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Economics Committee
FACTS AND FIGURES
- Percentage of tax which will be paid by companies post 2010)
Percentage contribution to total taxation revenue
Country Personal taxes Business taxes EU15 69.7 30.4 OECD 71.1 29.0
USA 77.1 22.9
UK 80.3 19.7 Jersey current 48.9 51.2 Jersey post tax changes 61.8 38.2
Sources:
OECD, Revenue Statistics 1965-2003, 2004, tables 11, 13, 15, 17, 19, 21, 23, 29, 31, States of Jersey, Report and Accounts, 2003, Annual report, Employment and Social Security Committee, 2003, States of Jersey, Review of the Relationship Between the Parishes and the Executive, 2003, page 9, Oxera calculations.
Conclusion -
Jersey's businesses contribute much more to total taxation than businesses in most other countries in the world, and will continue to do so following implementation of the proposed tax changes.
The percentage of total taxation paid by individuals in Jersey is much less than that paid by people in most other countries in the world. This will still be the case following Jersey's tax reform.
- Tax levied in Jersey post 2010 as a percentage of GDP
Total taxation as % of GDP (2002)
45 40 35 30 25 20 15 10 5 0
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EU15 OECD average UK Guernsey USA Jersey post tax changes
Country
Country Taxation as % of GDP EU15 40.6
OECD average 36.3
UK 35.8
Guernsey 26.8
USA 26.4
Jersey post tax changes 20.9
Sources:
OECD, Revenue Statistics 1965-2003, 2004, Table A: http://www.gov.je/statistics/content/xls/GVA_GNI_data.xls, States of Jersey, Financial Report and Accounts 2003, page ii; Annual Report, Employment and Social Security Committee, 2003, pages 5 and 10; States of Jersey, Review of the Relationship Between the Parishes and the Executive, 2003, page 9; 2004 Guernsey facts and figures, Table 3.2, Table 9.2; Oxera calculations.
Conclusion -
Jersey has, and will continue to have, very low taxation as a percentage of the size of the econ- omy compared to most other countries in the world. Jersey needs to remain a low tax, low spend economy if it is to remain successful.
4
- Balance between Direct Tax, Indirect Tax and Social Security contributions, now and post 2010
Direct Tax, Indirect Tax and Social contributions as % of Total Taxation (2002)
100 90 80 70 60 50 40 30 20 10 0
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Indirect Tax %
Social contributions % Direct Tax %
EU15 OECD average USA UK Jersey Jersey post tax
changes
Jurisdiction
Sources:
OECD, Revenue Statistics 1965-2003, 2004, tables 11, 13, 17, 19, 21, 23, 29, 31, States of Jersey, Report and Accounts, 2003, Annual report, Employment and Social Security Committee, 2003, States of Jersey, Review of the Relationship Between the Parishes and the Executive, 2003, page 9, Oxera calculations.
Notes: Jersey post tax changes assumes that there is a loss of £80m from corporate income tax (direct tax), which is replaced by £45m GST (indirect tax) and £15m personal income tax (£5m from ITIS and £10m from 20 means 20 - direct tax). Jersey taxes includes taxes paid to the Parishes.
Percentage contribution to total taxation revenue by type of tax
Tax/revenue Direct tax Social contributions Indirect tax
% % %
EU15 35.4 28.1 36.5 OECD average 36.3 25.4 38.3 USA 44.4 26.1 29.5 UK 37.9 17.0 45.1 Jersey current 65.8 22.2 12.0 Jersey post tax changes 56.1 23.0 20.8
Conclusions -
Jersey gets far less than most others from Indirect Taxes (GST ; Impots Duty: Stamp Duty ; etc) Jersey gets roughly the same as others from Social Security Contributions
Jersey gets far more than most others from Direct Taxes (Income Tax ; Corporate Tax)
By being out of balance, Jersey's position is more vulnerable
- Distribution of Jersey households liable to income tax 5. Only three sorts of tax can raise £50/£60 million p.a.
4th quintile 5th quintile
£28,500 – £44,500 £44,500 and above
3rd quintile
2nd quintile £20,500 – £28,500
1st quintile
£13,500 – £20,500
£0 – £13,500
Proportion of Jersey's total personal income tax receipts obtained from each of the above quintiles
1% 6% 11% 20% 62%
These bar charts indicate the following information:
- Eighty percent of households have an annual income of £44,500 or less
- Contrary to popular belief, the middle range of household incomes lies with the range £20,500 to £28,500 p.a.
These are taxes on:
Income
Earnings
Consumption
All take the same £50/£60 million out of the economy, and reduce personal spending power either by creating
Higher prices
Lower wages
Fewer jobs
This money will come largely from the pockets of Jersey resident individuals and businesses
6. How does GST affect household incomes?
- Broad based GST 3% few exceptions
- U.K. style GST/VAT 4.5%/5% more exceptions than most
The Crown Agents report analysed the difference in total annual cost for various household groups between the proposed broad based 3% GST and a UK style VAT/GST at 5%. The differences are as follows:
Effect on households of UK style VAT at 5% compared to a broad based GST at 3% | |||||
Quintile: | 1 | 2 | 3 | 4 | 5 |
Annual decrease or (increase) in the amount of tax borne | £7 | (£12) | £8 | £18 | (£20) |
- There are relatively few "high income households", and the yield from higher rates
of tax on some parts of this group would not be very great (e.g. a rate of 30% on Although the figures look surprising, the reason is that although a number of items, notably food, would household incomes over £80,000 p.a. would bring in £11 million, but only if no not be liable under the UK system, households in each quintile spend quite a lot of money in other areas such households left the Island) as well, and this spending would be taxed at the higher rate of 5%.
- The area shaded green gives an indication of the impact of "20% means 20%": If a more complex GST system such as the UK style were to be introduced, the administration costs could Afew households in the third quintile representing single persons with no children, life assurance or be expected to double.
mortgage commitments
Rather more households in the fourth quintile, again principally single persons with few commitments
The majority of those affected by "20% means 20%" are contained within the fifth quintile.
- Yields of Tax Revenue from the Main Tax Raising Options
INCOME TAX
Option | Yield (£ million) | Comment |
Increase standard rate from 20% to 25% | £16m | Example: Households with taxable income of £30,000 pa would see their annual Income Tax bill increase by a maximum of £1,500 per year |
Reduce allowances and exemptions by 25% | £30m | Example: married couple both working, with a household income of £50,000 pa, two children at school, with a mortgage of £200,000 would see their Income Tax bill increase by £1,835 pa Example: married couple both working, with a household income of £100,000 pa, two children at school, with a mortgage of £200,000 would see their Income Tax bill increase by £905 pa |
Introduce a higher rate of 30% on income over £80,000 pa | £11m | Example: Households with a taxable income of £100,000 pa would see their annual Income Tax bill increase by £2,000 per year |
Introduce a higher rate of 40% on income over £100,000 pa | £18m | Example: Households with a taxable income of £120,000 pa would see their Income Tax bill increase by £4,000 per year |
Conclusion -
Increasing the 20% standard headline rate of Income Tax cannot on its own meet the tax revenue shortfall. Jersey will also compare unfavourably with other jurisdictions, including Guernsey and the Isle of Man
Introducing higher rates of income tax for higher earners risks not being able to attract workers with the skills the Island needs and may also lead to higher income earners leaving the Island, with the subsequent loss in tax revenue
GST
Option | Yield (£ million) | Comment |
Rate of 3% broad-based, few exclusions, including special treatment of Financial Services Industry (FSI) | £45m (inclusive of £5-£10m from FSI) | Simplest and most cost efficient form of GST for both government and business, which is why Crown Agents recommended it. |
Rate of 3.5% to 4%, excluding food and children's clothing, but including special treatment of FSI | £45m (inclusive of £5-£10m from FSI) | Food is the most complex exclusion to administer but does little to help lower income groups. The lowest household quintile would only benefit by £12 p.a. if food were excluded. Children's clothing is almost as complicated. 21 of the 25 EU states have VAT on food and children's clothing (the 4 exceptions are UK & Ireland - food and children's clothing; and Malta & Cyprus - food). |
GST rate of 5% with UK VAT exclusions, but including special treatment of FSI | £45m (inclusive of £5-£10m from FSI) | The UK system is viewed as inordinately complex because of the large amount of exclusions. It is not even fully compliant with EU VAT Directives. If we followed suit, costs of compliance and collection would double for government, and businesses would face many more administrative hurdles. |
CAPITAL GAINS TAX
Yield
Option Comment
(£ million)
Such a tax raises minimal tax revenue, would UK style CGT £5m require complex legislation and is cost inefficient
to collect
1 Paying interest @ 5.3% 2 Paying interest @ 5.3%
PAYROLL TAXES
Yield
Option Comment
(£ million)
This would have the effect of:
Employer social security contribution rate increasing from 6.5% to 7.5%
1% rate on both employer and
employee and retaining the £20m Employee social security contribution rate current social security ceiling increasing from 6% to 7%
Example: a worker on £30,000 pa would see an increase in social security contributions of £300 per year
This would have the effect of:
Employer social security contribution rate increasing from 6.5% to 9.5%
2.5-3% rate on both employer
and employee, and retaining
£55m Employee social security contribution rate the current social security
increasing from 6% to 9%
ceiling
Example: a worker on £30,000 pa would see an increase in social security contributions of £900 per year
Example: A business paying a worker £50,000 Lift cap on social security
£11m pa would see an increase in employer social employer contributions
security contributions of £1040 per year
Example: a worker on £50,000 pa would see Lift cap on social security
£10m an increase in social security contributions of employee contributions
£960 per year
O All of the above payroll tax options only tax earned income - unearned income, including
that of the wealthy, is not affected
O If the social security ceiling is raised then social security becomes a tax rather than the
social insurance scheme it is at present
- Administration Costs of Main Tax Raising Options Administration costs per £ tax raised:
Tax Cost per £ raised
Income tax 0.88 pence (2002) per £
GST @ 3%, broad-based, few exemptions Approximately 1 pence per £
UK style VAT Approximately 2 pence per £ (estimated) Payroll tax (social security contributions) 0.3 pence per £
Capital Gains Tax (UK) 2.73 pence per £ (2002/03)
- Latest Estimated Breakdown of Loss of Revenue from the move to 0/10%
Gross loss from sector Magnitude of loss (£ million) International Business Companies £10m
Exempt Companies
(possibly offset by increases in cost of registration) £10m Non-finance, non-resident business £10-£12m
Non-finance, non-resident companies relocating
for reasons not related to 0/10% £10-£12m Finance industry companies £50-55m TOTAL (before offsetting measures) £90-£99m