Reasons for the £21 million windfall tax revenue in 2006 and is it predicted to continue in 2007 to 2011

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WRITTEN QUESTION TO THE MINISTER FOR TREASURY AND RESOURCES BY DEPUTY G.P. SOUTHERN OF ST. HELIER

ANSWER TO BE TABLED ON TUESDAY 17th APRIL 2007

Question

1. W o uld the Minister inform membersof the reasons for the £21 million "windfall" increase in tax revenues between provisional and revised budget figures for 2006 for each revenue stream? Will he further state whether this "windfall" is predicted to continue into the years2007 – 2011 and, if so, explain why?
2. W ould the Minister informmemberswhy the revised inflation and pay assumptions show that both the Retail Price Index (RPI) and Public Sector Pay awards for 2008 and 2009 will decrease when the introduction of a 3 per cent GoodsandServices Tax will have an impactonthe spending of all Islanders? Would the Minister advisemembers whether the impactontheRPIof the introductionofGST will affect the March2009RPI figure and,if so, state whether this has been taken into account in the assumptions given that that figure is traditionally used in pay negotiations?
3. W ould the Minister informmemberswhether the additional £1 million "funding from balances" indicated in his presentation (relating to the 2008 Business Plan) regarding 2007 spending pressures and the £2.5m "funding from departments" will be divided on a proratabasisbetweendepartments and, if not,onwhat basis?
4. I n the lightof the "windfall" from tax revenues highlighted in(a), does a further £2.5 million cutin departmental budgets for the current yearremainappropriate?
5. W o uld the Minister undertaketo inform members in detail what eachdepartment'sreduction in spending, as a result ofthe £2.5 m cut will mean for the deliveryofservicesin2007,and further, would he place these service reductions inthecontextofthe type andsizeof reductions that have already taken place, whether by efficiency savings or otherwise, in2005 and 2006?

Answer

1. T h e reasons for the £21 million "windfall" incomebetweenprovisional outturn and revised budget figures for 2006 are as follows:

In c o m e Tax (£12 million) – There has been significant improvement in the tax revenues from International

Business Companies and a small increase on the forecast for employee earnings. There is a reasonable expectation that the improvement will be maintained for International Business Companies.

Im p ô ts (£3 million) – There was a general increase on forecasts but £2 million of the £3 million increase is

due to an accounting adjustment, accruing for importations which previously would have been accounted for in the following year. The £2m is therefore a one-off.

S t a m p Duty (£4 million) – This has exceeded forecasts but does include a number of significant

transactions that might suggest the level of increase may not be repeated at quite the same level. House prices continue to increase which naturally increases the yield.

O t h e r Income (£2 million) – This is made up of a number of small increases, including more income tax

surcharges and penalties than forecast despite the introduction of the new Income Tax Instalment System (ITIS).

2. T h e "all items"RPI is likely, foroneyear, to beaffectedby the introduction of GST.However the purpose of the tax is to take money out of the economy,and that willhave a deflationary effect. I could

not agree to the principle of putting these funds back into public sector pay awards or other public expenditure,

partly because this would negate the purpose of introducing GST, but also because it would cancel the deflationary effect. I have considered this initial impact on RPI when making the inflation assumptions underpinning our forecasts. I am committed to establishing a clear message, ahead of the implementation of GST, to all other employers such that pay awards are not artificially inflated. This will be a part of the revised inflation strategy.

3. T h e additional £1 million funding from balancesand the £2.5 million funding from departments will be allocated on a pro rata basisbetween departments in relation to their total staffing costs.
4. T h r o ughoutpay negotiations departments have been informed that they would need toabsorb any pay increases in excess of the budgeted sums. The Council ofMinistershas already agreed to propose the allocation of£1 million from balances to ameliorate the impactof the additional cost ondepartments. Given the significant pressures in 2007 on the costsof supplementation and benefits I believe it is wholly appropriate that we continue to be rigorous and prudent to ensure that weare not in dangerof living beyondour means in the future, or adding unnecessarily to inflationary pressures.
5. H o w departments choose to allocate absorption of the additional £2.5 million betweentheir activities is a matter for them. I cannot say whether a particular department will need tomake service cuts,ordo things differently, ordelaycertain activities, but in termsof context the £2.5 million bears comparison with the £20 million of efficiency savings already being delivered over the current five year period.