That was a pretty good budget under the circumstances. Certainly there are still a lot of financial problems to be faced, but the plan appears to be working, and a solution has been found for one of the most contentious tax issues facing the island.
It’s a pity I’m not talking about the Jersey budget. No, it was the recent budget in the Isle of Man that I found quite impressive.
Our cousins in the Irish Sea have plenty of challenges in trying to balance their budget. True, they have not been badly damaged by the economic downturn and have remained a recession-free zone, but they have suffered an enormous loss of revenue due to the UK’s unilateral amendments to the VAT sharing agreement.
Despite that, the Manx government is still on track to balance its budget over the three years ending in 2015, and it has still managed to increase net spending by 1.6% next year and allocate £97 million to its capital programme. This is an island that may be bigger in area than Jersey, but which has a smaller population. Jersey remains richer than the Isle of Man, mainly because of the past success of our finance industry, but their economy now seems to be going in the right direction, whereas ours is struggling.
One of the biggest contrasts between the two islands in the budget is economic performance. Whereas Jersey’s economy has contracted over the past five years, the Isle of Man’s has grown year on year for the past quarter of a century. Current growth is about 3% in real terms.
This is probably due to another significant difference between the two islands: the Manx economy is already much more diversified, and the government is quick to spend money attracting new industries and businesses. Like Jersey, it has lost jobs in its much smaller banking industry, but unlike Jersey, the Isle of Man has added 130 jobs in key exporting sectors in the past year.
These include aerospace, manufacturing, e-gaming (which now employs 700 people, while Jersey’s e-gaming industry is still on the launch pad), the aircraft registry (which also employs 80 people in the Isle of Man, while the proposed Jersey registry is nowhere in sight), and even the shipping registry, which has begun to attract Asian shipping (which is still only a twinkle in the eye of Jersey’s economic development minister).
Like Jersey, the Isle of Man also tries to attract wealthy residents, but in a slightly different way. Jersey charges 20% on the first £625,000 of annual income, while the Isle of Man has a tax cap of £120,000 for individuals or £240,000 for couples, which the Manx treasury minister says is working well. The tax cap is estimated to have increased tax revenue from £2.8 million before the cap was introduced to £10.5 million now. However, these wealthy entrepreneurs also created 370 new jobs worth more than £10 million in tax revenue.
Unemployment in the Isle of Man is about 1,200, or 2.6%, which is slightly less than Jersey’s. However, one way in which our fellow Crown Dependency has kept unemployment down is by a national insurance tax holiday introduced last year on any new jobs created. This has produced a total of 387 new jobs from 200 different employers, and it has been so successful that the tax holiday has been extended for another year.
Another interesting aspect of the Manx budget was the emphasis on making the government smaller, which some critics in Jersey might think would be a good idea here as well.
However, in the Isle of Man, there is a good case for saying that the government is trying to do too much, while the evidence in Jersey is rather more flimsy. The Manx treasury minister questioned why the government needs to run loss-making attractions without fully understanding their tourism benefit, or why it runs cinemas, loss-making restaurants and even sawmills. There needs to be more rigour in distinguishing between what is vital and what is nice to have, the minister said in his budget speech.
The Manx government has already lost 300 staff since 2010 and more money has been set aside in the budget for possible redundancies under their Scope of Government review. The share of national income spent by the government has fallen from 24.8% in 2010 to 22.4% this year. The comparable Jersey figure is around 18%, which is hardly big government in comparison.
However, the Isle of Man does things differently and often more quickly than Jersey. For example, this last budget has finally tackled the problem of trying to get tax from non-resident companies trading in the Island – a problem that Jersey continues to grapple with after several years of trying.
The Manx government has achieved it in an apparently simple way: it has merely extended the 10% tax rate that currently applies to finance companies to all large retailers in the Island with profits exceeding £500,000. This will bring in an extra £3.5 million in tax.
Of course, the Isle of Man is also different from Jersey in that it appears to be much keener to adopt new international business standards, even where there isn’t a level playing field yet. Its budget therefore included the announcement that the Isle of Man will sign FATCA-like agreements allowing automatic exchange of tax information with the US and the UK. This includes a memorandum of understanding with HM Revenue and Customs aimed at UK residents with undeclared income in the Isle of Man.
The Manx Treasury Minister said that the automatic exchange of information ‘will ultimately be rolled out within Europe and beyond’ and that the Isle of Man wanted to remain in the forefront of international tax developments.
Jersey has refrained from committing itself yet, although it does acknowledge that this is probably the new international standard. The Island has been shown to be right in similar developments in the past, but unfortunately that doesn’t help its image.
Those in the know will understand why Jersey is reluctant to follow the Isle of Man before others (even in the EU) have committed themselves. But to the general public this could look as though Jersey is simply dragging its feet. Perhaps once again, the Isle of Man has stolen an advantage.