Budget 2008 – Good news but GST still needed

23 October 2007

The Treasury and Resources Minister has published the 2008 budget proposing increases in the thresholds at which income tax is paid as well as a 20% increase in the tax allowances for children and students in higher education. The Minister will also propose raising the value of properties on which first time buyers pay reduced stamp duty to £300,000.

Treasury and Resources Minister, Senator Terry Le Sueur said: ”Our tax forecasts have improved because of our recent economic success. However this is not a reason to defer GST. We still need GST to meet the shortfall that will be caused by the move to zero-ten.

”The increase in tax thresholds and allowances are designed to reduce the impact of GST on low and middle earners, particularly those with families, If approved, it will mean a working couple with 2 children (one at university), paying £7,500 in mortgage interest, can earn almost £40,000, before they start to pay any income tax.

“Meanwhile the rise in Stamp duty discount for first time buyers is intended to help people entering the property market.”

The Minister is cautious about the improvement in tax revenues and is proposing transferring £25m to the Stabilisation Fund: “Although this is a welcome boost, we must be prudent. We cannot assume that the economy will remain buoyant. There are, in particular, real concerns about the effect of the world wide credit crunch on the local finance industry.”

The Budget proposals for 2008 focus on three main areas; income tax, impôts duty and stamp duty. A summary of the proposals follows:

Income Tax

3% increase in tax exemption thresholds for both 2008 and 2009

20% increase in child tax allowance for 2008, from £2,500 to £3,000 for each child as the basic allowance and from £5,000 to £6,000 for each child at university or in further education

Introduce greater market opportunities for new pension products

Announce the intention to offer electronic tax returns from 2009

Impôts Duty Proposals

Increase the duty on alcohol by 4% and tobacco duties by 4.5% representing:

• 34 pence on a litre of spirits
• 4 pence on a bottle of wine
• 1 penny on a pint of ordinary beer
• 13 pence on a packet of 20 cigarettes

Fuel Duty to increase by 4% on all road fuel by 1.6 pence a litre;

To replace the current scheme of Vehicle Registration Duty (VRD) once the States decide on its preferred environmental alternative in early 2008

For Impôts Duty the Minister has recognised the States Alcohol and Tobacco Strategies by raising Alcohol at 4% in line with inflation and Tobacco at 4.5% which is just above inflation. The increase in Fuel Duty is in line with inflation as in previous years at 4%.

Stamp Duty Proposals

Propose a new Share Transfer Property Tax to go some way to resolving the inequity in the housing market

Increase the ceiling at which first-time buyers receive a discount on their stamp duty from £250,000 to £300,000

The new Share Transfer Property Tax has been developed in response to a States decision in 2005 and is intended to increase the equity in the property market by introducing a tax equivalent to stamp duty for share transfer properties.

The transfer to the Stabilisation Fund is in accordance with the Fiscal Framework agreed last year. This involves saving surpluses in periods of real economic growth so that these funds can be invested to stimulate the economy in less buoyant times to improve economic stability, contain inflation and create the conditions for sustainable economic growth in the Island.

The Treasury Minister’s proposals will be debated by the States on 4 December 2007

-ends-

Notes to Editors:

1. The Budget Statement 2008 will be lodged at 9.30 on Tuesday 23 October
2. The precise amount a working couple with 2 children (one at university), paying £7,500 in mortgage interest, can earn before they start to pay any income tax is £39,670.
3. Senator Le Sueur can be contacted on telephone 863994.