False forecasts
When Michael fish failed to forecast the “great storm”, he lost his job. What happens when the States of Jersey Treasury gets its forecasts wrong? Not a lot. Why? - because the Treasury always gives us “conservative” forecasts, which result in “good news” when they announce the actual results. For years we have “found” extra revenues in the second half of the year – usually after pay claims have been settled – but sometimes after the States has voted for extra taxes, as happened in 2004.
When the Fiscal Strategy was presented to the States on 1st June 2004 (P106/2004) and adopted in July of that year, it was inevitably seen in the context of the financial reports and forecasts of the time.
There can be no doubt that States members voted on the basis of the figures presented to them at the time. Those forecasts were not positive:
States income, and in particular income tax revenues, were expected to be fairly static. For example, probable total income (restated) for 2003 was expected to be £444m rising to £452m in 2004; income tax was expected to be static at £370m. The 2005 Budget delivered in November 2005 reinforced that picture - income tax revenue at £370m out of total income of £460m.
In fact, 2005 saw the emergence of a period of growth in the economy, with an additional £9m of income, £7m of which came from income tax. 2006 saw massive real growth in tax revenues of £57m (income tax up by £21m) and this was followed by growth of £33m (income tax up by £25m) in 2007. Please compare budget figures (forecast) with actual figure below:
This was a truly remarkable achievement. Growth in revenues of £113m, a massive 25% increase in revenues over the period 2004 – 7, is something to be proud of. Senator Ozouf’s economic growth plan appears to have worked. Well done, but why didn’t you tell Senator Le Sueur? He is still ploughing away with his plan to tax the poor through GST.
In terms of financial forecasting, it is worth noting that these 3-year figures are some £109 m in total over budget forecasts. The conservative nature of budget forecasting is to be the subject of scrutiny from the Comptroller & Auditor General. I await his conclusions with interest. Whether these conservative forecasts are subject to political manoeuvring is for others to question, but the point is that this surplus was not foreseen at the time and as a result we were told that we had to adopt the following three measures to fill the “black hole” of £80m to £100m following the adoption of zero/ten:
1. public sector efficiency savings (up to £20m)
2. economic growth (up to £20m) and
3. increased taxation (£60m).
The increases in taxation were to include:
a. GST £45m
b. 20 means 20 £10m
c. IT IS £5m
We now know that the adoption of extra taxation measures may not have been needed. Certainly there is no way that GST would have passed through the Assembly had we known the real figures. We have seen over £100m of tax revenue produced from massive and unforeseen economic growth.
Who has paid the extra tax?
The Financial Report & Accounts over the years 2004 – 7 give a clear indication of the source of these additional revenues, as presented here:
|
|
2004 |
2005 |
2006 |
2007 |
Growth 04-07 |
Growth % |
|
Wage earners, £m |
136 |
154 |
171 |
196 |
60 |
44% |
|
Companies, £m |
189 |
185 |
192 |
196 |
7 |
4% |
These figures are pretty clear ……
The Treasurer had the following comment to make in his 2007 Report concerning this shift in taxation sources:
“The 8% increase in tax yield compares to a 6% increase in 2006.The proportion of tax raised from salary and wage earners has continued to increase compared to tax collected from companies. The 15% increase in personal tax reflects the introduction reflects the introduction of proportional personal tax allowances, the impact of IT IS and growth in employment and pay.”
….. but it gets worse
This trend is not new, but a continuation of what has been occurring since 2000, as the Treasurer’s report of 2004 shows:
“Salary and wage earners tax receipts have increased by 48% since 2000, whilst that of companies has reduced to 6% below the level experienced in 2000.”
Examination of the overall trend during this decade, through periods of low and high growth confirms the growth of the personal tax burden:
|
|
2000 |
2007 |
growth |
% growth |
|
Wage earners, £m |
92 |
196 |
104 |
113 % |
|
Companies, £m |
202 |
196 |
- 6 |
- 3 % |
Over the decade personal tax has more than doubled at a time when company tax has reduced. Despite this rebalancing of the tax burden, this government has now introduced GST, a consumer tax, whose impact will be to further increase the tax burden on individuals and families.
So that is fairly clear then. The following has happened:
1 The government decided to compete on a downward spiral for finance business with other offshore tax havens and introduce zero/ten.
2 To fill the “black hole” of £100m this produces, they introduced extra tax (GST) on workers and families to raise £45m, based on false and misleading fiscal forecasts.
3 The government refused to consider both exemptions or delay (19,500 signatures) in order to balance the budget. The average family will pay an extra £600 every year.
4 In the meantime, economic growth t00k off, producing in the Treasury Minister’s words “£46 million more than the original budget”.
5 This extra tax has been produced from personal and not company taxation. Families are already paying more.
6 This government will attempt the feat, so far unprecedented, of attempting to persuade its electorate that, despite having produced record economic growth, it wishes to increase their tax bills.
Jersey residents can do the sums. We are going through an economic boom and yet we have paid £46 million in extra tax, to fund the so-called “black hole”. Why do we still have to pay another £45 million in GST? The answer is that we do not need to. There is still time to get rid of this obnoxious tax.
We don’t need it. We don’t want it.
Vote out GST
Vote JDA
Geoff Southern