'Cautious' first budget from Treasury minister

Treasury minister Gavin St Pier has released his first budget, describing it as 'cautious'.

Gavin St Pier

Treasury minister Gavin St Pier has released his first budget, describing it as 'cautious'.

He confirmed inflation-only (3%) rises in duty on alcohol and fuel, while tobacco duty will rise by 6% (inflation plus an additional 3%).

Deputy St Pier, pictured, also announced the staged withdrawal of mortgage tax relief, starting in 2014, with the tax raised being redistributed.

This will be subject to economic conditions, and to a review, also announced in the Budget, of all taxes, duties and contributions that the States imposes on islanders which is due to be carried out in 2013.

  • Full details of the budget report in Friday's Guernsey Press

Comments for: "'Cautious' first budget from Treasury minister"

Rhoderick

Sounds pretty feeble. I had hoped for more, but it's another year lost. Perhaps next year we really shall see something imaginative and stimulating.

Gavin St Pier

Rhoderick - with individuals having been squeezed hard since 2008 with direct/indirect tax rises, low/no pay rises and inflation and the economy remaining flat, caution, in my view, remains appropriate for 2013. The personal tax review is likely to produce more stimulating debate and proposals next year.

Zab

Blah Blah, people are nailed to the wall now, you have the figures but ignore them and you expect us to fall for the jam tomorrow line, more empty words and platitudes from yet another "I'm alright Jack bean counter".

Dani

He's withdrawing mortgage tax relief? Most people factor that in when taking out a mortgage - that could affect peoples finances quite adversely if they are struggling. Especially first time buyers.

Gavin St Pier

Dani - you are right banks and borrowers of course factor in tax relief, which is precisely why it would be inappropriate to withdraw the relief too quickly. The proposal is to lower the current £400k limit on which interest relief can be claimed by £50k each year, starting a year from now in 2014 until 2021.

In 2014, it will raise only an additional £100k as the vast majority of borrowers are nowhere nearer the current limit. Most borrowers will not be impacted before 2016.

Mortgage Interest Relief costs £8m p.a. This is a subsidy from all taxpayers to a smaller group, those currently buying a home. Providing taxpayer support to a property market which is already very expensive is an odd policy objective and the outcome - increasing prices in the long run - is not in first time buyers interests either.

This is not primarily a revenue raising measure but rather a redistribution or equity measure. The intention - subject of course to the economic and fiscal needs of the day - will be to redistribute the revenue raised. It is the equivalent broadly to raising personal allowances by about another 9%.

It is a radical change in policy which will affect many, which is precisely why it is appropriate that it should have 9 year lead time.

Guernseyman

Gavin you make it sound as though all the non-homeowners pay something to those that do own homes which isn't entirely correct is it? Relief is not a "subsidy" it is an absence or exemption of tax collection for a section of tax payers something that I am sure happens for other tax categories.

No matter what spin you put on it it is ALL about a revenue raising measure.

There are countless services that my taxes go towards that I don't use or "subsidise" benefit that others gain from but I accept that that is how it is.

Still you are learning fast on how to put politcal spins on things ... you'll go far.

Why not level up all these other inequalities?

Gavin St Pier

Guernseyman - looking at other inequalities is a key objective in a review of the tax system in 2013.

Spartacus

Gavin St Pier

I'm pleased to hear it and although I have a mortgage I agree that any subsidy by all taxpayers to a smaller group is not equitable. A better place to start with this philosophy would have been the college subsidies and special place holders as that is an even smaller group being subsidised by all taxpayers.

Portlandgrey

Gavin, talking of inequalities, I don't have kids, why is part of the tax I pay being used to pay for schools?

Can I have a refund?

Dani

Gavin

Equity is clearly in the eye of the beholder.

The people that will suffer most from this are first time buyers and those on lower incomes wanting their own home and that work very hard to afford one. This is the type of person you want to be encouraging and that we should be supporting. Who would you tell them it was fairer to redistribute the money too?

This is the one thing, one assistance they really value and your taking it away bit by bit.

Neil Forman

Dani

Excellent post, totally agree.

This Island is slowly becoming a rich person's playground. We have a demographic time bomb and this will make things worse.

I am really concerned about the kind of life our children are going to have. I can see most moving away because this is the only way they are going to be able to afford their

I think Gavin has shot himself in the foot here.

Spartacus

Perhaps the aim is that property prices will come down making it more affordable for first time buyers and lower earners. More people will rent which will stabalise the market. Hopefully property speculation will become less attractive to the wealthy as a way of leveraging and mitigating tax.

I expect savings will be redistributed to fund improvements to sup ben etc to enable private tenants for example to access the help they need.

I wonder which way the States will vote on these proposals. I imagine there will be an amendment and eventually there will be a compromise and MIR will still be retained in some form.

SteveO

Tax subsidy assists islanders to become homebuyers and remain so. The less people that purchase their own home and decide to rent (as they cannot afford to buy) the greater the cost will be to the States in future, subsidising Pensioners income as they will no longer be able to afford local rent once they retire. Removing tax relief is a short sighted decision which will have a negative impact on future generations.

Dani

Neil

Thank you. :-)

West

"the staged withdrawal of mortgage tax relief"

This will hit those trying to get on the property ladder and first time buyers hard, whilst the likes such as Deputy St Pier who having sold businesses for most likely substanital sums probably dosen't have a mortgage. Its a case of "I'm all right Jack" or should that be Gavin.

Carlos

Removing Mortgage relief!

Great, so as well as anyone local struggling because cost of living is outstripping salary increases lets hit them in the pocket even harder.

So if I can no longer afford the Mortgage I have without the relief I will have to sell up.

Oh hang on, no one can afford to get a new mortgage without the relief so I can't sell.

Oh property prices drop and now my Mortgage is larger than the value of my property.

Great policy if negative equity and no disposable income is your target!

Guernseyman

Carlos don't forget the additional revenue raised can be added to the pot of spongers who can't be bothered to get a job and get given a new house with solar panels for virtually nothing ... this is another punch in the face for those working and trying to own their own property

Ange

Its hard enough now, bringing up children, both working full time, huge mortgage, overdraft and now this. I agree with you entirely Carlos. It may be said that people who rent are paying as much per month (private sector) and they do not get this relief, however when you own a home you have all the other bits on top. Insurance, TRP and upkeep of the property to name three.

Carlos

Oh that's fine then I'll just knock 50k of my mortgage every year so I am not affected that’s reasonable!

The average house price in Guernsey is over 445k so reducing to 350k will have an instant impact.

With the fees associated with moving there are also a considerable number that decide to increase their mortgages to develop their existing property.

This currently provides a substantial amount of work for the local building trade (and you tax their income) which will rapidly dry up if no one can afford to increase their mortgage.

Dave Jones

There is no doubt in the Housing sector that mortgage tax relief is special assistance given to home owners, that is not enjoyed by those who rent in the private sector.

T&R’s argument is that those who receive mortgage relief are effectively subsidised by all those taxpayers who don’t have mortgages.

While I can see that as an argument, taxpayers including home owners also subsidise those in social housing through their taxes.

My real concern is that we as a government will phase out mortgage relief because it is deemed unfair to other taxpayers while at the same time raising TRP which is also a tax on home and property owners which is deemed to be perfectly fair.

I am afraid we can’t have it both ways.

Dani

Well said.

Hopefully your comment will get the attention it deserves.

Concerned

Agree

All who pay taxes are of course subsidising something / someone else.

Some people have kids in States schools and others without children pay taxes that may in part fund education.

Is that fair? Of course it is.

We need children educated and then they become economically active when they are adults and pay taxes. Indeed that child might pay taxes that support the old age care or other costs that the States may incur for the said childless tax payer some years later.

And so the virtuous circle goes round.

But does not that child and its parents need a home? And if the parents have a large mortgage in view of the high property costs in Guernsey then they are benefiting from this tax benefit. Should that family be hit with possibly a 50% increase in marginal rate of income tax over the next few years? That is what this T&R proposal may mean for some.

And homeowners free up houses in the rental and States housing sector - if more can't buy houses because of this change (which seems likely) then the rental sector may further over-heat to the benefit of already affluent landlords and to the detriment of all renters.

So I agree we cannot say that 1 group is subsidising another in a simplistic way - it is a complicated merrygoround and to pull out one big piece (on frankly a short timescale in the context of a mortgage) could be very economically destablising and have significant undesirable outcomes for many.

Dave, your department may need to plan now for the additional States subsidised housing that may be needed as a result of this proposal from your colleagues in T&R! Maybe what they save will go some way to meet your department's extra costs (if they give you the money). But you may need to increase another tax to pay meet the total of the government incurred costs from this other government tax proposal of your colleagues in T&R!

Why not encourage T&R to put this proposal in their "comprehensive full tax review" to run in 2013 and then this whole thing can be properly worked through.

It does seem at best ill thought through and could merit some proper analysis, shared with Deputies and the public so that there is transparency on that and importantly on what the money will actually be spent on.

Have you ever heard of a civilised modern government imposing an effective marginal increase in income tax of 50% on a middle income group over a period of several years?

I think this proposal would get 10/10 for uniqueness, which should sound some loud alarm bells somewhere.

Hopefully sense will prevail before this economic own goal is unleashed by the government on the population and itself.

Fingers crossed.

Neil Forman

Dave Jones

Very true.

I hope this gets rejected.

Gavin St Pier

Further background...

http://audioboo.fm/boos/1062521-budgetboo

and

http://audioboo.fm/boos/1062536

Paul

where is this budget. can see an nice shiney brochure in the picture, but searched for the pdf and cannot find it?

Yvonne Burford

http://www.gov.gg/CHttpHandler.ashx?id=79327&p=0

Supporter

I think this is a good move and I don't see that it will have a big negative impact on people. If the money has to be found somewhere, it's better here than in increased income tax.

Assuming a mortgage rate of 3%, the actual cost to a mortgage holder of each £50k is only £300 per year.

Given that inflation sits at nearly 3%, and assuming most salaries rise with inflation, people will still find they are better off year by year as their mortgage payments become a smaller proportion of their outgoings.

AM

3%? You are kidding. The only people I know that are currently on 3% are those who lucked out by leaving their mortgages on a tracker a few years ago at a low rate - nearer 5% would be more realistic. This may also seem low but rates are undoubtedly going to rise over the next few years - probably to coincide with the staggered abolition - double whammy! 'Assuming most salaries rise with inflation' - err no! Most mortgage holders I know have not had a pay rise in at least 2 years - no change on the horizon for that either. If you have a 25 year mortgage it will be years before you notice a drop in mortgage. I assume you either don't have a mortgage or are very close to paying it off.

Ray

AM

There is someone else on a steady 3% and that is the people who collect document duty on all property sales at £250,001 and above .. some report or other said they collected £17.7M in 2010 and £17.1M in 2011

It would have been more but every £1M property exchanged via share transfer reduces the pot by 30K

bcb

Thats a good point Ray. I wonder if they scrap that unfair tax on home buyers who subsidise the non home buyers?.

What you think Sparty? is that an unfair tax? and we don`t want any Grey areas :).

Spartacus

bcb

I don't entirely agree that those who rent their homes are exempt from the taxes/expenses of home owners. It's just that there is a middle man (landlord), who pays twice once for his own home and again for each property he rents out, cost of which is passed on to the tenant.

Scrapping MIR will therefore hit everyone except social housing tenants.

Is document duty unfair? I don't think so, it is a privilege and advantage to own land. Ray's point about the share transfer loophole is well made.

Maybe Dwellings profits tax should be revisited.

Toolbag

Well Gavin, I would not call that budget cautious, when you have tackled the sacred cow of mortgage interest relief, quite bold really. I recall Gordon Brown scrapped it in the UK when he was Chancellor of the Exchequer, as 'middle class perks'.

What next? Capital Gains Tax on property transactions that are not a principal private residence? Squeeze property speculators till the pips squeak?

concerned

And the award for the most hated politician in Gsy goes to....

Hey Gavin I've got some other ideas, what about a wheelchair tax? A flu tax? Old person tax? Child tax?

Ed

I'd like to know what education level many of our deputies dropped out at...

kevin

Dav Jones

Simple question

What are you ,as a deputy, going to do about this?

slash

Well won't there be a debate on the budget in the States? If the rest of the Deputies are opposed to this, then they can vote down this budget, or bring amendments.

Of course the Deputies will have to break ranks from the cosy coterie of 'if I vote for your project then you vote for mine' and actually represent the electorate. I won't hold my breath.

Dave Jones

Kevin

As a Deputy with some concerns over this proposal and as Housing Minister, I will want to gauge with my board what the possible long term effects this policy will have on those struggling to pay mortgages and others trying to get started in the home ownership market.

I will look for any potential unintended consequences that may affect these groups in these difficult times to see if this proposal is one I can support in its present form.

I don’t think its right however, that people should beat up on Deputy St Pier personally on this blog over putting forward proposals that are designed to be fair to everybody and that includes taxpayers who don’t have mortgages and live in very expensive private rental with no financial help from the tax department whatsoever.

He and his board have the very difficult task of trying to balance the Islands books, without introducing regressive taxes that hit the poorest hardest and without slashing public services.

Some of the personal attacks on the Treasury Minister are out of order and it is perfectly reasonable for people to disagree with this proposal to phase out mortgage relief and to get very vocal about it, without it becoming a personal attack on the guy who has been given these responsibilities by the States as a whole.

There is no doubt that it will have an effect on some people with mortgages and I want to see what can be done to mitigate this action by looking at where these families can be helped in other ways.

Having said that I will not support further punitive charges through TRP by the Treasury, as I maintain my stance that if it is not right for all taxpayers to subsidise those with mortgages, then it must be equally wrong for home owners to be subsidising other taxpayers through the TRP tax.

A voter

My impression is that the vast majority of all the comments on all the pages relating to this topic are not personal or insulting. They raise many real issues that bring into question the proposal under debate here.

But there are some that fall into that category which will doubtless be given the weight that they deserve. I am sure all you politicians have tough enough skin to withstand these comments, or just ignore them.

Let's think this through carefully

Minister

All who pay taxes are always "subsidising" separate groups in the community.

Tax payers with no children (or children who have left school) subsidise families with children in state school.

Tax payers who are never jobless and so never take various benefits subsidise those unable to work for whatever reason.

Tax payers who have taken care of their old age needs may be less of a financial burden on the tax payer (even though they have paid in as much tax as anyone).

The list is endless.

You cannot selectively say that it is a justification that just one group benefits from MITR. If you did you would have to apply that logically everywhere and that would bring the whole tax system into question.

There are wider benefits to the community from, say, having children educated at tax payers expense. I am sure these are obvious.

There are also wider benefits to the State giving some support to those with a mortgage. You can see the evidence for this in examples all over other comments on this and related news stories on the GP website.

One example is that each household that buys a house (with the help of MITR) is occupying one less rental house and so the steady conveyor belt from rental to ownership is good for those needing to rent - less folk looking to rent means a little less pressure on that sector (which you will know can only be a good thing).

So to think that only those receiving MITR actually benefit from it is plain wrong. There are numerous ways that MITR indirectly does good economic things for many in our community.

There is a real chance that if this goes forward there will be severe adverse consequences for many in our community and perversely quite a few will not be those who receive MITR now.

Guernsey Voter

Minister

Does your board have (access to) the requisite property market and economic modelling data and expertise that is necessary for an informed, robust consideration of all the necessary issues to be undertaken?

Many of the posts demonstrate this is extremely complex with many interlinked factors involved and I would not suggest that it is easy for anyone to work out what the consequences will or might be without calling on specialist(locally available) assistance.

The government - all Deputies - owe a duty to the island, its economy and all islanders, to get this (and every other significant)difficult complex decision right and that cannot be done without drawing on the right skills, expertise and experience, wherever that may be.

Can you reassure us on how this has or will be achieved?

Thanks

Jamie

This will only raise £100k in 2014.

Full tax review due in 2013.

Why bother making this fundamental change at this point when a much wider review is due during 2013 ?

I would be impacted by the changes, but I do actually agree with the principal that the relief is unfair to other tax payers not receiving it.

A voter

Agree

Piffling sums for the government in 2014, so put it in your 2013 review, surely?

On your second point, MITR is not necessarily unfair to other tax payers - all elements of our economy are interlinked.

Eg 1 - MITR helps people get out of the rental market and in that way is a slight valve helping a bit to stop rents getting higher than they are. So MITR can be said to help those in the rental sector (indirectly)

Eg 2 - MITR might help someone from defaulting on their loan. If they default they could be repossessed and become a much larger financial burden on the taxpayer.

Eg 3 - MITR enables people to borrow (more) to have home improvements done. This spreads money round the economy - to builders, to suppliers etc.

Eg 4 - MITR may permit some to afford either "luxuries" or "basic essentials". Either way, if you slam a massive tax bill increase on people, many already squeezed, they will be forced to put the brakes on spending which hurts the retail, business sector generally.

As others have posted, this is complex and all the repercussions need to be cooly and carefully worked through. If not, by accident, this policy even if "right in principle" could be a disaster for many / our excomony in practice.

And it is the practice that should count, I think.

kevin

Dave Jones

thank you for your comments.

I do not have a mortgage but when I did tax relief was probably the difference between me being able to buy my house and not being able.

my son is buying his first property at the end of this month he has two jobs and works as much overtime in his main job as possible.His partner works full time, they pay a lot of tax and social insurance they are doing their bit for the states, they have kids so have to find childcare fees. In my opinion these kind of people and there are many, mostly young Guernsey born people, trying to help themselves who do deserve a little help from our government. All Deputy St Piers proposal will do is force more people into rented which you say you wish to avoid and force rents up. The bottom line Deputy Jones is that whoever inherits housing when you pack up is going to have to deal with increasing numbers of people who will need help from the states with rent partly because of this proposal. Where is the saving in that? You may as well just give the eight million a year extra tax to the private landlords oops! have I stumbled unto something there? You also hint that you think some form of subsidy should be given to people renting in the private sector isn't that all tax payers subsidising a smaller group? what's the difference? "let's think this through carefully" has got it right, have you?

No-one says it's easy to balance the books but this proposal is bad for young Guernsey people bad for Guernsey as a whole and very bad for everyones future.

Spartacus

kevin

Have you considered the impact of the proposal that the MIR savings will be redistributed through increased personal allowances?

Therefore in your son's situation this will lessen the blow as both his and his wife's allowance will presumably increase and there may be an allowance in relation to their children.

I think the initial negative reaction of the majority of the public is a knee jerk response and everyone should think about the wider ramifications which might actually be positive for them.

Popstar

I'm afraid I think you're being rather naive Spartacus.

The Budget, and Gavin St Pier on this forum, both make it clear that redistribution is dependant on 'fiscal and economic conditions at the time'.

In other words, if the States is suddenly rolling around in money, redistribution will happen.

If, as I suspect, Guernsey is still in 'fiscal and economic' difficulty, where do you think the extra £8m will go???????

Spartacus

Popstar

Yep good point. This is why we will rely on our deputies to make sure the redistribution method is agreed and is set in stone before the incremental decreases in MIR limit are agreed by the States.

A worried voter

There are many things that are "right in principle" but are impossible to achieve or risky to achieve or can only be achieved really carefully and over a long time period.

This issue may be one of them.

A simple and extreme analogy, but let us imagine that this MITR is but one pillar proping up economic activity and social welfare.

Let us accept that MITR is in principle the wrong kind of pillar maybe in the wrong place.

Simple application of, "well if in principle it is wrong it must go", is superficially attractive.

Problem comes is when you pull out the pillar the things it was holding up might collapse and cause all sorts of collateral damage, such that those who pulled it out stand shocked and bemused at what they have inflicted, by accident, on all of us.

That is why this needs to be worked through, as so many have said.

The "right thing" done the "wrong way" and / or at the "wrong time" is as bad as the "wrong thing" in reality.

Please T&R, Deputies, be very very careful how you take this forward.

kevin

spartacus

I don't believe the savings WHEN MIR are removed will go into increases in personal tax allowances.

I.le Page

Not taxing certain companies is unfair too,how about taxing all companies at the same rate ?at least 10%