Manx Budget Commentary 2019

‘A budget of confidence’ was the message from the Treasury Minister Alfred Cannan during his budget speech. Minister Cannan appeared pleased to report results which are ‘above expectations’.

The headlines:

  • Income tax personal allowance increased to £14,000 for a resident individual and £28,000 for a jointly assessed couple.
  • Income tax lower rate for individuals remains at 10% and the higher rate at 20%.
  • Tax cap increased to £175,000 from £150,000 for a resident individual and £350,000 for a jointly assessed couple.
  • New national insurance holiday for certain new residents and returning students.
  • Threshold at which the higher rate becomes payable remains at £6,500 for an individual and £13,000 for a jointly assessed couple.
  • Thresholds at which both employees and employers start to pay Class 1 NIC are increased to £125 per week from £118.
  • Class 2 Small Earnings Exception Limit and Class 4 Lower Profit Limit are increased to £6,500 annually from £6,136.
  • The Class 3 National Insurance contribution is increased to £15.00 per week.

Key links:

Budget 2019 – tax and national insurance proposals:

https://www.gov.im/media/1364408/pn-206-19-budget-2019-final.pdf

National insurance holiday scheme:

https://www.gov.im/media/1364409/pn-207-19-national-insurance-holiday-scheme-final.pdf

Treasury Pink Book 2019/20

https://www.gov.im/media/1364400/2019-20-pink-book.pdf

Harding Lewis commentary:

“Overall this year’s Budget has resulted in a couple of new interesting business initiatives, but for the person in the street it was arguably a light touch. A few tweaks to allowances and benefits will generally see a few extra pounds in the pocket of the working-class man and woman, which is always welcome, albeit nothing drastic. The most notable change is an increase in maternity payments by 20%.

One prominent point to mention is the £9 million fund being set aside to support job creation and revisions to the Enterprise Development Scheme. The establishment of which should hopefully help to incentivise new business and investment on the Island.

The introduction of a new national insurance holiday scheme targeting employees moving to and students returning to the island is also a welcome change. In a community with such low unemployment and shortages of labour this is one of a number of initiatives needed. With Class 1 National Insurance refunds of up to £4,000 available to the student or new employee this certainly provides an incentive to start a career on the Island. In particular, this will benefit students that are keen to pay off any debt accumulated at university.

Minister Cannan will argue that behind the scenes much more than this is being done, for example via the Department of Enterprise, to create new economic activity, however new and bold ideas will still be needed to help accelerate the progress.

Government finances and the future of the economy:

The growth in the economy has for sure come to the rescue of Governments’ finances in the last 2 years with a budget surplus of £28 million forecast for 2018/19. However, this figure is far from the true picture. Some £73.8 million has been taken from various reserves including £39.4 million from the Public Service Employees’ Pension Reserve (‘PSEPR’). Proper account has not yet been taken of the long term impact on the Budget of the PSEPR. Chris Thomas, the Policy and Reform Minister, will be tabling ways forward on this subject in 2019. The overall deficit in the PSEPR is, we understand, in excess of £3 billion and rising! So the medium to long term prognosis is going to be challenging to say the least.

There is no doubting the impact the e-gaming sector has had on the economy, and the fall in other sectors overall has highlighted our over dependence on this business activity. A higher working population going forward and more businesses are essential to ensure our public services are not subject to austerity measures.

Fortunately, our competitive position as an independent jurisdiction is still positive, but new residential properties will be needed to enable the growth programme to happen. More investment in town centres and infrastructure will be needed to both improve facilities and improve our appearance. The proposed capital programme of £479 million over 5 years will help in this process.

It must be frustrating to the Treasury that some people (and it would seem Government Departments) just do not ‘get it’ and blocks appear on new building projects that will be needed to create new economic activity and therefore jobs and tax revenue.

The Department for Enterprise continues to push economic growth and new sectors will be needed to balance the over reliance on e-gaming. Block chain technology and the Biomed sector are two examples of areas amongst many that it is hoped will develop further. Being ‘in the space’ for various possible growth areas is essential as it is never clear which sector might flourish.”

Conclusion

The theme of the Budget is economic growth as opposed to cuts to overall Government expenditure in order to balance the budget in the medium to long term. Business and Government are both part and parcel of this end goal and must work together to generate further new initiatives in the future. The alternative is not worth contemplating.