11 December 2015
The Treasury and Resources Minister, Senator Alan Maclean, has issued the following statement in response to Corporate Services Scrutiny Panel report on the Draft Budget 2016.
“I have briefly reviewed the Panel’s report, issued yesterday to Treasury officials, and am disappointed to find that they have chosen not to base their findings on the conclusions reached by their own advisors.
At paragraph 3.3 of the accompanying expert advisors report, the Chartered Institute of Public Finance and Accounting (CIPFA) are quoted as follows:
‘In terms of prevailing tax strategy, 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 these objectives we would commend the approach now taken;’ and in paragraph 7.3
‘The 2016 Income Tax proposals are fully consistent with improving alignment with existing
long term tax policy and we would be of the view that these are well considered.’
Both in light of these conclusions, contained in the CSSP’s own expert report, and the work that has already been done by the Treasury and Resources department, I am unable to accept the recommendations presented by the Panel.
Mortgage Interest Tax Relief
In relation to the proposal to phase out Mortgage Interest Tax Relief (MITR) over a decade, contrary to the Panel’s suggestion that no background studies have been carried out about the consequences to the housing market, there is a wide body of material available across the world that points to the fact that these subsidies are inefficient and counter-productive. The PWC report on property tax commissioned by Treasury and Resources directly addresses MITR and is publicly available on www.gov.je.
These reports highlight what has happened in other jurisdictions and there is nothing to suggest that the impact of phasing out this relief would be any different in Jersey. The model that we have used is in keeping with that used in other jurisdictions where this relief is being phased out, including Guernsey.
In addition, I am very aware that Islanders should not face financial difficulty as a result of this proposal. That is why we have chosen to phase out the relief from 2017 and over a ten-year period. Our figures show that few people will be impacted in the initial years. The implementation of this proposal will provide the certainty that people will need to plan ahead.
Age enhanced income tax exemptions
I am also unable to accept the panel’s recommendation in relation to the age enhanced income tax exemption thresholds and would draw their attention to the profile of the tax-payers who will be affected by the eventual withdrawal of that threshold.
The Budget proposals support the strategic priority of delivering sustainable public finances in the face of an ageing demographic and does so in a way which avoids taxpayers experiencing a major change in their tax position.
It is important that we are clear that this measure will only affect people who do pay tax because they have an income above the exemption threshold. Low income pensioners are not affected.
The age enhanced exemption thresholds are much higher – more than £8,000 in the context of a married couple and more than £4,000 in the context of a single person – than the Relative Low Income threshold identified in the Household Income Distribution 2014/15.
The high level of the age enhanced exemption thresholds mean that just under 50% of individuals aged 65+ are exempt from income tax. Further, in September 2015 ‘pensioner RPI’ was reported at -0.6% indicating that the cost of living is currently falling for those aged 65+.”
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