The Isle of Man can’t balance its books – maybe it should raise some tax

Posted on February 22 2012

It was budget day in the Isle of Man yesterday, and as Energy FM reported:

The Island needs to dip into its reserves to balance the budget.

This year the Isle of Man is suffering a loss of £48m from changes to the VAT sharing agreement.

he government plans to transfer £55m from reserves, despite what it calls 'considerable progress to reduce departmental budgets.'

There are also plans to make withdrawals from the reserves in the next two budgets, before rebalancing in 2015.

The Isle of Man has had more than two years to plan for this VAT reduction now, since the UK announced it was going to withdraw is massive VAT subsidy to the island following my exposés on the subject on this blog. What is very evident is that it does not know how to make its books balance without this subsidy - as I always suggested would be the case. The reality always was that the Isle of Man could only afford to be a tax haven because the UK paid for it to be so.

And don't get fooled by the 'balanced in three years' ruse - all finance ministers say that. What it means is they can only ever forecast two years hence so all their wishes are fulfilled in three years time. George Osborne suffers from the same malaise. The reality is that what this really means is they have no idea how to make their books balance, now or at any time in the future.

So let me offer a simple suggestion to them: try raising some tax. It helps pay for the services your electorate want. It's not rocket science and it's what you'll have to do. The only slight trouble is, it would shatter the tax haven image. And right now the Isle of Man would rather raid the reserves than do that. But as I've always asked, how long can they risk doing that?

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15 Responses

  1. anrigaut says:
    February 22 2012 at 5:14 pm

    That was exactly my reaction on reading the report on the budget in the IOM press http://www.iomtoday.co.im/news/isle-of-man-news/the_isle_of_man_budget_at_a_glance_1_4269508?commentspage=1#commentsSection which begins with the telling statements:

    “Income tax standard rate for individuals remains at 10 per cent.
    Higher rate income tax remains at 20 per cent.”

    Among the 98 comments to this article (to date), I could find only one (comment n° 86) which dares to suggest this could and should change, despite an earlier contributor (n° 73) raising the pertinent question over raiding the reserves: “Who will pay for the schools, hospitals, fire service once the money is gone? Our taxes won’t. ”

    I hope “Duck” won’t mind me quoting extensively:

    “Why is there not an introduction of a third tier taxation for the rich? Or even just as simple as increasing the maximum amount of tax paid by the super rich. … But it does make me wonder whether Mr Teare * sees himself as a dictator rather than a man of the people. It does also explain why the islands people are beginning to feal as though we are all living in a dictatorship now rather than a democratic one. The rights of the people have been steam rollered for the good of the few high paid individuals who will see no difference what so ever to their lives. Those that can afford child care, those that can afford a slight reduction in real terms to their tax allowances, those that can afford to employ a tax adviser to move their money around so the tax impact is nill. So Mr Teare you tell me how any of this is fair to the people of this Island. Introduce a tax on the off the shelf companies used by tax companies to hide away from taxing high earners. Yes it is not illegal to do this, its called tax planning and avoiodance, but make them pay for the privilage of doing it. Make it so hard for them to hide away their millions in legitimate tax products that they think twice. Make is so that it makes it still economic scence to do so, but lets have a little fairness eh? by the way tax avoidance is legal tax evasion isn’t, so make them pay for it.”

    * Mr Teare is the Treasury Minister – apparently a “former IOM bank manager”.

    Well said “Duck”. But sadly one duck doesn’t make a summer, and none of the subsequent comments responded to his suggestions, preferring to concentrate ‘debate’ on the scroungers in public housing.

    • Spoon of Internet says:
      February 22 2012 at 8:06 pm

      Ahh.. all part of the plan by IOM Government. By steering public attention towards emotive subjects like pre-school nursery provision and school closures, retirement homes, and social housing provision, few of the people notice that the government is being extremely half hearted in its attempt to make an effective strategy change. I think a 10% reduction in civil service salaries have been promised.. over four years! And each year the reserves they are so proud of get smaller and smaller.

    • anrigaut says:
      February 22 2012 at 10:00 pm

      As reported in the Telegraph today:

      “Offshore financial centres will come under continued international pressure to be more open in their affairs, the Isle of Man treasury minister Eddie Teare warned this week in his annual Budget speech.

      He told the Manx Parliament, the Tynwald there was much “ill informed comment “ about “so-called tax havens” but he expected further international initiatives on tax issues which would affect offshore centres.

      He added: “I expect to see in the coming years new approaches to information exchange, new forms of international agreement, additional requirements regarding the ownership of business and investment structures and further pressure for greater transparency. We do not need fear these developments, but we need to be fully aware that they are coming, to continue to participate, to influence the outcome wherever we are able to, and to accept that if there are “rules of the game” which apply to the global marketplace then we will have to follow them “. ”

      http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/9098392/Isle-of-Man-must-prepare-for-greater-transparency.html

      If only ….

  2. Illiam says:
    February 22 2012 at 9:43 pm

    Worryingly, they’re also now admitting that they currently can’t afford to fund a £100m Depositor Compensation Scheme to cover any Bank collapses….

  3. Manxboy says:
    February 23 2012 at 11:11 am

    Illiam, I don’t believe it’s a case of not being able to afford the £100m, it’s a case of is it wise to? Earmarking £100m would lock those monies up and if there was a claim on them, then those monies would again have to be topped up to £100m. Don’t commit your reserves and restrict yourself is the simple answer. There are much bigger issues to tackle and flexibility with reserves will be required. The budget has been far from tough and the CS/PS is still bloated. The number of government workers earning £100k+ is unreal, all earning huge pensions for which there is a lack of money in the pot. As a manxman I would have favoured a 5% increase in tax to save our future as opposed to this willingness to errode our precious reserves. I don’t always agree with Mr Murphy and I feel that sometimes arguments are made for the sake of attacking the Isle of Man but I do agree here. The Isle of Man has lacked strong leadership for some time and I think there will be political fall out at the next general election.

  4. anrigaut says:
    February 23 2012 at 1:03 pm

    Slightly off-topic, but an interesting sidelight on Offshore, the IOM and the City. The IOM Department of Economic Development is pleased to announce that:

    ” Isle of Man based Collins Stewart Wealth Management has been named ‘UK Offshore Investment Management Company of the Year’ at the Citywealth Offshore Awards ceremony at the Landmark Hotel in London.

    The annual awards cover a range of offshore sectors and services and they are voted for by an independent panel of industry experts and clients of the businesses. …”

    http://www.gov.im/lib/news/ded/isleofmancompany.xml

    Does anyone know who sponsors awards such as this – and on what criteria the companies are judged?

    • anrigaut says:
      February 23 2012 at 1:09 pm

      I meant to add that I’m struggling to get my head around the concept of ‘UK Offshore’ …

      • Richard Murphy says:
        February 23 2012 at 3:28 pm

        That’s called our tax havens

        We have a pile of them!

        Start with Jersey and the Isle of Man

      • anrigaut says:
        February 23 2012 at 5:24 pm

        Yes – I do realise that! My comment was somewhat tongue in cheek.

        But it’s still surprising to see how open they are about it as something meriting “awards”. Might one reasonably assume that the “clients” would be inclined to vote for the businesses that manage to devise the most effective (egregious?) anti-avoidance schemes? In which case, hardly an accolade to be proud of?

  5. AC says:
    February 25 2012 at 11:43 am

    Richard it is not just a matter of raising tax. The mind set of the civil servants and politicians is all wrong. Just like a company which has expanded rapidly during a boom, it is rare a growth orientated board is able to manage with a contraction and invariably they will under deliver and end up letting shareholders down. As we all know that can sometimes lead to a takeover, other times it’s a bust or a long slow recovery. Economies are no different. These governing people could raise taxes but they are of the wrong mind set to balance the books and look outside their traditional boxes. I expect this will carry on until the next election when the reserve funds are spent and the economy is on its knees. Then we may see the real leaders of the future appear although their options may be very limited. The island postcodes and dialling codes look no different to the UK, if we look five years on the common features may be significantly more than that.

  6. Flying Pig says:
    February 26 2012 at 1:09 pm

    Most of the above comments can be equally applied to Jersey. Locals edged out into a lower class society paying increasingly excessive taxes so that the Financial Services Industry and rich immigrants pay less than their fair share.