The Jersey Evening Post has a four page supplement tonight explaining how the States will deal with the 'black hole' arising from the 0 / 10 tax policy the Island has adopted. I have not read it all - in fact, it's only been read to me in part because none of it is on the web (about which you might speculate in its own right - why doesn't Jersey want this stuff subject to scrutiny, you might ask?). But I can tell two things straight away.
The first is this. The report is disingenuous. It claims that there is no concern that the current tax plans of the Island will not be approved by the EU Code of Conduct Group. That's not true. My evidence is noted below. As a result it is clear that the JEP is as much a part of the disinformation service of the financial services industry aimed at the people of Jersey as are its puppet politicians.
Second, the timing of this report is not an accident: it reflects the fact that the email traffic between politicians on the Island with regard to this very issue is at this moment quite considerable. As often seems to be the case, some has fallen into my Inbox. Which is unsurprising. Quite a lot of it seems to quote me, which is why I feel at liberty to quote back.
The story these mails tell is very different from the misinformation that Senator Le Sueur feeds to the people of Jersey in his confident statements that all is well. Take this for example, written on his own keyboard:
I will have my figures double-checked by officers during the week, but in broad terms the tax available from Jersey resident shareholders of 0% companies is estimated to be between £30 million and £35 million.
My proposals are to tax either the profits distributed by way of dividend, or 60% of the profits, whichever is higher. This I expect to yield £18-21 million (60% of £30-35 million).
If we only tax profits actually distributed, (either by dividends or by 'loans' to those shareholders) my guess is that shareholders could defer some, but not all of that £18-21 million. Since I cannot judge at this stage each company's distribution policy I have estimated a figure of £5-£15 million.
So, first of all its clear that the 0 / 10 policy is giving a straightforward tax boost of up to £14 million to those already best off in Jersey, to be paid for by GST charged on those least well off in Jersey. In the circumstances the Senator's claim that the new tax system is not regressive is a little hard to evidence. It is very obviously a subsidy for the best off in that community at expense to everyone else.
Second, note that he thinks that up to a total of £29 million of the current tax collected from these companies could be lost under 0 /10. That's £35 million less £21 million less £15 million by the way. In other words, just £6 million might be left.
And then recall that GST is expected to raise £45 million at best if charged at 3% according to the most optimistic report of the consultants advising on its design. In that context, let's be clear, GST will hardly make good the loss to Jersey from 0 / 10 being applied to the wealthier members of the community who own local companies.
But why did the Senator even consider the taxation of dividends alone scenario, which is not on the official agenda? Simply because he has been forced to concede the possibility that the Island's current tax proposals will not be EU tax compliant, in which case all that could be taxed would be the actual dividends paid by local companies, whose number you can be sure will swell enormously in number a a result, as was the case in the UK when a 0% starting rate of corporation tax was offered, meaning that his 'static' estimate of tax lost is almost certainly an underestimate.
And what does he say he will do in this circumstance? Well, this:
I repeat that I consider this scenario unlikely, but if it did happen it would then be for the States to decide how they then wished to balance their budgets. They might decide to increase GST to 4%, or they might decide to use some of the interest on the Strategic Reserve in the short term whilst assessing a long term solution, or they might cut spending by that amount, or they might plan for higher economic growth or they might increase some other tax base. There are plenty options, and I am confident that we are well placed to deal with any eventuality.
Let's put this in plain English. They'll either spend the family silver until the Senator is out of office, or they'll increase the GST rate. The other options are just fantasy. And since each 1% of GST is unlikely to make much more than £10 million according to the work of the Crown Agents when I last read it how the Senator thinks that a deficit of the size he foresees can be made good by a 1% increase in GST I do not know. Again, this is, at best wishful thinking.
Nor does he give any indication of how Jersey will handle the political backlash of such a plan: a plan that is clearly not sustainable for most people living on the Island, and to which the backlash has already begun.
When will Senator Le Sueur face reality and realise that Jersey's days as a tax haven are numbered and all he can do now is negotiate a way out of the mess he and Senator Walker have created? Because that really is the only option left on the cards.
And anyone in the financial services industry would be wise to take note as well. This is a house now built on sand, and its draining away from the foundations really rather fast.