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Sunday, 12 January 2014

What is the effective rate of taxation in Jersey?

Despite repeated request to the members of the States of Jersey and the States Statistics unit they profess
that it is beyond them to work out what the effective rate of taxation is. So I have decided to calculate it for them.

I am going to walk through the calculation of what percentage of your earnings goes to the government of Jersey. At the last election I estimated it to be around 40% but many have been incredulous at this amount and so I am going to walk through the calculation with you now.

Definition of tax: Anything which the government collects from the 'members of the public' it serves. As a member of the public for example you are joint owner of the public roads. Paycards for example make a charge on you for using your own property and therefore are a tax.

At the last election I limited consideration to income tax, social security, GST and Impots/Duties.

We are using the States of Jersey's own figures:
The most recent income and expenditure survey
The most recent earnings

First we need to reconcile the difference between individual earnings and household expenditure.

Average earnings are stated at £34,320.  Deduct from this the 6.5% social security and 20% income tax and we are left with a net income of £25,473.07. This compares to an average household expenditure of £37,658.00. Dividing one by the other we can calculate that the average household consists of 1.47 persons both earning average wage.

The figures in the household survey relate to weekly expenditure and so are multiplied by 52 and then divided by 1.47 to calculate each individual's expenditure which results in a figure of £25,473. The figures show an amount for expenditure outside of Jersey but I have also discounted a proportion of the expenditure on 'household and clothing' and 'recreation and leisure' to account for internet purchases. This leaves the effective rate of GST at 3.39%.

Impots vary but a percentage of the cost of 'Alcohol and Tobacco' and 'Transport Costs' (in the sum of £5,400 (or £5,673/1.05) per annum) will include the impots, VRD, driving license fees etc. Based upon the last budget we have assigned 65% of these costs to taxation (the actual taxation is higher on tobacco and lower on alcohol but we have had to use a 'best guess'). Which leaves us with a figure for impots (and related taxes) of 7%.

Thus before any user pays charges....
Income Tax 18.7% (income tax at average earnings is currently payable on the first £1 earnt but is not payable on the 6.5% employer SS contribution)
Social Security 12.5% (see note below)
GST 3.39%
Impots 7%

Effective rate of taxation - 41.6%


Other taxes which are not included in this percentage include Parish Rates, Harbours and Airports Landing fees, Planning Applications, Gun and Dog License fees, Parking Fines, Court Fines, public parking, sports memberships of public facilities. Nor does it consider the duty on property transactions, nor the 4% duty on probate (inheritance tax by another name).

Whilst you personally may not be subject to these forms of taxation, 'the average person' will be. 1% is £363.80 and it seems reasonable to assume that spread across every person the cost of these will be in the region of 3% or just over £1,000 per year.

We also need to consider that most of these charges used to be paid for out of the sums collected in income tax or have been increased far ahead of 'inflation' or the devaluation of money would indicate. For this reason they are called 'stealth taxes' as they raise money for the government without the government having to admit to their financial mismanagement and excessive spending.

For that reason it is also fair to consider the effective rate of taxation to be as high as 45%

Surely it can go no higher?

By 2016 a further tax will be introduced which whilst neither income tax nor social security resembles both in that it will be collected like income tax, but will have a cap like social security. For average earners the full 1% will be payable.

It seems likely that GST will also rise soon after the next election by a further 2% or 3% given the historical pattern of spending in election year and then taxing in the next two years ready to bribe the electorate in the election year and the poor health of the local economy.

By the election in 2018 it is likely that the effective rate of taxation will be nearing 50%.

So what were taxes in 1980 prior to the Walker regime?

Under Walker's tenure taxes rose at a much faster rate than inflation, a government which is managing itself properly should not need to ever change the rate of taxation as the amount of tax received will increase as money devalues (i.e. as wages rise, as prices rise)

Social Security was 10%
Income Tax was still 20% but there were generous allowances almost all of which have been removed with '20 means 20' such that an average person might expect to pay 5% income tax
GST was not in force
Impots are difficult to calculate as no figures were produced and cannot be worked back as there were so many more people visiting Jersey then and purchasing cigarettes and alcohol in local stores and paying local duty that it was not even viable to have a duty free shop at the Airport.

In 1980 a person could expect to pay around 15% in taxation, or 16% if one includes Parish rates.

The rate of taxation has nearly tripled, is that what you voted for?

Points which may be contentious:
Social Security - you personally may only pay 6% social security but your employer will pay 6.5% on top. As an employer let me assure you that when assessing your wages I look at the 'whole cost' of employing you and your expected productivity. That 6.5% comes out of your wages whether it says that on your payslip or not. Self employed people will pay the whole 12.5% if they are earning average earnings. For that reason I include the full rate of social security in the calculation.

Government Figures - lies, damned lies and statistics but these figures represent a common ground from which to work.