Introduction
The budget gives something back to the hardworking people of Jersey who have carried on through difficult economic times. It is a budget that supports economic growth, job creation, more and better homes, better education, better healthcare and a step change in investment and improved infrastructure. The last 5 budgets have involved making some extremely difficult decisions on tax and spending.
Economic outlook
Whilst there have been some positive economic news at the global level in recent months.
The OECD policy advice at the global level is to continue to support demand in order to reduce the risk that the recovery will be derailed.
That is why this year’s budget is different a carefully constructed package to address the reality that the local Jersey economy is still under pressure.
In 2012, economic activity fell as measured by GVA in Jersey.
Our GVA level is heavily influenced by interest rates set by the Bank of England, so when interest rates are low, our GVA level will also be low.
This does not indicate an underlying structural decline in the Jersey economy.
Inevitably, interest rates will rise and so will our GVA.
It is very important for us to look at the performance of the Jersey economy as a whole:
- actual tax receipts remain resilient and better than forecast
- the actual number of people in work, is close to a record high
- the average earnings increase in June 2013 was 2.2%, this is an early indication that economic trends in 2013 have changed significantly, and there are improvements in the business activity indicators
Five of the ten indicators for the finance sector improved and 7 of the 10 indicators for the non-finance sector improved in the second quarter.
We expect more better news tomorrow. Recovery is now in sight and this budget aims to help it.
That said, as far as the labour market goes, despite the recent record high employment levels, the ILO unemployment rate of 5.7% is unacceptably high for Jersey and we must do more.
Specific budget measures
Impôts
Firstly, impôts. There has been a fuel duty increase in only one of the last 5 years. This year it is proposed to put:
- 2p on a pint of beer
- 6p on a pint of higher strength beer
- 47p on a packet of 20 cigarettes
- £1.27 on a litre bottle of spirits
- 7p on a bottle of wine
These measures are designed to support the Health and Home Affairs Minister’s programmes to reduce excessive drinking and smoking on the Island.
Jersey deaths from chronic liver disease are up to 40% higher than would be expected in England and Wales. In 2010 there were 2,373 hospital admissions attributable to alcohol.
Furthermore there are around 200 smoking related deaths in Jersey every year.
The cost to the health service, let alone the individuals and their families and friends, is considerable.
I have also considered carefully the on going and as yet unexplained high margins that exist on virtually all products that carry duty.
Whilst those in the industry have lobbied they still have not explained why it is that when duty and tax are stripped out the underlying costs of these products is so high. My message to members is that their benevolence in not increasing duties in the past has not always translated into lower consumer prices but what appears to be higher margins. I am willing to have a debate about this between now and the budget debate in December.
These proposed duty increases are also part of an overall package of measures which taken together are designed to cut taxes to lower and middle income taxpayers.
GST
There is no change to the 5% rate of GST some minor changes will be made to clarify the rates.
Supporting business and Aircraft registry. I can say Treasury will support EDD on an Aircraft Registry by amending the GST legislation in tandem with the drafting of the Law on an aircraft registry. We will continue to work with the Economic Development Minister and his team on doing everything we can to support businesses.
Economic Development now has considerable resources already approved including the Innovation Fund. We look forward to the publication of the new Enterprise Strategy in advance of the budget in December which will set out how Economic Growth can be further boosted and businesses helped.
Explaining marginal relief
Personal income tax in Jersey is based around a standard 20% rate of tax with limited deductions and allowances. However, in order to protect the lower to middle income earners, a separate calculation called ‘marginal relief’ with a 27% rate is also made with a much higher allowance. Taxpayers pay whichever calculation gives them the lowest tax bill so no one pays more than 20% of their total income in tax.
Three bold measures
This budget proposes three bold measures.
Increase income tax exemption thresholds by 1.5%.
Firstly, we propose that income tax thresholds are simplified increased by 1.5% at a cost to the States of £2.5 million. For a single person the tax free exemption amount will rise to £14,000.
Decrease marginal rate
Secondly, and this is the really positive news, we propose a cut in the marginal rate of tax from 27% to 26%. This will not only benefit all marginal rate taxpayers. But, in addition a number of standard rate taxpayers will be brought into lower tax. Sir, this will cut taxes for approximately 84% of the taxpayers which is around 40,000 households.
The cost of decreasing the marginal rate by 1% is approximately £7.8 million.
Child allowance – enhance tax relief for parents of children in higher education
Thirdly, some good news for lower and middle parents with young people who currently have a child over 17 years of age in full time further education can currently claim a higher child tax allowance of £6,000.
We propose this allowance will be increased from £6,000 to £9,000 for marginal rate taxpayers.
Concerning the property market, I am pleased to report that the First Time Buyers Deposit Loan Scheme is working well and I thank Members for their support.
The Council of Ministers believes it still needs to do everything we can to help Islanders to get on to the property ladder.
This budget proposes a continuation of the extension of the maximum threshold for first time buyer relief from £400,000 to £450,000 - an estimated cost of £300,000.
This is the first budget that moves away from short-term one year ahead budgeting.
All the time that we would have spent on next year’s spending which has been fixed in the MTFP, has been spent on longer term planning.
The changes in our Finances Law are not only working here but are being looked at by other jurisdictions as a model of better financial management and long term planning.
Reports published and launched
Published alongside this budget are three reports.
Tax Regime for High Net Worth Incomers
Firstly, the Tax Policy Unit was asked to provide a follow up report on the actual effects of the introduction in 2011 of the new tax regime for High Net Worth Incomers.
The report concludes that the new regime is working well. However, some further changes can be made to boost economic growth, jobs and inward investment.
This budget proposes to allow High Net Worth Incomers who arrived before 2011 to transition to the new regime, provided they meet certain criteria.
This will encourage the relocation to Jersey of further investment portfolios and attract active businesses to the Island. This will in turn generate tax revenues, fees and economic growth through spending and employment.
In addition, I am also announcing the minimum contribution level will be reviewed every three years with a view to increasing the tax contributions for these High Net Worth individuals in line with inflation.
Independent Taxation
As part of the programme of work for modernising Jersey’s system of taxation, the Tax Policy Unit was asked to review how Independent Taxation could be introduced.
The term ‘Independent Taxation’ refers to the policy of taxing people as individuals, regardless of their marital status. In Jersey, there is currently a ‘default’ for married couples to be taxed jointly.
There are also certain allowances that apply only to married couples, such as the Wife’s Earned Income Allowance.
While married people have been able to opt for separate assessment since 2003, there is now a clear need for the tax regime to adapt and evolve so that each individual is treated equally for tax purposes.
We are committing to moving towards Independent Taxation.
It’s a big task and a phased approach to implementing change is needed.
It is proposed that a first, important step towards Independent Taxation is made in this year’s budget by changes to the allowances I referred to earlier.
Pensions
A major consultation is launched alongside today’s budget about the changes to the tax rules that apply to pension schemes and pension benefits.
At the moment the tax rules cause an unnecessary constraint on people employed in Jersey, in that it is necessary for a member of an occupational pension scheme to retire before they are able to draw a pension.
This has the effect of barring people from opting for flexible retirement.
We want to consult on changing the tax rules to remove such unhelpful constraints and to provide better flexibility for people in their retirement planning.
2014 spending
Turning now to spending.
Members will recall last year that we made a decision based on advice from Scrutiny; we decided that some growth and capital allocations should be decided by the Assembly each year, at budget time.
Growth allocations of £2.2 million for 2014, and £1.5 million for 2015 are set out and consistent with those debated last year in the MTFP.
This includes money for Social Housing, Income Support, disposal of Ash and funds for boosting our International engagement capacity.
The job of making the States more efficient of course continues. In the last three years of almost £60 million but we are doing more.
Across the States work on transformational changes are delivering both improved customer service and further efficiencies and savings in 2014 and 2015.
Additional savings are being achieved, recorded and banked and mean that further substantial and recurring savings are being achieved before the next MTFP.
Let there be no doubt of my absolute determination to continue to cut costs and ensure the States is efficient.
It is a never ending task now and into the future.
We have a very ambitious capital programme of over £90 million for 2014.
This year we are seeing La Collette High Rise refurbishment and the second phase of Le Squez underway.
New builds at Journeaux Street, Lesquende and Fields 516 and 517 in St Saviour will together deliver a total of 124 units.
The new Stores and Works Building at the Prison is nearly complete, as is the ICU upgrade at the Hospital.
Work has begun on St Martins Primary School. The upgrade of Clinique Pinel and the Victoria College School extension are also underway.
Through regular meetings with the Construction Council we have been doing all we can to help industry maintain employment in these difficult times, as well as delivering real benefits.
Capital programme
This year’s budget has an ambitious £90 million capital programme.
Firstly, £1 million is provided for IT projects to help with e-government.
Last year we indicated that investment would be necessary in primary education to deal with the increased demand for primary school places.
The initial proposal to build a new primary school in St. Helier.
After much consideration, and excellent work by Property Holdings, a more cost effective scheme has been developed that will see extensions and improvements made to a number of existing primary schools which are to be announced today.This means we can bring forward some additional schemes into the Capital Programme.
I am delighted to say to Connetablés that further funds will be made available to bring forward a number of Parish regeneration projects.
ESC will also receive capital to fund their Sports Strategy, over £2.5 million in sports infrastructure and endeavour will meet the Chief Minister's request that there should be a specific focus on preparing for, participation in and lasting benefit from the Island Games 2015.
The States’ environmental service will benefit from more investment in the countryside.
To maintain the coastal national park and improve our network of footpaths.
Whilst I will come on to the longer term to proposals for the improvement and development of future hospital facilities and services.
£10.2 million is proposed, as the first phase to meet the costs of hospital design development, preliminary works and transitional capacity needs in 2014.
The funding proposed for the Main Theatre Project will help reduce hospital waiting times and improve services for patients.
The investment of half a million pounds in Intermediate Care will help provide more integrated health and social care for adults and provide better facilities for those suffering with dementia.
Finally for H&SS, the refurbishment of Sandybrook, in 2014, will deliver real improvements in nursing care for older people.
For TTS, as well as significant sums to maintain our infrastructure of roads and drainage, there is over £10 million to upgrade the Sewage Treatment Works and replace the Clinical Waste Incinerator.
Although the benefits of these investments may be less visible to the public in the short term, the Island cannot function without modern and efficient infrastructure.
These are the sort of things we take for granted and only tend to notice when something goes wrong.
The TTS projects related to Ash, Recycling, Scrap Metal and the Energy from Waste plant are all essential to move towards a more environmentally sound and sustainable future.
And finally for TTS, 2014 capital programme provides for the additional Green Street car park spaces which are a planning condition of the new Police HQ.
Members will be pleased to hear that the allocation proposed for Treasury and Resources includes £750,000 to demolish the Fort Regent Pool, which has become an eyesore.
More progress will be made on this site in 2014 and beyond and details of the Fort Regent Steering Group’s proposals will be forwarded to Members in the next month.
And I am grateful to my Assistant Minister Deputy Noel for all is help in this and so many areas of this budget.
The proposed capital programme for Traders of£2.4m is also set out.
Taken together with the States’ main programme of £88m brings the new starts for 2014 to more than £90 million – a substantial commitment and injection into the local economy at this time.
There are certainly no “nice to haves”.
Each has been chosen for value for money in their own right.
This is a thoughtful and thought through programme which endeavours to use taxpayers’ money wisely.
Funding for long-term infrastructure
In line with the recommendations of the Fiscal Policy Panel, the 2014 budget also proposes funding for a significant investment in three major projects that are essential to meet the Island’s long-term infrastructure needs, for Health, Housing and Liquid Waste.
Sir, identifying the necessary funding streams for these 3 major infrastructure investments has been a challenge when, at the same time, the council of Ministers wants to reduce the burden of taxation on Islanders rather than increase it.
We have worked with departments to arrive at a proposed set of funding measures that strikes the best balance between meeting the service delivery and spending needs and minimising the impact on taxpayers.
The Health Proposition approved by the Assembly on the 23rd October 2012, set out the vision of an integrated care model and a programme of change for the future.
Central to the development of this vision is the need to have a general hospital, which would be fit for purpose and capable of sustaining the acute care provision requirements for the population.
After a great deal of good work with Property Holdings and Health, a lower budget of £297 million has now been set. The Health Minister will explain how this will work later. I want to address funding.
In July 2010 the States established a Common Investment Fund.
Since the end of 2010 the investment strategy for the Common Investment Fund changed.
There has been a move away from assets with a low rate of return, such as cash and sovereign bonds, to assets with a higher rate of return, such as equities and corporate bonds.
Investment returns since that time have increased substantially.
In that period the Strategic Reserve Fund has increased from £550 million in July 2010 to £720 million in July 2013.
The budget proposes that the exceptional need for funding for a new hospital should be met from the use of investment returns from the Strategic Reserve Fund.
This means that the Hospital project would be fully paid for by the time it is completed; there will be no new cost to the taxpayer and no debt for future generations.
Our central assumption is based on investment returns averaging 5% over the next 10 years.
With an investment return averaging 5% over the next ten years, the hospital funding of £297 million can be fully met and the value of the Strategic Reserve will still rise to £810 million.
There is also a requirement to upgrade the social housing as well as to increase the availability of social housing.
The States granted approval was granted on 16th May 2013 to enable the Housing Department to become incorporated into a new entity.
The housing financial model was developed on the basis that the new Company would borrow to meet its spending needs, and repay the debt using the rental income associated with the new or refurbished properties.
A schedule of the housing schemes that could be carried out with funding of £207 million over the next ten years is set out in the report.
In addition, a further £43 million is proposed to fund the acquisition and development of new sites, including some which may become available as result of the possible re-zoning of sites identified in the Island Plan.
It is proposed that Jersey’s excellent credit rating is utilised in order to borrow up to £250 million for housing purposes through the issuance of a public rated bond and thereby locking in low interest rates for the benefit of the Island.
The budget seeks approval for this.
New investment is also needed in our Liquid Waste infrastructure to replace the Sewage Treatment Works (‘STW’) at Bellozanne.
The safe disposal of Jersey’s wastewater is vital to keep the Island safe to live in and to protect our surrounding waters.
The TTS Minister has been clear that there are three main drivers for change - these are:
- firstly, Legal - the current Sewage Treatment works are breaching consent conditions
- secondly, Operational - the infrastructure is failing, leading to high maintenance costs
- thirdly, Environmental - there is a need for compliance with the Water Framework Directive
The total funding for the replacement sewage treatment works is estimated at £75 million.
The overall strategy for liquid waste will be the subject of further debate to be led by the TTS Minister.
The proposals for funding the investment needed in the new sewage works.
It is proposed that the Liquid Waste project will be funded by using three sources:
- a targeting of the existing rolling capital vote
- an allocation within the traditional main capital programme
- an investment from the Currency Fund allocation to infrastructure
The new infrastructure will be more energy efficient and cheaper to run. This will enable TTS to repay the internal investment from Currency reducing both the internal borrowing cost and the risk.
This budget brings forward cost effective ways of funding three major projects that minimise the effect on the taxpayer, maximise the use of existing resources and improve our Island infrastructure for the long term.
I would like to thank the Ministers for Health and Social Services and Housing, and the TTS Minister for their hard work and support in developing the plans that underpin these funding strategies.
Sir, this budget balances the need for short-term fiscal support to boost employment with the need to underpin economic growth and job creation policies in the medium term.
This budget provides fiscal stability and certainty to businesses.
The Social Security Minister has already announced the new Long Term Care Scheme which is now funded earlier and without a contribution in 2014. This is designed to help our senior citizen community.
Today, young people and their parents benefit from the extension of the tax allowances for university students.
This is a budget which helps a very significant number of Islanders.
But most important it is a budget that provides direct financial relief to the majority of hardworking, taxpaying islanders and leaves more money in Islanders’ pockets.
This budget invests in St. Helier, is prudent, targeted, confidence boosting and looks to our future.
Sir, I commend this Statement on the budget 2014 to the Assembly.
gov.je