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A decision made 26 November 2010 regarding: P.157/2010 Expenditure Proposals for 2012 and 2013 and Draft Budget Statement 2011 - Third Amendment - Amendment.

Decision Reference: MD-TR-2010-0161
Decision Summary Title:	P.157/2010 third Amendment -amendment		Date of Decision Summary:	25th November 2010
Decision Summary Author:	Interim Treasurer of the States		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	P.157/2010 third Amendment -amendment		Date of Written Report:	25th November 2010
Written Report Author:	Tax Policy Advisor		Written Report : Public or Exempt?	Public
Subject: Expenditure Proposals for 2012 and 2013 and Draft Budget Statement 2011 (P.157/2010): third amendment – amendment
Decision(s): The Minister decided to lodge au Greffe Expenditure Proposals for 2012 and 2013 and Draft Budget Statement 2011 (P.157/2010): third amendment – amendment for debate in the 2011 Budget.
Reason(s) for Decision: P157/2010: 3rd amendment proposes that food and domestic fuel are exempted or zero-rated from GST. Should this be agreed by the States, then the Treasury Minister’s amendment to this proposes an increase in the general GST rate to offset the loss in GST revenue from the original Budget proposal.
Resource Implications: Manpower : None. Financial : Increase GST revenue with the exemptions system by £4.8 million in 2011, offsetting the cost of those exemptions each year.
Action required: Forward the amendment and accompanying report to the Greffier of the States and request that the projet be lodged ‘au Greffe’ and set down for consideration by the States during the 2011 Budget debate.
Signature:		Position: Senator P F C Ozouf, Minister for Treasury and Resources
Date Signed:		Date of Decision:

P.157/2010 Expenditure Proposals for 2012 and 2013 and Draft Budget Statement 2011 - Third Amendment - Amendment

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Treasury and Resources

Ministerial Decision Report

Amendment to P157/2010: 3rd Amendment

Purpose of Report

To request the Minister for Treasury and Resources approves an amendment to P157/2010: 3rd amendment to be lodged au Greffe as soon as possible for debate in the 2011 Budget.

Background

P157/2010: 3rd amendment was lodged by Deputy Green of St Helier on 17 November 2010. It proposes GST exemptions or zero-rating for foodstuffs and domestic energy as follows:

PAGE 2, PARAGRAPH (b) –

After the words “as set out in the Budget Statement” insert the words –

“except that the estimate of total taxation revenue in 2011 shall be decreased by £4.8 million by introducing exemptions or zero-rating for Goods and Services Tax from 1st June 2011 for the following items –

(i) foodstuffs in line with United Kingdom Value Added Tax

arrangements; and

(ii) domestic energy;”,

and the element of the Food Costs (Offset of Average GST) Bonus and of Income Support relating to the items being exempted or zero-rated shall be adjusted accordingly.

Proposed amendment

The Treasury does not recommend food or other UK VAT type zero ratings for exemptions.

However, he does understand the position of a number of States Members including some Ministers on exemptions. Deputy Green's Amendment would significantly worsen States' public finances.

As the Treasury Minister is the only person who can lodge changes within two weeks of the Budget debate, the Council of Ministers has asked him to lodge this amendment, which is revenue neutral, to Deputy Green's proposal. This would allow Members to vote in favour of zero ratings without increasing the deficit.

If approved Deputy Green’s amendment will have the following impact on the States GST revenue receipts:

Impact of zero rating food and domestic energy

To generate the equivalent amount of revenue with the additional exclusions above we would require a GST standard rate in the region of 5.7% or 5.8%.

However, this rate computation is based only on the revenue shortfall that is reasonably easy to quantify – the theoretical loss from the reduction in taxable household consumption. It does not take into account other factors that will have an impact on the revenue generating potential of GST as follows:

A loss of revenue resulting from a reduction in the current levels of voluntary compliance by individuals and businesses. The exclusions of food and domestic energy will complicate the system and inevitably result in errors and delays to making returns and payments.

A loss of revenue from the consumption of foodstuffs and domestic energy which is not included in the household expenditure data used in the table above.

We have estimated that these factors would result in a further loss of revenue in the region of £2 to £3 million and therefore a rate of 6% would be required to recover the overall total revenue shortfall.

It is also recognised internationally (by IMF and OECD) and based on practical experience that “whole” tax rates should be used, where possible, to reduce the scope for further confusion, errors and delays, and ease the compliance / administration costs for businesses and the States.

Recommendation

That the Minister approves the report and proposition and for them to be lodged au Greffe for debate in the 2011 Budget.

Reason for Decision

To enable the Minister’s amendment to be lodged au Greffe for debate in the 2011 Budget.

This will allow the option of a higher rate of GST at 6% which offsets the cost of the proposed exemptions to be debated by the States in the 2011 Budget.

Resource Implications

A 6% GST rate with additional exclusions would be expected to raise around £4.8 million more than a 5% GST rate with additional exclusions in 2011, offsetting the GST revenues foregone as a consequence of introducing zero ratings for food and domestic energy. There are no extra manpower requirements to administer these amendments.

Report author : Tax Policy Advisor	Document date : 25 November 2011
Quality Assurance / Review : GST Director	File name and path: y:\treasury\sections\corporate finance\budget\2011\amendments and comments\gst exemptions offset with higher gst rate\report - amendment to gst amendment.doc
MD sponsor : Interim Treasurer of the States