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Chamber Lunch Speech - Deputy Susie Pinel, Minister for Treasury and Resources

Nov 17, 2021

Deputy Susie Pinel, Minister for Treasury and Resources 

Chamber of Commerce lunch - 17 November 2021

Ladies and gentlemen, good afternoon and thank you for inviting me to speak to you today…and I’m pleased to be here in person once again to address you.

I’m loath to use the word ‘unprecedented’ as it has been bandied around so much in the last two years, but it is difficult to find an alternative to sum up our experiences over this period and the impact Covid-19 has had on the Island, Islanders and businesses.

The pandemic has changed so much for us as individuals but especially for you as business owners and employers.

In my role as the Minister for Treasury and Resources, one of my primary concerns throughout the pandemic has been to ensure that the Government has been supporting business within the sources available to us.

You are the lifeblood of our economy and you have had to deal directly with the effects of the policies put in place to protect islanders and our health service.

In difficult and rapidly changing situations there will always be tough choices to make, and it is my view that as a Government we have sought to balance the need for action with the requirement to ensure that public money was being used to support people and businesses in the right way.

I would just like to mention the support we have provided:

  • The Co-Funded Payroll Scheme (CFPS)
  • The Visitor Attractions and Events Scheme
  • The Visitor Accommodation Support Scheme
  • The Fixed Cost Support Scheme
  • The Business Disruption Loan Guarantee Scheme
  • The Fiscal Stimulus Fund and
  • A vaccinations and testing programme at no cost to Islanders.

The Co-Funded Payroll Scheme particularly was put in place to protect employment when businesses had to close.

For claims made in October we paid out £34.6 million, while at its peak in May 2020, around one-third of Jersey’s workforce received payments and nearly 3,700 businesses made claims through the scheme.

Along with the support measures for businesses and the Fiscal Stimulus Funding, which I’ll come to shortly, last year we also looked at other innovative ways to back the economy.

For example, we rolled out the Spend Local Card, which was launched just over a year ago, and £100 was given to every Islander of every age.

This injected £10 million into local businesses and has since been replicated by the government in Northern Ireland.

Also, Revenue Jersey made various concessions which relaxed the requirements for company directors’ physical presence in Jersey during lockdown, to meet the requirements of the Economic Substance Law.

As we are now in the recovery phase, a few weeks ago we announced that the Co-Funded Payroll Scheme would expire at the end of October – so if you are still claiming, please make sure you submit your claims by the end of November.

However, we are aware that there are now new challenges facing businesses, including labour shortages and cashflow issues and that our support measures have to adapt to meet these new circumstances.

At the start of the pandemic we offered GST and contribution deferrals and a few weeks ago we announced that those sectors most affected by Covid-19 can defer their employer and employee social security contributions – which is up to 12.5% of total wage costs – and GST payments for the final quarter of 2021 and for the first quarter of 2022.

These can be deferred for five years.

Officers in Revenue Jersey are working through these changes and businesses wanting to defer contributions and GST will need to make an application.

The Business Disruption Loan Guarantee Scheme has also been extended to the end of December and the other three schemes I mentioned will run until the end of March next year.

Also, with Step 1 of our Winter Strategy being announced a couple of weeks ago, I am committed to reviewing our support measures and businesses should plan and invest for the future with confidence, knowing that the Co-Funded Payroll Scheme will be reintroduced if there is a need for public health restrictions to return in the future.

Now I’ll turn to the proposed Government Plan 2022-25, which will be debated at the States Assembly sitting that begins on Tuesday, 14 December and may continue into January!

I’m hoping some of you here today have taken a look at what we are proposing.

While it is a long document, it contains everything you in business and Islanders generally need to know about what we are investing in the Island and how we will pay for it.

Before looking at some details in the plan, it is important that I first set out our financial strategy for 2022-2025.

This is framed around the following principles:

  • Government proposes to borrow to cover the impact of Covid-19 on the public finances (and Our Hospital)
  • We will fund Our Hospital through new debt, and pay the costs using future returns on the Strategic Reserve.
  • Savings generated over the Government Plan period are the primary source of funding for new investment
  • Public finances should be balanced in 2024 to 2025 meaning expenditure should be equal to or less than income after depreciation
  • We will run deficits until the economy has recovered, in accordance with Fiscal Policy Panel advice, and
  • We will refinance past service employee pension liabilities to save money for taxpayers.

These are underpinned by the principles enshrined in the Public Finances Law to support Long Term Financial Sustainability and Long-Term Wellbeing of Islanders.

This Government Plan is the final one of this current administration and we remain focused on the commitments that have supported the work of this Government and that were established in our Common Strategic Policy of 2018.

These are:

  • Putting children first
  • Improving Islanders wellbeing and mental and physical health
  • Creating a sustainable, vibrant economy
  • Reducing income inequality and improving the standard of living and
  • Protecting and valuing our environment.

It is important to remember that this Government Plan is primarily about recovery and renewal for Islanders, and for our economy.

Due to Covid-19, Jersey’s economy, like many others across the world, declined sharply in 2020 after six years of growth.

I don’t need to remind you that many sectors had to close or run reduced services as we took steps to manage the pandemic and cut the rates of infection.

However, the International Monetary Fund is forecasting global growth of 6% this year and we are also forecasting a strong recovery for Jersey.

You may have seen that the Fiscal Policy Panel issued its annual report last week.

Over the last year and a half their advice has been invaluable in informing how we respond to the economic and fiscal challenges of Covid and their expertise and commitment to Jersey is very much appreciated by myself and the Treasury team.

As I said a little earlier, the Council of Ministers is committed to supporting our business community and we will respond to changing circumstances as required, as can be seen from the deferral package we have recently announced.

Earlier this year we confirmed that nearly £30 million was to be spent on 47 projects across the island, through the Fiscal Stimulus Fund.

This fund is providing a much needed, short-term boost to the economy.

As you may be aware, our main criteria for the projects that are being funded was that they should be timely, targeted and temporary.

The majority of the projects have now started and most of them will be completed by the first quarter of 2022.

The projects chosen cover a wide range of activities, and while many of them have a construction focus, they also have a wide variety of trades working on them, and are supporting many local companies and charities and youth organisations.

Moving onto our financial strategy, we have been upfront in the Government Plan that we intend to run our finances at a deficit until we begin to see recovery.

Nonetheless, it is our firm intention that we will return to balanced budgets over the period of this plan.

Due to our commitment to invest in public services and our Common Strategic Priorities, through savings and efficiencies, you can be assured that you will not see any severe cuts to spending or significant increases in taxes to cover the deficits.

Also, I have consistently said throughout the pandemic and I will reiterate it here today…we will not be using the Strategic Reserve – or ‘rainy day fund’ as it is commonly referred to – to meet the costs of the pandemic and other spending requirements.

This is also in line with the recommendations of the Fiscal Policy Panel.

It is the case that currently, we as a Government, are able to borrow money at a lower interest rate than our investment returns.

However, the strength of the Strategic Reserve and the investment returns on it, are enabling us to finance the borrowing for Our Hospital, which was approved by the States Assembly last month.

The Government Plan also states that we should not undertake borrowing to fund recurring expenditure and so, apart from Our Hospital, we expect our only additional borrowing will be to meet the cost of the pandemic and to refinance existing pensions liabilities.

By refinancing past service employee pension liabilities, and paying them much sooner, we will incur much lower interest costs and achieve long-term cash savings estimated at more than £3.6 billion, the equivalent of £700 million in today’s money.

A prudent measure, if somewhat overdue!

For all of these borrowings, we will ensure that we can afford the cost of the debt and that we will be able to repay it without placing additional burdens on future generations.

Now, while this doesn’t fall directly under my ministerial remit, I’ll briefly cover our plans to revitalise our local economy.

In 2022 we will focus on addressing long-term challenges and opportunities for our economy.

We will be delivering the first Economic Framework for Jersey, which will provide a common vision and strategic objective for Jersey’s future economy.

Along with this, our digital industries will be developed - we will put continued investment into Digital Jersey and building a world class digital infrastructure, and this year we have also created the first Cyber Emergency Response Team in the Crown Dependencies.

The excellent digital connectivity in Jersey provides the ideal environment for technical innovation and entrepreneurship.

I am sure you will recall that during the summer JT announced the sale of its Internet of Things business.

From some of the dividend the Government received from this deal, we’ll be creating a Technology Fund, of some £20 million.

Turning to the important work of Revenue Jersey, they have been handling significant personal tax changes over the last year or so, as well as replacing a 35-year-old computer system, called JD Edwards, with their new Revenue Management System (RMS).

Firstly, we announced that all Prior Year Basis taxpayers would move to Current Year Basis by the end of 2020 and that their 2019 tax bill would be frozen.

This change was agreed by the Assembly and the £345 million estimated to be collected from taxpayers as they pay their 2019 bill will be ring-fenced to meet the Covid-19 debt.

Another tax reform that is particularly close to my heart is the move to Independent Taxation, which I mentioned when I last spoke to you in 2019.

Our current personal income tax system is nearly 100 years old and simply doesn’t reflect our society and the way we live our lives today.

This has been the subject of repeated criticism and scrutiny, perhaps unsurprising since the fundamental building blocks are largely unchanged since it was introduced in Jersey in 1928.

It is particularly outdated regarding the taxation of married women – not just because I’m a woman myself, but because it is ridiculously outdated and unfair for a woman to be a ‘chattel’ of their husband in the current tax law.

Although delayed a little by the pandemic, the first round of legislation to introduce Independent Taxation, was approved by the States Assembly in September.

This means that from 2022, all single people will continue to be independently taxed. Also, anyone moving to the Island, and those who marry or enter a civil partnership from January, will be independently taxed.

If you’re married or in a civil partnership at present, you will be able to choose if you want to be independently taxed from 2023.

Then, if further legislation is passed by the Assembly, couples who did not opt to move voluntarily, will be moved automatically to Independent Taxation by 2025.

We will also introduce a compensatory allowance so that no-one moving to Independent Taxation from 2025, who is a marginal rate taxpayer, will pay more tax than previously.

It is important that Islanders understand these very important changes and what they will mean for them.

For Independent Taxation we have held a series of events at Parish Halls around the Island and at the Town Hall in St Helier.

A couple of weeks ago I also joined some of our Revenue Jersey tax experts and took part in a live stream online event – a first for Revenue Jersey and which around 1,500 people tuned into at some point during the hour-long session.

I hope you have taken advantage of these events if you had any questions about Independent Taxation.

Moving closer to home for you in the room today, I’m sure you are aware of the new Combined Employer Return that will be introduced in January next year.

This new return will enable you to file your tax, social security, manpower and benefit in kind on one return.

The first of the new returns will need to be made by 15 February 2022.

I trust that you are already planning for what this change will mean for you and your business – whether that’s changing your payroll system or ensuring that you can access Revenue Jersey’s online portal.

One important element of the change is that you must provide the Tax Identification Number (TIN) for all your employees.

Without these being included, your combined return cannot be accepted.

I hope that as a business community you can recognise that this move to a combined return is intended to reduce your administrative burden.

We have always said that we will be a fast follower of the EU and UK in collecting taxes on cross-border sales more efficiently and effectively.

We are working with the larger offshore retailers to enable them to charge the Goods and Sales Tax – GST - at source on all goods that they send directly to Jersey consumers.

This work will modernise the way GST is collected on goods for personal use.

In this year’s proposed Government Plan, as well as bringing forward legislation to introduce the GST changes for offshore retailers, we are also proposing to reduce the relief on GST from £135 to £60 with effect from the 2023 tax year.

This will provide local retailers with a more level playing field by ensuring fairer competition between overseas online retailers and the local sale of goods.

There are also some tax policy measures in the Government Plan will be of particular interest to you.

Changes to personal tax allowances

Changes to allowances and reliefs are in line with normal policy to uprate the income tax exemption thresholds by the lower of:

the Average Earnings Index (3.3%); and

the June 2021 Retail Price Index (3.5%).

Review of Business Interest

A review has been under way for some time, looking at tax relief relating to interest arising on business loans and other borrowings.

The outcome of phase 1 of the review is in the draft Finance Law 2022 which will be debated after the debate on the Government Plan in December 2021.

It is intended to address some key issues and to legislate for a number of existing interest ‘concessions’ given by the Comptroller of Revenue.

Phase 2 will consider whether to introduce a wholesale redesigned scheme covering the tax deductibility of interest on business related borrowing.

That work is likely to take some time.

Review of Tax Residency

This review is considering options for modernising the income tax law governing tax residency.

Phase 1, included within the 2022 Finance Law, will legislate a number of concessions, to apportion income and allowances for the year of arrival in, and departure from, Jersey.

Phase 1 also apportions the income tax threshold by days of residence instead of weeks and defines a day for tax residence purposes.

Phase 2 will be included in a future Finance Law and will look at other modernising proposals, including the potential for a comprehensive statutory test for residence and the removal of the so-called ‘one-night’ rule.

Review of Partnerships

Economic substance legislation has been effective in Jersey for companies since January 2019.

In 2020, Jersey and a number of other jurisdictions agreed that rules establishing economic substance should be extended to partnerships.

This legislation was approved by the States Assembly in June 2021.

A review has started, with the aim of considering how the administration rules for partnerships may be streamlined.

A public consultation will be launched shortly.

Review of the Taxation of Enveloped Property

Holding real estate within a company is often referred to as ‘enveloping’.

Historically neither Stamp Duty nor Land Transaction Tax applies where the ownership of Jersey commercial real estate is transferred by way of a transaction in shares.

Following a public consultation in 2019, a new Law and Regulations have been drafted.

Consultation with key external stakeholders on the technical detail continues. The draft legislation is likely to be lodged before the end of the year for debate in February or March.

Review of Stamp Duty/Land Transaction Tax

Terms of reference for a review of stamp duty and land transaction tax are being finalised.

The proposal is for a broad review which will consider a number of issues, including the scope of the taxes and the differential between rates paid on residential and commercial property.

It is expected this review will conclude in 2022 with legislation in a future Finance Law.

Taxation of Medicinal Cannabis Industry

The last Finance Law introduced powers to make Regulations for the taxation of the profits of businesses within the cannabis industry.

Earlier this year, the Revenue Policy Development Board decided that profits made within the cannabis industry should be taxed at 20% and that normal business tax principles should apply.

Regulations have been lodged, which will be debated next week, and the intention is that they will take effect for the year of assessment 2022.

I’d like to finish by saying how extremely proud we all should be of the way Islanders and the business community have responded to the many and varied challenges the pandemic has presented us with.

To use a meteorological metaphor, I think it is fair to say that we have weathered the worst of the storm, but we could be buffeted by head winds in the months ahead.

However, our strength is our community and as long as we continue to pull together, look out for each other and provide support for the vulnerable and those in need, Jersey will come out of the pandemic in a strong position.

Thank you

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