Report shows £96m drop in predicted tax income

Friday 30 October 2020

The Government's tax takings are set to be £96m lower than initially expected - with a drop in income tax amid the pressures of covid mostly to blame.

The Incoming Forecasting Group - a panel tasked with estimating how much the Government can expect to collect in taxes each year - initially predicted income of £875m in 2020.

In a new report, that forecast has now dropped down to £779m.

Over half of the reduction comes from a decrease in income tax, making up an estimated £58m of the fall.

The report states that the covid-19 pandemic has had a “significant impact”, with the International Monetary Fund “forecasting the largest contraction in economic activity since the 1940s.”

Personal Income Tax for 2020 has been reduced by £63m, though an increase of £5m was added to the overall income tax figure due to adjustments from Corporate Income Tax.

However, by 2023, the report said that Corporate Income Tax will also face a reduction, bringing it down by £17m. This would leave a £58m drop in total income tax earnings for 2023 when compared to last year's forecast.

Sales revenues, and consequently GST, have also made up a significant proportion of the reductions in the forecast, which were put down to restrictions from the pandemic leading to a reduction in sales revenues.

The figures are down by £18.5m in comparison, but the difference decreases to £9.5m by 2023.

Pictured: The report featured several forecasts from the past year with which to compare the current one.

The report observed covid-19’s “varied effects” on impôts.

Whilst hospitality outlets closing led to a fall in on-trade sales of alcohol, and fuel consumption decreased due to the closure of schools and businesses, an increase in tobacco appeared to balance this.

Despite this balance, though, there was still a reduction on the autumn 2019 forecast, with duty rates reduced by £0.5m in 2020, £2.5m in 2021, £3m in 2022 and £3.7m in 2023 respectively.

Similarly, the housing market also experienced a resurgence in property transactions following the easing of lockdown, with the economic assumptions for annual house prices having improved since a Spring 2020 forecast.

However, they suggest a slower recovery, with revised assumptions from 2019 showing decreases of £6.3m in 2020 and £7.9m in 2023.

The other key category, which is labelled ‘other Government income’, was down by £7m for its 2020 figure, with both reduced investment returns on funds and reduced dividends from States-owned entities being cited as a key factors.

Looking at the dividends more closely, the most significant shift was that Jersey Water’s forecast dividends for 2020 were reduced by 4.5% compared to the 2019 forecast. Andium Homes faced a significantly smaller 0.4% reduction.

Jersey Electricity, JT, Jersey Post and the States of Jersey Development Company did not see a change in their forecast dividends, however.

CLICK HERE to read the full report.