There was a great letter inn the jersey Evening Post yesterday from my friend Pat Lucas. It said:
THE JEP (1 June) reports that Jersey faces a review by the EU Code of Conduct Group on Business Taxation in September over the discredited ‘zero-ten’ corporate tax system.
As many of us know, Jersey has a multi-tier tax system where foreign or non-Jersey companies pay a zero-rate which means they pay no tax at all, finance firms are only required to pay ten per cent tax while individuals pay 20 percent income tax.
This Island now faces a £100 million tax deficit per year, so despite the fact that 20,000 Islanders signed a petition against it, the States have adopted a three per cent Goods and Services Tax which shifts the tax burden away from businesses and those who can well afford to pay a fair tax and onto those who can ill afford to pay. Grossly unfair!
The EU is concerned that the zero-ten tax policy does not meet the spirit of the Code of Conduct on harmful tax practices. Frankly, I have to agree with them. But we in Jersey already pay extortionately high prices for housing and the overall cost of living is far higher than in the UK, despite the 17.5 per cent VAT rate on most goods and services in the UK.
Ordinary people have to pay a very high price indeed for the pleasure of living in a tax haven, and the price will be very much higher, once the GST rate is raised to tackle the budget deficit. GST is a deeply regressive tax. No amount of Social Security will rectify this. It simply means that the rich will get richer and the poor, poorer.
Commenting on the GST earlier this year, Richard Murphy of Tax Research www.taxresearch.org.uk/Blog, who warned the States of Jersey against adopting GST in 2006 writes:
‘And now I note it is forecast to rise to 12% — by Jersey’s own civil service. ‚ĶIt’s another sign of reverse socialism and Jersey had been warned. Ordinary people in Jersey are funding a tax haven.’
I would ask Chief Minister Le Sueur, who is reported as saying ‘Jersey is going to have its tax system assessed and as far as I am concerned that is fine because it actually gives us greater clarity’, to please listen to the message rather than simply trying to discredit the messenger.
Try to meet the spirit of the Code of Conduct without further shifting the tax burden onto those least able to afford it.
Well said Pat.
But will they listen?
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What would be the economic cost to the country if Jersey moved away from being a “tax haven”?
Seeing as you spend most of your time trying to destroy Jersey’s main industry through your strong line on tax avoidance, it seems odd that you are showing so much compassion for jersey’s poor. Let’s face it, if the finance industry pulled out of Jersey, it’s not the rich folk who are going to be worst affected.
JayPee
Jersey’s tax revenues are almost entirely dependent upon the finance industry. Tourism is marginal. Agriculture is profitable but the land is owned by a very few establihed families and labour is poorly paid.
Without the finance industry Jersey would see a collapse in tax revenues.
More to the point, the finance industry is the Island’s main employer and employs (as a percentage of its work force) a much higher percentage of locally qualified (i.e born or long-term resident) people than any other industry. So its decline would lead to a mass migration of the young and those of working age from the Island.
Islands have a hard time unless they can provide “intellectual” services to non-residents. The physical costs of transport and the economies of scale mean that Jersey cannot compete with northern France or the Southern UK in manafacturing or agriculture (other than the Jersey Royals). There may be some options in tidal power because of the vast tidal range in Jersey, but it is early days and the technology is hardly proven.
For many years people have said the Isladn should diversify but when asked exactly what into the voices fall silent.
The truth is, without the finance industry Jersey would have to change radically: much lower public services, a much reduced, much older population. It is likely it would require a subsidy from either the UK or the EU in order to maintain a European standard of living, though its reserves could last for a few years so that is in the realms of speculation.
For those who remained, didn’t need to work, could afford to travel for healthcare, and who didn’t mind living away from their children, it would be a paradise. For the rest, I’m not so sure.
None of this is to either support or attack the finance industry: just to attempt to explain what is likely to happen if it left the Island.
@ Mad Foetus; your piece is excellent. Although I would question whether it would be a paradise for those who remained, due to the mass unemployment and collapse in house values, which would inevitably lead to a rise in crime and social problems.
I often get frustrated with Channel Islanders who think the islands would be better without finance, becuase I believe they don’t see “the bigger picture”.
@Greg, can you please explain how a ‘collapse in house values’ leads to a rise in crime and social problems. Alternatively, what benefit high house values have to anyone other than banksters, speculators and inheritors?
Greg
You and Mad Foetus are absolutely right. The fact is that the Channel Islands cannot successfully diversift out of financial services because there is nothing that the islands can successfully diversify into. For islands, their remoteness is a huge barrier to physically importing and exporting anything. The diversification should have happened 15 years ago, but it didn’t. We cannot change that fact now. We have to retain finance industries but of a type which is acceptable in the current era. Not easy, but not impossible either.
Carol, it’s pretty simple really. If you have a country where a large proportion of home owners are forced out of their homes because unemployment has meant they are unable to pay their mortgages, then you are suddenly going to end up with a lot of people/families reliant on the state for support. Which in my book is a social problem. And if you look at crime figures in poorer areas, they are generally higher than in richer areas.
Maybe you’ve never been to Jersey, but it doesn’t suffer from high crime levels. Yet if you suddenly make a large percentage of the work force unemployed, then you are going end up with a lot of problems.
@Greg
Then the cause is unemployment not ‘a collapse in house values’.
There seems to be some confusion here in all 8 comments. Let me put you straight. Undesirable as these problems are that you put forward, the real problem is not primarily crime or unemployment or rising house prices or any of the other evils which may befall us. The root of the problem here is tax avoidance and corruption. It’s that which we need to get rid of. When the tax avoidance industry leaves Jersey – and it will- we’ll need to to completely restructure our economy with professional advice from our friends and colleagues. The transition period will be extremely difficult. Don’t think for a moment that we’re kidding ourselves here. Don’t take us for fools. We’re not. Jersey existed before the “finance industry hijacked it and Jersey will exist after it’s gone so why don’t you stop fretting and go somewhere where you can be appreciated. Far better than to suffer as you do from such frustration.
Pat Lucas
@ Carol, yes unemployment is part of equation. As stated in my initial post.
@Pat Lucas
Thanks Pat for that wholly appropriate response
To others who have responded I’d say this: it’s an enormous pity you do not share Pat’s wider view of the issue, for foresight and wisdom. To ask the question “what will it cost Jersey” is the wrong question. Candidly it’s akin to the drug dealer saying to the court “but what else can I make a profit from?” and expecting this to be sufficient to not only receive a pardon but to be invited to carry on with their crime.
The vast majority think Jersey does facilitate crime – the crime of facilitating illicit financial flows from behind a veil of deliberate secrecy enacted to ensure these flows can occur. The flows may not be criminal in Jersey – but they are elsewhere. So, for example, the claim that a transaction is permitted because no tax crime is permitted in Jersey when no consideration is given as to whether a tax crime is committed elsewhere – which is the universal standard for appraisal of these transactions operated in jersey – is simply wrong.
In that case a local appraisal is wholly inappropriate – and is anyway absurd: Jersey is not and never has been an independent state. If it were it would deserve to be sanctioned for the abuse it allows. As it is not it is beholden on the Uk government to stop that abuse – as is its right and duty
So what will happen? As Pat says – given these facts finance will go – like it or not it is inevitable
And this will mean Jersey will have a rough time – but almost certainly not as tough as the coalfields had hen Thatcher attacked the NUM
I’d strongly support sate assistance form the UK to jersey – as it will need it
But there’s something else I’d also demand: which is that no bank having granted a mortgage in Jersey should be allowed when finance begins to leave and house prices fall (as they will) to recover from the owner more than 80% of the value of that property: in other words banks should pay the price of restitution to the people of Jersey for the harm they have caused their society by bearing the loss their departure will cause
@ Pat, of course Jersey would survive if the finance industry left. But it would be a massive shock to the island, and would change it immeasurably. And I think the vast majority of residents would rather tax avoidance than a broken country.
@Greg
Come on Greg – take the taxi to the airport and ask the driver whether does avoidance and evasion and they’ll laugh at the idea it’s avoidance
And they all know the difference
I’ve never had an exception
So the choice will not be made in Jersey
Deal with it
Jersey will never give up its finance industry and I would say thats why only a handful of people in Jersey take any notice of these doomsday letters and statements.
Richard
I’ve been travelling once a week to Jersey on business for the past 15 years. In that time I’ve taken a random taxi from the airport to St Helier every time, and I’ve taken a random taxi from St Helier to the airport every time. I’ve probably used about 75% of all Jersey taxi drivers in that period, so its a fair sample, and if I’ve heard negative comments about the finance industry more than half a dozen times in all that time, then that’s about it. I don’t know how often you go to Jersey (whether under cover or not !), but unless Jersey has a shadow taxi service, I cannot correlate your comment with my experiences!
You and some others also seem to be making rash conclusions that (a) Jersey will end up with a tax regime which will devastate its finance industry, and (b) its entire finance industry is at risk. Let’s look at these two points.
Firstly, what makes you think that capital gains within Jersey companies will be taxable under any new EU-driven corporate tax regime (assuming a 10% corporate rate) ? There are numerous full member EU jurisdictions which do not impose any tax on capital gains so its clearly not a requirement.
Secondly, what makes you think that if say a 10% tax rate on profits is applied to Jersey companies that it will cause the beneficial owners to move their structures from Jersey ? 10% is seemingly an acceptable rate to the EU, and if clients can suffer 10% tax on income (not capital) gains and are remaining compliant with their tax reporting obligations in their home country, then that still appears to be rather a good deal.
Thirdly, any review of the corporate tax regime by definition does not apply to trusts, so it is possible that there could be a significant switch from Jersey companies to trusts as asset-holding vehicles.
Fourthly, it is quite possible that the EU would accept a territorial tax system. You yourself have previously stated on this blog that a territorial tax system would not fall foul of the EU’s Code of Conduct. So a BVI-incorporated company with Swiss-resident directors with all back office administration and accounting work carried out in Jersey (where the skills and experience exist) would not be taxable in Jersey anyway. And even if a territorial tax system was not accepted, how on earth could Jersey tax a foreign company which was not resident in Jersey using any accepted residency definitions, and had no Jersey-source income or activities and was merely administered there on an outsourced basis ? Sure, the Jersey banks would not be able to hold deposits for such companies, but they can bank in Switzerland or the Isle of Man or even Guernsey without any problem at all, with all account signatories in Switzerland where the central mind and management is carried out. It would mean significant numbers of senior executives leaving Jersey for Switzerland, but that’s perfectly feasible and indeed has been happening for the past decade.
None of this would seem a mass exodus of business from Jersey, nor would it result in mass unemployment. It would simply see an adjustment to the way that the Jersey finance industry operates, and would encourage Jersey to actively diversify its economy without suffering the devastation that some clearly would relish.
@JayPee
I see we get the non democratic junta brainwashed terror of the demise
of the self centered finance industry, which has started shrinking and will accelerate at a quicker rate once it is investigated. Huge moneymaking vested interest of course do not want it to go, they even have the gall to hotly deny that the setup is not a tax haven!
It has ruined this once beautiful Island with sheer greed, avarice,and concrete. Now with 0/10 we the people are paying the Tax they should be paying, they have put the price of housing beyond our children at £470,000 for a basic 3 bedroomed starter, and many in the business are from England and would simply leave having had a great time and a healthy bank account. Already much of the backroom work has been hived out to places where labour costs are less.
Certainly it will be difficult for those remaining when it all goes, and i and others have been calling on our Government for years to diversify in preparation for the inevitable, only to be sniggered at by Le Sueur and cronies.
So what do we have? two things Tourism and Agriculture, at the moment allowed to degenerate down to about 3% and 1% of our GDP, in itself a disgrace, whilst our States have pumped £millions into the finance industry, a private industry remember.
We have to produce a kind of holiday that people will want to have like walking our beautiful cliffs, horse riding holidays, nature study, seeing more of the German occupation legacey etc, but of course Le Sueur will be against income from it as even now the tourist coming here pays
the Airline to get here, profit goes to England, pays the Hotel and due to Le Sueur’s 0/10 the progit goes to the Uk, he spends in Uk shops where the profit goes to the UK, quite obviously the Ministry do not want tourism so we have to get rid of them, introduce Party Politics and have a general election and start again with help from the EU or UK to get us started afresh. The longer we are persuaded that the so called Finance industry is the Holy Cow the less time we have to prepare for the inevitable crunch.
Can I change the topic of conversation and ask you to reflect for a moment on events especially over the last week here in Jersey. We have two so called parties Time for Change and the JDA who seem to be singing from the same hymn sheet but are currently so busy bickering between themselves that they seem to have lost sight of the fact that whilst this is happening the establishment are able to do what they want. The establishment are no doubt sitting laughing and working out which candidate they will place where in the next election.
The chances are that unless somebody locks these two parties, pretty damn quickly, in a room until they have sorted out their differences and can act like statesmen none of them deserve to be in government.
Neither party will succeed in anything until they can prove to the public they are worthy once again.
Rupert @6: you are mistaken. The two Channel Island bailiwicks are not the same.
Guernsey are moving away from complete dependency on the tax cheats^D^D^D financial services industry: finance makes up about 40% of their GDP. In Jersey it’s still nearer 60% and nothing will change until the nasty corrupt little coterie in and around the States is removed.