Income Tax: Report on Personal Income Tax Assessments.

STATES OF JERSEY

INCOME TAX: REPORT ON PERSONAL INCOME TAX ASSESSMENTS

Lodged au Greffe on 18th October 2012 by Deputy G.P. Southern of St. Helier

STATES GREFFE

2012   Price code: A  P.106

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to request the Minister for Treasury and Resources to present to the States a report examining in full the case that personal income tax assessments should apply to individual earnings and not, as currently, to household earnings, and to do so no later than 30th September 2013 so that the report is available in time for proposals and amendments relating to this issue to be lodged for debate in the Budget 2014.

DEPUTY G.P. SOUTHERN OF ST. HELIER

REPORT

When  I  lodged  P.23/2011 –  "Income  Tax:  introduction  of  higher  rate"  on  14th February 2011, it contained a paragraph which would have required the introduction of a system of individual income tax assessment to replace the present system of assessment  of  household  earnings.  The  necessity  for  such  a  change  had  been highlighted  by  the  Minister  for  Treasury  and  Resources'  fiscal  strategy  review process.

In  his  consultation  paper  prior  to  the  budget  debate,  the  Minister  proposed 4 mechanisms to enable him to raise the sums he had targeted. The 4 possible options involved increases to –

• Goods and Services Tax
• Social Security contributions
• Domestic property rates
• Income Tax.

During  the  consultation  conducted  by  the  organisation  Involve'  during  2010,  it became clear that the option to introduce a higher rate of income tax for higher earners was impractical. In terms of individual responses, some respondents had spotted the defect in the proposal on income tax. As Involve notes thus –

"One  aspect  of  the  option  that  was  considered  unfair  was  the  possible inclusion of joint incomes."

Under the current Income Tax Law, the treatment of married and unmarried couples is different. The introduction of higher rates for higher income bands would, in effect, discriminate against married couples. This made the proposal which was the subject of the consultation a non-starter.

As I wrote at the time in my report on P.23/2011 –

"At no time during the consultation or since has the Minister or his deputies attempted  to  address  this  fundamental  flaw.  This  alone  rendered  the consultation process, in my opinion, largely invalid.

As a result of this basic flaw in the option presented, it became clear to those who were interested that progressive changes to income tax were not possible in the short term (to start in year of assessment 2011) to help deal with the taxation  revenue  "black  hole"  resulting  from  the  recession  and  zero/ten. However, looking to the medium to long term, there can be no doubt that we must properly examine all options for raising tax, and not dismiss some as sacrosanct because of the political prejudice of the Minister for Treasury and Resources."

In  short,  the  introduction  of  a  higher  rate  of  tax  is  impossible  without  being discriminatory under our present system.

In his comments on P.23/2011, the Minister for Treasury and Resources dismissed a higher rate out of hand, thus –

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P.106/2012

"The option of increasing income tax rates was carefully considered during the Fiscal Strategy Review process. Based on all the information collected during  this  process  it  was  decided  that  a  higher  rate  of  tax  was  not appropriate for Jersey."

On the separate issue of independent taxation, however, he had the following to say –

"The  first  part  of  the  proposition  proposes  that  a  system  of  independent taxation should be introduced, so that married couples are taxed separately on their individual income. The Treasury Department is currently conducting a review of the income tax system with the aim of modernising it and making it more efficient to administer.

It  is  possible  that  this  review  will  recommend  the  introduction  of independent taxation as part of a wider reform, and that many of the issues that currently prevent it will be resolved.

However, redesigning the Jersey income tax regime must be done with care to ensure that a modernised regime continues to meet Jersey's needs. It will take time to properly consider all aspects of our personal tax regime to ensure that it is fit for purpose. A root and branch review of the whole income tax system cannot and should not be rushed, and could not be completed before the 2012 Budget is lodged in 5 months' time, as this proposition would require."

When I lodged a similar proposition on 31st January of this year (P.11/2012) asking that legislation be brought forward in time for debate as part of Budget 2013, once again the Minister rejected the proposal. On this occasion he suggested that –

"The Minister has already publicly committed to review the feasibility of independent taxation in Jersey within a clearly defined timescale;".

That "clearly defined timescale" turns out to be a "2 to 3 year period".

We have already waited a whole year to see proposals, first promised for the Budget 2012,  for  changing  the  tax  position  of  non-finance  businesses.  The  Minister  for Treasury  and  Resources  has  taken  on  a  whole  new  team  to  get  on  with  his "modernization"  process.  The  question  of  independent  taxation,  which  was  first brought up in the fiscal strategy consultation in June 2010, will have had over 2 years under consideration. How long do we have to wait for results?

Financial and manpower implications

There are no significant financial or manpower costs arising from this proposition, as the report could be prepared by existing staff from within the Department.