Letter Published in Jersey Evening Post on 8 September 2006

Preston Hobbs.
Mollington, Plat Douet Road,
St Saviour.

 THE financial forecast in the Business Plan 2007-11 shows that without zero/ten and GST there would be a continuation of deficits until 2009, and still no surplus for transfers to the Strategic Reserve since 2011.

 Even the expectation of breaking even in 2010 very likely ignores the further big rise in energy food, commodity, transport costs and interest rates expected to worsen for years ahead. Income tax is forecast to increase by 3% pa cumulative. So no net loss to the finance industry because of international competition is expected after all. Which brings us to zero/ten and GST originally supposed to partially fill the £80-100 million black hole, but already needed to cover rising expenditure. But we are told that the worrying shortfall predicted in 2010 and 2011 will not happen, partly down to extremely conservative projections of loss by the finance industry to competition.

 Quite so. The promised massive loss of business to international tax competition has not happened. What business we lost was mainly due to determined UK Inland Revenue anti-tax avoidance measures. For all the positive reasons given in the 2002 Oxera report, the finance industry continues to expand, business last year exceeded £1 billion, to yield over £200m tax.

The very notion that this booming industry confident in its future prospects needs a £70m subsidy, one-third of tax yield, is ridiculous. Quite clearly from the Business Plan we cannot possibly afford it anyway.

Not only that, zero/ten does not even begin to comply with the EU Code of Conduct on Business Taxation. We are indebted to Darius Pearce's submission on the scrutiny zero/ten website for the actual wording of the code, never publicised by government over the past four years.

 Briefly the code defines 'harmful' tax measures as tax rates significantly lower, including zero taxation, than those which generally apply in the EU states and, as we have undertaken to abide by the code, our acceptable 20% rate must apply here.

 Sub-sections apply to our IBC companies, which are being phased out, and exempt companies, which trade elsewhere. The next paragraph, reducing the finance sector rate from 20% to 10%, contravenes the 'standstill' commitment.

The five-year compliance deadline is 3 June 2008. As zero/ten disobeys and frustrates the basic intention of the code is it likely that the European Council of Finance Ministers (ECOFIN) meeting at that time will agree to -a zero-rate tax haven on their doorstep? Hardly.

Moving on to- continuing deficits, Oxera warned four years ago of the imbalance and unsustainability between States income and rising expenditure, of which staff salaries is still around the 60% level. Since then the focus has been on increasing taxation to cover deficits with millions of pounds wasted. Just two recent examples: £250,000 promised for the Jersey Race Club grandstand (surely enough rich people there for a bond issue), and the appalling £170,000 for a Jersey logo. As mentioned above, without zero/ten and GST we will have a small surplus from 2010, hopefully.

 No zero/ten should automatically mean no GST, but how to avoid deficits in the meantime? Quite simple. Create immediate budget surpluses by introducing long-overdue normal PAYE in 2008, with 2007 tax payable over five years with a 57% graduated discount for early payments based on an annual December deadline. The discount would amount to a welcome tax-free benefit and so we can expect substantial payments in the early years.

 The current half-baked IT leaves taxpayers with the worry of always being one year in arrears, and no doubt the Income Tax Department would arrange further extended payments for those in need. Last November the Finance Minister said that he was considering introducing normal PAYE within a year or two, but this would be impossible with the dreadful burden of GST in place.

 We must not ignore conditions in the world around us. As I said in my submissions to the Corporate Services Scrutiny Panel (on the scrutiny Strategic Plan website), there have been repeated Bank of England warnings on the unsustainability of the huge £11.2 trillion UK mortgage and consumer debt and recent warnings of higher interest rates. Bearing in mind that huge borrowings to fund trade and federal government deficits has the US dollar in deep trouble, and that the Middle East will be a tinderbox for years, this is most certainly not the time for Jersey to embark on risky and quite unnecessary tax changes.

 We can only hope that in the light of changed circumstances here and the grave political and economic uncertainty elsewhere that enough States Members will realise that both zero/ten and GST are now out of the question.