Today is budget day in the Isle of Man.
In her budget speech the Island's Treasury Minister has announced with regard to the zero /10 tax regime, which was pioneered by the Isle of Man and which has now been found abusive by the European Union:
[B]ased on what I have said over the last few minutes, this Court will realise which way the wind is blowing. A political process which says in November 2010 that we should be expected to change our tax system is unlikely to reach a different conclusion in 2011.
The result is obvious. The budget deficit in the Isle of Man will increase. It already amounts to about £100 million. Local services will, as a consequence, be cut even more than is necessary. All that to ensure that the tax industry can continue to offer tax avoidance of those not resident in the island.
There is a second consequence. Whilst the Isle of Man generates relatively small amounts of income from income tax from companies of the sort who will now have greater opportunity to avoid the obligation to pay, Jersey is not in the same position, and is heavily dependent upon this source of income The pressure on Jersey to now follow suit will be high but it cannot afford to do so. The focus has shifted to St Helier.
And whichever way it is looked at, the capture of the legislature in the Isle of Man by finance contrary to the best interests of the local population is apparent.
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Hot off the press! It looks like you’re on the ball with this Mr Murphy. The real nitty gritty and indeed hysteria is in the replies delivered by the other Members of Tynwald. Pure entertainment.
We’ll never forgive the UK for taking all those £millions in VAT from us.
In the land of the blind the one-eyed man is king.
Not too sure that cutting the massively over-inflated civil service in the Isle of Man is not in the best interests of the local population (unless your a local civil servant).
The local posties who have 10/12 weeks paid leave a year and work an average of 36 hrs a week – will obviously be missed! And we could probably get away with a few less than the 39 Accountants at the local hospital.
“Net government spending is to reduce by £1.8 million, or 0.3 per cent, to £533.2 million. Gross spending is estimated at £872.9 million.” – from press release published in iomtoday.co.im
..umm so despite the hundreds of millions in £s of reduction in government income from changes in the VAT sharing arrangement the government is spending £1.8m less? Is the Isle of Man having an election soon?
“2011-12 ISLE OF MAN BUDGET AT A GLANCE
Due to Government action, spending has been reduced further and faster than previously planned.
In 2011-12 –
‚Ä¢We have achieved further savings of £25 million in addition to the £26 million delivered last year
•Spending is £11 million below last year’s rebalancing plan.
•Staff costs are £26 million (8%) below the 2011-12 projected level and £9 million below last year’s actual budget.
•Staffing was reduced by 99 posts last year. This year there will be a further reduction of 285 posts. Therefore, the reduction over two years will be 384 posts.
In addition to these savings we have accommodated –
‚Ä¢Gross Spending on benefits of £248 million, £10 million (4%) higher than last year, including £141 million on the State Pension and Pension Supplement.
‚Ä¢Net spending on Health up by £7.5 million (6.5%), after adjusting for the transfer of shared services functions.
‚Ä¢A Capital Programme of £101.8 million for Government Departments and Statutory Boards.
‚Ä¢£67 million of construction schemes including, £21.2 million to be spent in the Local Authorities’ Housing Programme.
In respect of Taxation –
•The income tax standard rate for individuals remains at 10%.
•The income tax higher rate for individuals remains at 20%.
‚Ä¢Income Tax personal allowances unchanged at £9,300 for single persons and £18,600 for married couples.
•Additional Personal Allowance for over 65’s remains at £2,020.
‚Ä¢The threshold at which the higher rate for individuals becomes payable remains at £10,500.
‚Ä¢Increase in Personal Allowance Credit from £650 to £700 per person or £1,400 per couple
•Removal of Tax relief on Class 4 National Insurance Contributions but do not increase rates of National Insurance on Class 1,2 or 4 contributions by 1% as introduced in the United Kingdom from April 2011.
•Removal of Tax relief on new Educational Deeds of Covenant, and reallocation to student awards.
•Cap on Mortgage and Loan Interest relief reduced by £2,500 to £7,500 per person per annum.” http://www.gov.im/treasury/budget/welcome.xml
No, you’re quite right, the IOMs surplus position is not sustainable, but neither is the UK’s position (we have a saying that associates pots and kettles, I’m sure you’ve heard it).
In fact, neither country is sustainable in the long-run without outside subsidy. One of which is already in serious debt.
I strongly suspect the IOM will realise that budget surpluses are not economically viable in the very near future – and it has nothing to do with the adequacy of the Manx Government.
The IOM took a very brave and very commendable step forward today.
@James
That wins naive comment of the day award
The UK has modest debt and the capacity to service it
The IoM has no capacity to service any debt
That’s the difference and why one can survive (when it has a new government) and the other will be bailed out by the UK
@Richard Murphy
And the UK MUST either choose to be an economic haven or be bailed out by Europe.
Naive? No, my opinions are based on a scientific approach to developmental economics at a World leading UK institution.
The Isle of Man is incredibly useful from a research perspective, because we can confirm empirically some rather contentious economic theory which applies to the rest of the world. e.g. Convergence theory, Balassa-Samuelsson, etc.
I was discussing this in the UK last week, which tends to bring out a rabbit/headlights moment – it does take a long time to internalise, so you can be forgiven…
No matter how it strives, the UK does not deserve – or have the capability – to be richer than everyone else, exactly like the Crown Dependencies. In fact, it is internally destructive for it to do so – just like the British Crown Dependencies.
The answer is to respect other countries and cultures enough to understand that they are economically as good as us (at innovating or whatever), so at a macro-level the focus ceases to be ‘better than everyone else’ and becomes ‘as good as everyone else’. You’ll might find this rather reflects Galatians 3:28.
Now read the Manx budget speech again…
@James
Would you like to translate that so that anyone might understand what you’r trying to say?
The major demand for the Isle of Man financial services and tax regulations comes from one place ….. the City of London, without that demand the financial services and taxation rules you decry would not exist.
This blog lends parallels to David and Golaith, unfortunately David only seems to win every 2,000 years or so!!
@Adrian Black We know that - of course You are of course a branch of the City of London - the tax haven enclave within the UK that in turn also needs to be brought under UK state control
So if the ARI is gone, does that mean that all dividends from Isle of Man companies are subject to tax, or no dividends from Isle of Man companies are subject to tax, regardless of where the shareholders are submitting their personal tax returns?
@Spoon of Internet
Oops.. my brain where did it go?? I think it means that IOM companies don’t have to distribute at least 55% of their profits as dividend each year. Thus allowing profits to accumulate tax free until the company spends the money, or the shareholders get a massive pay out at some point in the future. If I’ve still misunderstood..will someone please explain the consequences of this decision?
@Spoon of Internet
You got it
It’s an invitation not to pay tax the Manx government says will have no cost….
Spoon
A very good question. I guess all companies now become non-relevant for ARI and therefore accumulate no tax.
Not sure the transcript of the Budget speech included it, but Minister Craine did say (I listened live) that they would be looking at alternatives to the ARI.
@Adrian Black
More ring fences coming, no doubt
Deck chairs on the Titanic come to mind …
Or even good riddance to bad rubbish.
The locals won’t pay personal taxes (because what is there now to stop us from setting up corporates to minimise our exposure to personal taxes).
I’m sure whatever will replace the ‘attribution regime’ will cover this off in some way, but I can’t see this one as being easy as whatever is introduced also introduces opportunity for international avoidance and hence EU attention.
My guess is, the EU won’t allow whatever the Islands try to introduce, leaving an escalating avoidance issue on the Islands until corporate tax is raised (within 12 months).
Please correct me if I’m wrong, but if a firm in the EU operated out of a jurisdiction who chose automatic exchange of tax information with the EU – such as the Isle of Man – that firm would be charged 0% CIT on the Island, but the prevailing rate of CIT in the country of residence? Thereby avoiding precisely zero tax?
If my understanding is correct, then the only argument the EU has with the Isle of Man (at least) is if the automatic exchange doesn’t provide the necessary transparency. The question clearly being tested is whether the EU is tackling avoidance per-se, or the macro-stability issues posed by these jurisdiction (i.e. equalising GDP/Capita across Europe).
The rate of corporate tax in the Islands therefore becomes an issue for the relevant Island – and of course, whomever has to bail them out (the UK).
However, it isn’t a solid argument to suggest that sovereign debts or deficits can be resolved by simple adjustments in tax rates, and that taxes can pay for public services. (I realise this sounds inane, but its a difficult concept to portray in a few words).