowest income groups and this Council of Ministers is determined to continue to do so. This comes with a cost and a much higher future cost. It is right for us not to defer decisions to change our tax system to ensure that we can afford those costs and to be fair between taxpayers. I therefore urge Members to reject this amendment. Thank you.

Deputy J.A.N. Le Fondré of St. Lawrence :

Can I seek a couple of points of clarification from the Minister for Treasury and Resources on what he just said?

The Deputy Bailiff :

Yes, certainly.

Deputy J.A.N. Le Fondré:

Could he just confirm that he said Islanders below or at the relative low income do not pay tax? Second question is: can he confirm that the relative low income levels per household costs are £430 a week? Thirdly, can he define "a household"?

The Deputy Bailiff :

Points of clarification on your speech, Minister, if you able to assist? Senator A.J.H. Maclean:

Well I think they were more question time but the first and second answer was yes. I did not catch the third one that the Deputy raised.

Deputy J.A.N. Le Fondré:

To confirm, R.L.I. (Relative Low Income), according to the Minister's speech, they do not pay tax if they are at or below the relative low income level and it is £430 a week. The third question was, what is a "household" in that context? Is it single pensioners or is it couples or could it be both?

Senator A.J.H. Maclean: I believe it would be both.

Deputy J.A.N. Le Fondré:

The point is then, that works out at £22,000 .. sorry. The Deputy Bailiff :

No, no. Sorry, you are able to ask for points of clarification but not to make points arising from that.

Deputy J.A.N. Le Fondré:

It was his first point then I would .. The Deputy Bailiff :

If this is your speech then I am happy to call on you. Does any Member wish to speak on the amendment? The Connétable of St. John .

3. Connétable C.H. Taylor of St. John :

On last Friday the Minister for Treasury and Resources addressed us and he said: "We have searched the records back to the 1980s and cannot find the reason why this exemption was introduced other than we had lots of money at the time and it seemed like a good idea." It was of course an excellent idea. My memory goes back a little bit further than the Minister's. It may not be as reliable but there is nothing new about an ageing population. In fact, populations have been ageing for a very long time, and I have been ageing for longer than the Minister. The idea of this age exemption was to encourage people to save for their old age so they could be more independent. Encouraging people to save has always been extremely important and we must not do anything to discourage this.

[10:45]

The Minister for Social Security has said that we should encourage self-independence and we want people to take control of their own lives. So why are we now being asked to approve taking money from those who have saved, those who have taken control of their own lives? This proposal smacks of nanny state: "Give us the money and we will spend it for you on your future health. If you try to be self-reliant you will pay twice; firstly, for being self-reliant and, secondly, in tax." Age-enhanced relief was introduced to encourage people to save. It encourages people to be independent and we should continue to do so and so I strongly urge Members to support this amendment. Thank you.

4. Deputy A.D. Lewis of St. Helier :

The Deputy of Grouville 's amendment is well-intentioned; however, I have concerns about it. The Minister for Treasury and Resources articulated a number of them himself. It is interesting when you do a little bit of research into what is going on in the U.K. at the moment and what the allowances are in Jersey. A single person's is £15,900 and I think a married couple is well over £20,000. In the U.K. it is considerably lower. It is in fact only £10,600 personal allowance in the U.K., in other words, £5,000 difference. It is also interesting to look at R.P.I.s. I always thought that the R.P.I. difference between Jersey and the U.K. was significant and for most of us it still is a bit of a gap. But for pensioners it is about minus 0.6 per cent in the U.K. and it is the same here, so there is not any difference in the R.P.I. for pensioners, which I was surprised about. I thought that that was one of the reasons why we had enhanced allowances and increased pensions because pensions in Jersey are higher too: £199 a week; in the U.K. £155 a week. So we are already being quite generous with our pensions, and rightly so, and I would like to see that go up higher, but we cannot then have pension allowances in the income tax system as well. But one of the questions that I have which concerns me more, and I think the Deputy has not mentioned this in her speech before but it is a concern of mine, is that if you are single and you are a widow, you only have a taxable allowance of £1,500 but the economies of scale of running your household are not great. When there are 2 of you and you have got an allowance of over £20,000, and a fixed income on a pension, you still have to pay for your maintenance of your house, your electricity bill is still the same, your gas bill is still the same, but there is only one of you living in the house, and that is a concern of mine. I do not understand why we have not made more allowance for a widow living on their own with low tax allowance and reduced pension probably and still the same cost of running that household. There is no economy of scale if you are living in a house on your own. You still have to pay all of those bills and your partner is deceased. As it would appear, ladies often outlive us men, there are more widows than widowers, and some of them are not perhaps quite as good at doing certain things around the household, or rather perhaps do not want to get out there and repair things and so on, so handymen have to come around and there are more costs. I do not think we have made allowance for that situation at all and I am surprised that the Minister for Treasury and Resources does not recognise that. So I have great sympathy for the Deputy of Grouville 's proposal. I think it is understandable, her concerns, but I think also it is slightly misleading to some pensioners in that so many pensioners, rightly so, do not pay any tax. We have been told it is 50 per cent - and that is right - because they are on fixed incomes, many of them, and a tax burden in addition to what they pay now would be difficult. The Deputy also mentions a couple of examples which were quite emotional examples and I think points well made. But I would have guessed that the examples she used - and I will be interested in her response - they will not be affected by this because they are already receiving a pension. It is only those that in 2017 that retire will be affected by this change of allowance. So, those examples, although emotive and concerning, I do not want pensioners listening today thinking that: "I am somehow going to be affected." No, it is those that need to plan over the next 2 years for their pension in the future, not those that are drawing pensions right now, so I will listen to the summing-up of the Deputy . I think her intentions are well-meaning. There is a considerable cost ongoing here. The Minister for Treasury and Resources mentioned the next 3 or 4 years of £1 million but we are planning for the next 20, 25 years and longer. So with more of us fortunately living longer, which is wonderful, as the Minister for Treasury and Resources said, that bill is only going to go up and up and up and we want to maintain fantastic public services - health and education - but health in particular for the elderly in our community, and somebody has got to pay for it. Wealthy pensioners should be paying for it and, as many wealthy pensioners that we have, we have obviously many that are on low fixed incomes. The Minister for Treasury and Resources made very clear that there are a lot of

people that plan very well for their retirement and are drawing very good pensions. They have paid into them, they have made sacrifices in the past during their working lives to ensure that is the case. But that does not mean that they should pay less tax than a young person just starting out in life and paying more tax than they are, when at that stage in their lives often those people of pensionable age do not have a mortgage, they do not have children to support, they have less expenses, so it is right that they should make their contribution, those that can afford it. Those that cannot, it is important that the exemptions we currently have, the thresholds are maintained at a reasonable level, and I think this does that. But the amendment I think runs the risk of not allowing our future investment in elderly services, in health services in the future, and it could run into many millions of pounds. In fact, I hope it does, because it means that we are all living longer and taking benefit

as a result. So I would urge Members to be cautious in their emotional aspirations to this proposition, and it is a very emotional proposition. There are pensioners in our gallery, there are pensioners listening, and I do not want them to think that somehow, at the end of this Budget, they will be penalised, because they will not. Potentially, future pensioners will have less exemption. That is understandable; the Minister for Treasury and Resources has explained why. I do not want pensioners in my constituency across the Island thinking at the end of this debate today they are going to be worse off, because that is not the case. I do not want that to come across like that

today. This proposition, as well-meaning as it is, does give that impression. Members, think very carefully about this: it is emotional, there is detail, there is information and there hopefully is enough for you to make an informed decision. Thank you.

5. Senator P.M. Bailhache :

I think that the Deputy of Grouville is right, that it is quite easy to become bogged down in detail in debates of this kind, and so I would like to express my own reasons for thinking that the amendment is misguided quite simply. It is important to hold at the forefront of the mind during this debate that 50 per cent of pensioners pay no tax and therefore the 50 per cent who pay no tax, the lowest-earning pensioners in our society, are completely unaffected by the amendment of the Deputy of Grouville . The effect, such as it is, was exemplified very well, I thought, by the letter which the Deputy received from a constituent and it is at those margins of the tax system that the effect will be felt. But what is in issue here, it seems to me, is fairness between the generations, and the Minister for Treasury and Resources spoke quite eloquently about that. There was a time when older people were relatively harshly treated and at that time I think we did have money coming out of our ears and this exemption - enhanced exemption - was one way of making a lot of pensioners better, but that was a long time ago. Numbers of things have been done to benefit older people at the expense, if you like, of younger people. The Cold Weather Bonus is one. Most importantly of all, the double-lock that we imposed on pensions so that whether or not it was inflation that had gone up more quickly or the average wages that have gone up more quickly, pensioners would benefit from the highest of those 2 in relation to pension increases. Conversely, younger people have not enjoyed those kind of benefits. The cost of child care has risen. The expenses of bringing up young children have gone up and up. The percentage of younger people who are home owners is considerably lower than the percentage of pensioners. Why should pensioners enjoy this enhanced income tax exemption threshold? I speak as a pensioner, although admittedly a pensioner who is not at the marginal rate. Why should pensioners enjoy this benefit when younger people, single mothers, lower-paid younger people with children, do not enjoy the benefit? The Constable of St. John has left the Chamber but he suggested that it was to encourage people to save for their old age but that makes no sense. The threshold only applies when you have reached older age so it could not possibly have been intended for people of working age, to encourage them to save, because for them it did not apply. So I would like the Deputy of Grouville , when she replies, to explain for me in simple terms why pensioners should be treated more favourably than people on the same levels of income who are from the younger generations

and who are finding life at least as hard as older people.

6. Deputy S.M. Wickenden of St. Helier :

As I listen to the debate here, I want to put a bit more of a human aspect into it, I think. I am concerned about what is known as a "self-fulfilling prophecy". Why should people who earn the same amount of income have less exemptions than somebody older and a pensioner? Well, as a pensioner, you are more susceptible to cold and to sickness. We are talking about an ageing demographic and the cost of health care. But if we cause pensioners more stress for them to think twice before putting their heating on and should they have this for dinner or not, they are going to get sick. It is a self-fulfilling prophecy. Our health care and our health costs are going to go up. Somebody younger on the same income can think: "Should I put the heating on or should I put a jumper on?" For an old age pensioner putting a jumper on, it might mean 2 or 3, my grandparents are like this, and maybe still feel the cold and cannot move around as much or cannot go around and visit a friend because they are not as mobile. These people have saved well and the idea that the Constable of St. John was saying was we do not want our old age pensioners to have to rely on us for handouts and for the services. They have saved up hard so they can be self-reliant and have some dignity and have that. It just sounds like a self-fulfilling prophecy: as we take more away and

we create more stress, we are going to create more sickness. We create more sickness, the health care is going to go up, but we are trying to do it to save health care. To me it is quite a difficult and emotional thing but I worry about the self-fulfilling prophecy so I will be supporting the Deputy 's proposition.

7. Connétable J.M. Refault of St. Peter :

I did ask Treasury officers this morning to do me a very quick calculation just to give me some context to understand how this impacts 2 people. I am going to talk about 2 people now. For the sake of explaining this point I am trying to make here, they live in a block of flats which is in the Parish of St. Peter .

[11:00]

They are next-door neighbours: one is aged 64 and the other one is aged 65. They both are on the medium income of £19,600 a year. Now the 64 year-old is still working. He pays social security contributions of 6 per cent which is £1,176 and he then pays his tax on his total income of £19,600 less the allowances. At the end of the day, after his tax liability, he is left with £17,059 to live on for that year, to dress himself – clothes - and get to work and back. His neighbour, who has just retired, he has got the same income of £19,600. His exemption threshold under the proposals is increased and he does not pay social security and his tax liability drops down to £962 compared to his neighbour of £1,365. He does not need to go to work every day, he does not need to fund his clothing, shoe leather or a motor vehicle, and he also gets a free bus pass. The question for me is: are we being totally fair to 2 people who are living side by side with the same income and one, because he is older, gets far more benefits than the one who is having to pay for those benefits? This is this point of fairness which I am struggling with.  We are not looking after the people that are contributing meaningfully and people who have contributed through their lifetime, we are making life even easier for them at the expense of other people who are in the same financial situation, and it is this challenge that I think is very difficult for me to find a way to support the Deputy 's proposal. Thank you.