Budget 2018 - Response of the Minister for Treasury and Resources - 15 January 2019

Findings

Comments

1

The Minister for Treasury and Resources has lodged an amendment to the tax law so that husbands will be presumed to have given consent to their wives to discuss their tax affairs. In her amendment, the Minister has described the current system as "antiquated".

After this amendment to the Finance Law was lodged by the Minister, it became clear to the Minister (from a series of discussions with States Members), that the proposal did not enjoy broad support  across  the  Assembly.  The  Minister therefore  withdrew  her  amendment.  Members nonetheless  accepted  the  Minister's  good intentions in bringing the amendment, pending more comprehensive reform of the taxation of married couples.

A public consultation on the Personal Tax system has now been launched, which will bring forward proposals for fully modernising the way personal income is taxed in Jersey, including the taxation of married couples. Clear recommendations will be brought before the Assembly in 2019 as part of the Government Plan 2020–23.

The  Minister  has  made  it  quite  clear  that – whatever  changes  are  implemented –  she  will certainly reform the outdated and discriminatory aspects of current tax law.

2

We consider that the Taxes Office needs to go further than the proposed amendment to the tax law, in order to move away as soon as possible from the system where husbands are legally responsible for their wives tax affairs. The system is also not fit for purpose in relation to same sex married couples and does not reflect the diverse and

See comments made under Finding 1.

Pending  the  above,  working  discussions  are ongoing regarding other approaches to address this issue in the meantime.

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inclusive community that makes up Jersey in the twenty-first century.

3

The Budget proposes targeted relief for non-residents adversely affected by the withdrawal of non-resident marginal relief. The Minister for Treasury and Resources has lodged an amendment to the Budget to make the relief effective from the 2018 tax year.

Noted.

4

Jersey has 10 stamp duty bands, which is more than most comparable jurisdictions.

As with other areas of tax policy, it is important that  Jersey's  stamp  duty  regime  reflects  the correct balance between policy objectives such as simplicity and fairness, that are often competing. For example, a stamp duty regime with just one flat rate would be a very simple but inequitable system, because it would charge the same rate of duty on a property transaction of £300,000 as it would on a transaction of £6 million.

The Panel is correct that Jersey's current stamp duty regime has 10 separate bands. However, this creates a regime that is highly progressive, so those who can afford to buy a more expensive property pay considerably more stamp duty.

Reducing the number of bands might simplify the system, but at the expense of reducing its progressivity.  Stamp  duty  "calculators"  are widely available on websites across the Island to assist  potential  purchasers  with  their deliberations, and purchasers are also assisted by professionals who will generally advise them on their stamp duty obligations. The Minister's view is  that  any  complexity  arising  can  be  easily managed for the Public, and if there was to be a reduction  in  the  number  of  duty  bands,  the knock-on  implications  for  equity  and  fairness would have to be carefully considered.

5

In order to improve supply in the lower end of the market, stamp duty could be reduced in the higher brackets in order to encourage people to upsize. In a situation where there is low supply in the housing market, the only solution is to encourage movement within the market.

The  Minister  notes  the  Panel's  amendment  to stamp  duty  that  was  withdrawn  following constructive discussions between the Panel and the States Treasury and Exchequer.

The  stamp  duty  package  that  was  agreed  in Budget  2019  was  focused  on  providing assistance in a cost-neutral manner, to first-time buyers and buyers at the lower end of the market requiring mortgage finance to pay for their home.

Almost one third of all stamp duty collected by the  States  comes  from  transactions  valued between £500,000 and £1 million. Therefore, any

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significant  reduction  to  rates  in  these  bands would  create  a  significant  Exchequer  shortfall that would have to be found elsewhere.

The Budget 2019 amendment that was tabled by the  Panel  would  have  resulted  in  63%  of purchasers paying more stamp duty than under the Budget proposal. Only 23% would have paid less (those buying properties between the values of  £550,000  and  £1.27 million).  Those  paying more would have included –

• purchasers  of  properties  below  £550,000 who are not first-time buyers

• purchasers of properties over £1.27 million

• first-time  buyers  of  properties  between £450,000 and £500,000.

There would have been no change for first-time buyers below £450,000.

6

More needs to be done to help the slow turnover rate in the housing market between £600,000 and £1 million. This will in turn help to free-up houses in the brackets below (particularly for First-Time Buyers).

See comments under Finding 5.

A  Policy  Development  Board  is  being established by the Government, which will "take a  long-term  view  of  how  we  can  create sustainable and affordable housing provision for the next generation to meet the aspirations of our young people". Government is of the view that any  further  changes  to  stamp  duty  are  best addressed as part of the work of this Board, and the Panel may wish to engage with the Board on this matter once it has been established.

7

We were disappointed in the lack of engagement by the Treasury with a sugar tax and surprised by the lack of willingness to investigate alternative revenue streams designed to improve lifestyle choices as seen in other jurisdictions.

The Minister supports tax measures to influence consumer choices through the alcohol; tobacco and fuel strategies. Taxation is however, not the only  instrument  available  to  Government  to affect  consumers'  choices,  and  in  some  cases other  forms  of  intervention  may  be  more appropriate and more effective.

Whilst appearing superficially attractive, a sugar tax (more broadly taxing foods and drink on the basis  of  sugar  content)  would  be  difficult  to administer in Jersey. This is evidenced by the lack  of  progress  in  other  jurisdictions,  for example  the  UK,  which  has  really  only succeeded in introducing a levy of limited scope on certain kinds of drinks.

It also needs to be borne in mind that the States Treasury  and  Exchequer  has  limited  resources available to consider new forms of taxation, and to review and update existing tax law, which is

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also  widely  regarded  as  outdated  and increasingly not fit-for-purpose. It is important therefore that careful consideration is given as to what tax reviews are most important to undertake in any one year.

8

It is highly unusual to amass large surpluses in the Consolidated Fund without either transferring to reserves or having a plan to spend the money.

The  Minister  has  proposed  the  transfer  of £50 million into the Stabilisation Fund. No other proposals are put forward at this time. The only other suitable uses would be one-off spending or investment  proposals  that  do  not  increase funding pressures on a permanent and recurring basis, in light of the indicative financial forecasts for the period 2020–23 outlined on page 83 of the Draft Budget Statement 2019.

Maintaining large balances on the Consolidated Fund  is  a  deliberate  policy  choice  to  provide Government  with  options  in  formulating  the Government Plan.

The  options  include  going  part  of  the  way towards  meeting the  considerable  demands for capital schemes in the next financial period.

The Infrastructure Investment Fund will enable considerable development of our urban areas in particular,  providing  the  opportunity  for investment  in  housing  and  economic infrastructure.

But  there  is  also  a  considerable  pipeline  of demand  for  further  investment  in  schools  and Highlands College, for example. The balances on the Consolidated Fund provide the opportunity to invest in these essential assets.

9

The structuring of the MTFP in the Public Finances Law is restrictive and has led to constraints on expenditure in the final year of the MTFP, even when there are surplus funds accumulated in the Consolidated Fund and the States' Reserves.

The  Minister  agrees  that  the  current  Public Finances Law is restrictive. She looks forward to the Panel's support when she brings a new draft Law  to  the  Assembly  for  consideration  early in 2019  which  will,  amongst  other  changes, move from a 4-year fixed MTFP to an annual Government Plan with a 3-year forward outlook.

Using the balances on the Consolidated Fund to fund  capital  or  other  one-off  expenditure  is appropriate. Using those balances to pay, in the short term, for significant recurring expenditure, without a plan to pay for that expenditure beyond the short term, is not prudent.

The  Minister  will  discuss  with  ministerial colleagues,  and  consider  the  views  of  the Assembly,  before  deciding  whether  it  is appropriate in the context of all circumstances to

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bring  forward  a  proposal  as  the  Panel recommends. If she does so, then this would only be for one-off spending or investment proposals that  do  not  increase  funding  pressures  on  a permanent and recurring basis.

10

It is the Panel's view that the Treasury Minister has the tools available to amend the MTFP to tackle the constraints on expenditure if the Council of Ministers is determined to do so.

See comments under Finding 9.

11

There is no allowance in the Budget for the savings generated by the new Target Operating Model.

Noted. The Budget deals largely with revenue- raising, not expenditure. That is a matter for the Government Plan (currently the MTFP).

A plan for the £30 million savings in 2019 will be presented in the first quarter of 2019.

12

We have identified concerns regarding transfers out of the capital programme into contingency in relation to projects at Sandybrook Care Home and for homes for children with autism.

The Panel's concerns are noted by the Minister. She  understands  that  the  Panel  is  in  ongoing dialogue with the Departments concerned. The Minister hopes that the Panel understands that the  repurposing  of  unspent  allocations,  both revenue  and  capital,  are  an  important  part  of good  financial  management.  It  is  far  better  to make use of the funds available than to see them remaining allocated, unspent and unavailable for identified priorities.

13

It appears to us that the management of the capital project at Sandybrook Care Home has been unsatisfactory over the last 6 years, leading to a situation where much needed refurbishment and renovation has not been carried out.

See comments under Finding 12.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The Minister for Treasury and Resources should prioritise the work to reform the tax system in relation to the treatment of married couples and should bring forward proposals to reform the system in the 2020 Budget.

Min. T&R

Accept

See comments under Finding 1.

Bring proposals to the Assembly by the end of 2019

2

The number of stamp duty bands should be reduced. We have lodged an amendment to the Budget which would reduce the number of stamp duty bands to 5.

Min. T&R

Reject

See comments under Finding 5.

N/A

3

The stamp duty on residential property transactions between £600,000 and £1 million should be reduced. Our amendment to the Budget reduces the stamp duty for these bands by up to 1%.

Min. T&R

Reject

See comments under Finding 5.

N/A

4

In order to pay for reduced stamp duty between £600,000 and

£1 million, we recommend that stamp duty on properties above £3 million be increased, as set out in our amendment to the Budget.

Min. T&R

Reject

See comments under Finding 5.

N/A

5

The Minister for Treasury and Resources should undertake more work to investigate the feasibility of introducing a buy-to-let rate of stamp duty and report to the Assembly in the next Budget.

Min. T&R

Accept

This  matter  will  be  put  forward  for consideration  to  the  Housing  Policy Development  Board  ("PDB")  which will be carrying out an overall review of the housing market.

Timeline for

considera-

tion will be determined by the Housing PDB

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

6

In a period of uncertainty as a result of Brexit, there is a lack of political direction regarding the high balances in the Consolidated Fund. The Council of Ministers should clearly state now what the plan for these balances is, rather than wait for the Government Plan to be prepared further down the line.

Min. T&R

Accept

The Minister's Budget speech indicated potential uses of the balance.

Complete

7

The Minister for Treasury and Resources should bring forward a proposition as soon as possible to amend the MTFP in accordance with Article 9(2)(ca) of the Public Finances Law on the basis that there is an urgent need for expenditure in 2019 to fund emerging priorities in relation to the Common Strategic Policy and to resolve the public sector pay dispute.

Min. T&R

Reject

The  Minister  remains  of  the  opinion that  increasing  expenditure  on  a recurring  basis,  increasing  forecast deficits as a result, without a  plan to fund  such  expenditure  on  an  ongoing basis, is fiscally irresponsible.

In  the  event  that  an  urgent  need  for expenditure does occur during 2019, the Minister  would  bring  forward  such  a proposal only with associated funding plans in place.

N/A