In a reply to a comment on this blog I got a most insightful reply from a member of the Channel Islands' finance industry.
I suggested Jersey and Guernsey would go bust.
Not impossible at all for Jersey and Guernsey to survive. Jersey has a GST of 3% and Guernsey has none at all. In fact Guernsey is probably the only jurisdiction in the Western world not to have a consumption tax, and Jersey's is about the lowest rate among those that do. Both could very comfortably balance their books by charging GST at rates significantly lower than the UK and Western European rates. I predict that's exactly what will happen.....20% personal income tax rate, 10% GST and 0% corporate tax. Not exactly punitive although it would be a big sea-change for the islands' population who will not readily welcome consumption taxes.
If my recollection is correct, Jersey predicts it will raise £45m annually from a 3% GST. A 10% rate would therefore raise £150m a year. Guernsey's economy is two-thirds that of Jersey, so that's circa £100m a year. That option is up the sleeves of our politicians to use whenever they think they need it. The current global recession will merely speed that up.
So there we have it: the insider's confirmation of what some of us have been saying for a long time: that the GST in Jersey was never intended to stay at 3% and that it would increase to more than 10%. Some of us have had a bet on this since it was first announced.
But let's also face reality. Jersey and Guernsey invited the finance industry into their islands to bring revenue they otherwise lacked. They were meant to subsidise the place.
Now the tables are turning. What is very clear is that those ordinary people living there (the real residents - not the parasitical ex-pat community who are either there to evade tax or provide facilities for those who want to) do not enjoy a high standard of living. Prices are astronomical. And this move would shift the burden of significant additional tax onto them: most goods and services are subject to the GST. In other words: they would be paying to have the tax evaders in their midst.
Do you really think they'll vote for this? Or will they say 'enough is enough' and like Iceland chuck out those who have been debasing their economy in pursuit of their own greed and seek a different future elsewhere - probably in the EU?
That's what is likely. My commentator can extrapolate all he likes: he should know it is dangerous to extrapolate outside known data.
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So GST will be going up? Well that’s really new news. Mind you at least our salaries in finance soak up this added tax. Besides, people on low incomes already get extra hand outs to counter act GST. People are getting used to it just like when you got VAT.
John is saying that ISA’a and Pension plans are exempt form tax yet not a part of tax avoidance? Then what is it then? If I pay my maximum allowance into a pension scheme I am AVOIDING tax. Your comparative arguments are weak. Loop holes? We have already covered the fact that if onshore fiscal policy were not so draconian that the wealthy would not have to look elsewhere. But the UK gets its fair share of Res Non Doms from Eastern Europe. Explain that one? I know that there are a few Russian billionaires living in London for tax reasons. Are you saying they should be kicked out? And how would the UK exchequer take that one?
JTM
I have answered the avoidance issue already today
Pensions and ISAs are tax compliant – something quite different
Your claim that the poorest members of the community are protected from GST is laughable
Richard
And, for the record, I think it fair to say no one has done more to get the UK domicile laws abolished than me
Richard
Richard
If you read my posting again, you will see that it is merely my prediction. I can assure you that I have categorically got absolutely no influence over it happening, but from day 1 when GST was mooted 5 or so years ago I thought it inevitable. There is no competitive advantage to being the only jurisdictions without a consumption tax, so why not have one ? A continuation of normal economic growth rates would haven’t seen it necessary but its always been up the government’s sleeve if ever needed. But personally I wouldn’t wait that long although many others would strongly and understandably disagree with that.
But crucially, and you obviously and quite expectedly pounced on this right away, it does NOT need to see overall personal taxation rise for local residents, particularly for the lower earners. In fact, an even higher rate of GST (say 17.5% for arguments sake) could possibly even allow income tax to be abolished altogether, or see all those earning under say £35,000 exempt completely from income tax. I don’t call that hitting the “ordinary person” with a greater tax burden. There are endless mechanisms available (tax credits etc) to ensure that the lower income earners do not bear what would otherwise be an unfair burden of tax. I agree with you on that point. Its vital that it would be addressed. Everything is possible when you are starting from a position where such a consumption tax either doesn’t exist already or barely exists (3%). Bermuda and Cayman manage very nicely and entirely on consumption taxes and import duties. Their residents are not paying any income tax at all.
Richard, therefore Jersey is tax compliant.
There is nothing illegal in its services or operations.
It is just a link in the global economy.
Okay, lets reverse the argument.
What would happen (in you and John’s minds) if these places did not exist? I put this to you as if they cease to exist next week.
Yep in Cayman, the more you spend the more tax you pay, that why is it called a consumption tax
So those ‘parasitic expats” working for a local will be taxed more on those “astronomical prices
Rupert
Come on – can we please live in one argument at a time? You started off saying that the 100 million loss in corporation tax could be made good by charging GST and now you argue that the introduction of that GST could be revenue neutral by cancelling income tax. What sort of fantasy land is this? of course that is not possible. to make good the deficit in tax on companies ( to state this correctly) Jersey will have to shift the burden of tax onto individuals. There is no other option.
You may not have noticed it, but unlike cayman you do not have cruise liners calling by on a daily basis to pay landing fees, which are one of their alternative main sources of income.
And you may not have noticed it, but you already have import duties. it seems that I am much more familiar with your state finances than you are.
But most of all, you may not have noticed it but Cayman and is suffering an enormous problem with poverty right now. search cayman and poverty on this site and you will find a lot more.
Bermuda is also suffering these stresses within its community, as is, I believe the British Virgin Islands. Do you want to live in a place where the imported financial services community oppress the local population?
do you have any understanding of the economics of the island you live in?
I apologise if his comments appear patronising, as they might, but I am incredulous that someone working in the financial services industry in such a small place has no idea about the government finances to which he appears quite willing to refer.
Like most people who comment on this site, you need to do your homework. you will find that I do.
Richard
PS voice dictated – apologies for lack of some capital letters.
JTM
I agree. within its own definition I am sure that jersey as tax compliant. the trouble is, it goes out of its way to ensure that the regulation that it permits is used by those living elsewhere to evade their responsibilities, meaning that those persons are thoroughly non-compliant: in fact they are criminal. This is, of course, precisely what makes it a secrecy jurisdiction as we define them. This also, is entirely consistent with the behaviour that Sen Carl Levin calls the “MEGO” principle – net ears, my eyes glaze over. Precisely what, I suggest, happens in the case of Jersey finance professionals who satisfy themselves that Jersey law has been complied with, fail to ask where their clients are really resident or what obligations they might have there, do not check that they fulfil those obligations and carry on regardless, facilitating the tax evasion that they know, in all probability, occurs, but to which they turn a blind eye by refusing to ask relevant questions which might reveal the activity.
That is, I am sure, your definition of compliance.
and what would happen if jurors he went bust? First of all the UK would bailout the ordinary people of the place. second, all you finance people would leave. though it would probably join the EU in some form or other. fourth, administrators would have to be appointed to a lot of jersey banks which have no real substance. sixth , enormous quantities of information on tax evasion would fall into the hands of the UK government who would then willingly share it with other nations around the world, to the benefit of all.
seventh, the world’s financial system would carry on absolutely regardless, except it would be more transparent, more accountable, have lower risk and therefore benefit those who provide capital who currently do bear the burden of that risk – as shareholders in many banks have discovered.
I could go on. you get the drift I’m sure. but simply, the world would be a better place and I for one will campaign vigourously to make sure that the ordinary people of Jersey would not lose – and could all live in properties which would then be fairly and appropriately priced
Richard
“But most of all, you may not have noticed it but Cayman and is suffering an enormous problem with poverty right now.”
Odd then that the latest National Assessment of Living Conditions report in Cayman shoed just 1.9% of the population under the poverty line (although admittedly at a dodgy leve), and they were mostly expats
http://www.caycompass.com/cgi-bin/CFPnews.cgi?ID=1036347
But if you carry on saying the same old lies over and over again maybe you can make them come true!
I can look out the window and see what I’m talking about, what about you
” it goes out of its way to ensure that the regulation that it permits is used by those living elsewhere to evade their responsibilities, meaning that those persons are thoroughly non-compliant: in fact they are criminal”
Whereas the UK goes out of its way to assist those living in it’s borders to avade taxes they owe elsewhere, simply if they are not UK domicile.
and before you go on about how you talk about UK’s haven of tax, check your ratio of posts on the small jurisdiction “havens” compared to the UK
Richard I mean all the places on your hit list in an imaginary way being shut down in 7 days time.
I am just interested in what the TJN imaginary perfect taxed world is all about.
Richard
Yes I do know and understand the economics involved. Perhaps better than you by the looks of it.
In 2006, total income tax receipts in Jersey were £398m, of which £192m came from companies and £206m came from individuals. The shift to zero-10 has resulted in a £96m “black hole” of lost tax revenue from companies, of which £45m is now predicted to come from a 3% GST. The rest of the black hole is having to be filled from higher taxes on individuals through reduced allowances as well as from other tax-raising measures.
If a 3% rate of GST raises £45m a year, then a 6.5% rate would cover the £96m of lost corporate tax. But why stop at 6.5% ? Each 1% of GST is estimated to raise £14.8m. Charging a 10% rate would raise £148m, while a 17.5% rate would raise £259m.
If the island is looking to replace its 2006 total tax revenues of £398m, and only has £96m of remaining income tax from companies, the balance of £302m could come from 17.5% GST (£259m), leaving just £53m to come from personal income tax, compared with £206m at present. This is nearly a 75% reduction in the income tax burden on individuals — rather different from the increases in personal income taxes that everyone in Jersey is seeing at present. In fact, the GST revenues would almost certainly be even greater because the much higher net disposable income as a result of greatly-reduced taxes on earned income would result in more available to spend on items which would be subject to GST. My figures conservatively ignore that effect.
Such a dramatic reduction in the amount needing to be raised from personal income taxes enables a massive number of lower/middle income earners to be completely removed from the income tax net. This would more than compensate them for the amount of GST that they would be having to suffer on the consumption of their tax-free earned income. In this way, there is no element of regressive taxation often seen with consumption taxes, which is the usual and understandable response to such taxes. They are only regressive if they are not accompanied by tax credits or other mechanisms to compensate.
It’s not so very different from the UK increasing the VAT rate to 25% and raising tax allowances so that millions of low/middle earners would pay no income tax at all. The difference is that the UK is already at 15%-17.5%, whereas the Channel Islands are only at 3% (Jersey) or zero (Guernsey) GST. The headroom in the Channel Islands to raise revenues from consumption taxes is massive – not so in the UK. The Isle of Man raises a lot of revenue from VAT (excluding its share of the UK Common Purse) from what is actually consumed within the island. It’s really not such an alien concept.
Yes – it is passing the tax burden onto individuals, but not as you assume onto those who can least afford it. The burden would be on those who can most afford it if the tax breaks are given to the low earners as should be the case. And yes, Jersey and Guernsey do have tourist industries, albeit shrinking ones, who would also contribute to the GST burden. These visitors are well used to paying high rates of VAT in the UK and in Europe and they don’t currently contribute very much at all to the islands’ tax coffers. And yes we do have landing taxes (fees) at our airports and harbours.
Where did I say that we do not have import duties ? I never said that ! We do have them but it doesn’t mean that they cannot be increased. They only contributed £53m (10% of all tax revenues) in Jersey in 2006.
I am well aware of the social issues in Cayman, Bermuda and BVI. There is a big gap between the “haves” and the “have nots”, as indeed there is just about everywhere else in the world. But by raising a lot more from GST and ensuring that the tax breaks go to those who most need it, the Channel Islands can address that. Maybe some of our higher-earners in the Channel Islands have to accept paying a bigger share of the overall personal tax burden than at present. Why not ? They would still be paying income tax and would be generating by far the biggest share of the GST revenues from consumption.
I will disregard your usual patronising and simply incorrect assumption about my lack of understanding of our economies here in the islands. I understand them very well. I just don’t view the existing tax systems as ones which cannot be tweaked. There is no monopoly on out-of-the-box thinking as far as I am aware, and I am personally convinced that neither Jersey nor Guernsey has taken full advantage of the obvious solutions available from far greater reliance on consumption taxes.
If the rules of global international finance are being re-written (which we cannot control), then why can’t our attitudes to GST/VAT and personal tax allowances for low earners not also be re-written ?
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Rupert,
Richard and John obviously live in a world of ‘virtual economics’
They keep on ranting on about the world being anti-tax avoidant yet cannot even give us a virtual picture of the world without so called tax havens.
It is surprising that they hate the Channel Islands so much.
Is it actually because it is so well regulated now? Certainly coming across that way to me from reading their selective blindness of the situation.
I can’t really see any difficulty in imagining a world without tax havens. After all, these places don’t really add anything to the lives of 99.99% of the world’s citizens. The companies currently “based” in these havens would base themselves in the places where they actually do business. More convenient and efficient, surely? Jersey and Guernsey can go back to what they do best Cattle, Tourism, remaking Bergerac 😆
Creg
re 9 – try reading Cayman NetNews
They don’t agree with you
Richard
Richard
But the net news is an opinon piece, the actual government survey shows your woefully wrong about Cayman poverty.
http://www.gov.ky/portal/page?_pageid=1142,2812808&_dad=portal&_schema=PORTAL
Of course you base most of your “facts” on assumptions and opinions.
Creg
10. No one has done more than me to get rid of the domicile rule.
Richard
JTM
11and 13 . Give me time. I have a job to do as well as this.
Richard
Rupert
12. This is absurd
a) Jersey charges GST on medicine and not on yacht diesel. That’s its idea of protecting the poor
b) The compensation is very small
c) You have utterly forgetten to ask the obvious question – why will people want to pay 25% or more extra tax so Barclays can pay less? They won’t.
The game is up.
Democracy will kill the finance industry in Jersey
Richard
Creg
16 – I do not believe the Cayman island government – why should I?
I do believe Cayman NetNews
Richard
Richard
(a) I agree with you (that’s a first). Jersey needs to seriously re-think what it subjects to GST and what it doesn’t. That doesn’t make it impossible to vary it and correct the absurdity of the situation that you quite correctly make.
(b) The compensation is NOT small. Exempting people from paying 20% income tax on £35k a year income would save them between £6k (after allowances) and £7k a year of tax. Subjecting them to even 17.5% GST on items (i) which they spend their £35k income on (rather than on the £28k or £29k net income that they currently get) and (ii) which are are not exempt from GST, would cost them in the region of £3k to £4k of GST. You’re an accountant – I am sure that those maths are not beyond you. The very low paid who pay no income tax at present and who would still suffer some GST would be able to benefit from direct state benefits to effectively refund any GST suffered by them. Not difficult unless you make it difficult.
(c) The vast majority wouldn’t be paying significant extra tax, if indeed any extra tax. Those that might pay extra tax probably should be doing so anyway. Jersey (and Guernsey) still need to get that bit right. I think it will happen.
For such a tax structure to work it is evident that it has to packaged in such a way that the current wrongs with the existing structure are addressed. The average person understands why the corporate tax regime had to change, but doesn’t accept the manner in which the redistribution of the revised tax burden falls too much upon the middle-earners and lower-earners while the higher-earners suffer relatively less. I have no doubt that this would need to be and would actually be addressed.
Why are you so against a GST when everywhere else has one ? I don’t notice mutiny on the streets of the UK concerning 17.5% VAT or anywhere else in Europe. Its accepted. People are used to it. They are getting used to it (slowly) in Jersey. In another 5 years nobody will even remember what the fuss was about. Its human nature to be resistant to changes of that nature.
Rupert
I apologise: I will not have time to read through your detailed calculations. I admit that, you appear to be doing some thinking, and I therefore withdraw some of the suggestions previously offered. let’s create a spirit of goodwill before the weekend.
However, I continue to disagree with your assumption that GST at the rate to propose will be accepted by the majority of people in Jersey, or that you have any prospect whatsoever of shifting the enormous current corporate tax burden onto them. I think you are ignoring the existence of the JDA and the likes of Geoff Southern, the Pitmans, et al. They were elected for a reason, I am sure.
And please do not now accuse them of associating with me – I can read the JEP as well as anyone can.
Richard
Richard
I’m happy to try to create a better spirit of goodwill, and not just over the weekend. Hopefully it will last.
A quantum shift to GST in Jersey has absolutely no chance of succeeding unless if it is accompanied by a substantial package of relief, whether by income tax allowances or tax credits, to nullify the otherwise regressive nature of such a tax. I fully accept that. As part of that process it could completely overhaul the current (mis)distribution of the overall tax burden. Its not at all impossible with some lateral thinking, but it certainly wouldn’t be easy.
An interesting reference to Deputies Southern and Pitman below from yesterday’s JEP….seems like they are not making the right sort of impact in the States of Jersey !
JERSEY Democratic Alliance member Deputy Geoff Southern has admitted breaking the law by assisting about 70 elderly, infirm or busy people to complete a postal vote application form in the election and/or delivering their completed forms.
He said that he did so because he believed the law was contrary to the human rights of disabled and infirm people to take part in the voting process.
The Deputy attended police headquarters at 2 pm today and was charged with 20 offences under the Public Election Law, one which carries a maximum fine of £2,000. Fellow Jersey Democratic Alliance candidate Deputy Shona Pitman has been charged with two offences under the same law.
The charges relate to postal votes in the election for Deputies in St Helier No 2 District in November. Both Deputies are due to appear in the Magistrate’s Court on Friday morning.
Rupert
Sounds to me like they acted completely honourably and the law is an ass
Only in Jersey would assisting disabled people vote be considered an illegal act
Richard
Richard
You may be right and they may even be found not guilty as a result. I suspect that if they are found guilty then the story will have further to run on discrimination grounds. I would have thought being found guilty but with no order made, followed by a change of the law for the next election would be appropriate.
But its rather ironic that you seem to be defending them for actually breaking the law when at the same time you are criticising lawful tax avoiders for something that is expressly not unlawful. Surely lawbreakers are lawbreakers, regardless of which laws they are breaking ?
Richard (20), so you believe a tabloid over Official Government figures….
Yet yuo beleive the Cayman Government figures on the number of requests through the Tax Information Treaties and you base your whole calculation of the IOM tax subsidies on the Manx Government figures?
Just shows your impatiality on this whole subject, you no longer look at the facts only opinions then try and base your “facts” on those, glad that is now out of the bag.
May be you should disclose when your create your figures and facts that you are now basing them on tabloids rather than official figures?
Rupert
Not defending them – saying they are a fact of political life in Jersey
Something quite different
And saying, like those who oppose your laws that facilitate tax evasion, but there is moral ground floor requesting change in what Jersey does 🙂
Richard
Creg
As far as I know Cayman net News is not offering data. it offers a pen portrait of what it is like to be poor in Cayman – and it is one that I have heard also from those within the monetary authority and elsewhere, who have confirmed that the problem does very definitely exist in my presence.
So there is no dichotomy at all
indeed, I think that sensible politicians in Cayman, (and there must be some) recognise that this is a problem, although I’m not sure that the willingness to address it exists, at least as yet
Richard
You love the word evasion Richard and seem to be chucking it at Jersey at every possible opportunity. Can you give us some actual examples to back up this claim. It is all very well saying it all the time but I think for at least the people of Jersey should be given a clear lead to what you are saying.
Jason
All the evidence needed is in the revelations of the 2007 UK tax amnesty
Barclays fought to prevent disclosure of data
When it was disclosed it revealed significant tax evasion by thousands of customers none of whom had been reported for suspected money laundering
And still they do not report all their customers who refuse to information exchange under the EU STD which must, without doubt, create suspicion of tax evasion i.e. money laundering, which is the only criterion for reporting
My case is rock solid
The Guardian’s lawyers seemed to agree yesterday, I note. And they’re very cautious
But why report? Jersey will ignore it
Richard
no further posts are being accepted on this or other related threads on which many from Jersey have been posting the reasons noted here.
http://www.taxresearch.org.uk/Blog/2009/02/04/post-panorama/#comment-543588
Those who have been trying to suggest I lacked credibility needs to appraise themselves the facts before they try to debate again.