That was how Treasury Minister Eddie Teare MHK described the fifth and final Budget of the current Government when he presented it to Tynwald today (Tuesday February 16, 2016).
Mr Teare said his package of proposals ‘protects the interests of the next generation by paving the way to sustainable public finances and new economic opportunities.’
Key features of the 2016/17 Isle of Man Budget include:
- A £1,000 increase in individual’s income tax personal allowance, to £10,500, lifting 2,000 of those on the lowest incomes out of the tax net and reducing tax bills for a further 19,000
- The 10% income tax band is retained but will apply to the first £8,500 of an individual’s taxable income, instead of the current £10,500 limit. No taxpayer is expected to be worse off as a result of the changes in banding and allowances
- A proposed Government Bond offering a secure investment opportunity for local savers while raising funds for capital projects
- The introduction of a penalty for those found to have avoided Manx income tax in contravention of general anti-avoidance provisions
- A new Land Development Tax Holiday offering income tax exemption up to five years for new commercial developments that help to create additional employment
- Additional transitional funding for the Health Service while it tackles escalating costs, particularly the cost of having to employ temporary staff at Nobles Hospital because of recruitment difficulties
Mr Teare said this Budget was about ‘securing strong foundations for the future.’
He continued:
‘Our focus must now be to move away from managing the immediate and short-term effects of the financial challenges we have faced. We have done much to address these issues, and we are now looking to the long term future of our Island.’
The Minister also told Tynwald:
‘Whilst our reserves are under increasing pressure, they are still strong. There is no need for panic, or for kneejerk reactions. Our fiscal strength, growing economy and the actions we have taken so far to reduce the deficit allow us time to address the issues strategically.’
Having achieved stage 1 of its rebalancing programme by budgeting last year for a surplus on the revenue account, Government is now moving on to stage 2, the Medium Term Financial Strategy, which aims to phase out reliance on reserves over the next six years.
The medium term strategy is to increase Government income through economic growth, with no increase in headline tax rates and no above-inflation increases in Departmental fees and charges to the public.
Savings averaging £5.6m a year, totalling £34m by 2021/22, are to be made through a combination of investing in technology, critically reviewing public services and service levels, and delivering value for money in Government’s purchasing of goods and services.
In addition the strategy caps funding for overall increases in staff pay costs at 1% a year, below the projected inflation rate. Any pay increases above the cap will mean reductions in staff numbers.
Mr Teare said there would have to be a third and longer-term stage to reforming the Island’s public finances, dealing with such issues as state pensions and benefits, and public sector pensions.
On the latter issue the Minister noted that for 2016/17 gross spending on public service pensions is forecast at £107m, or 10% of total revenue spending.
He said the Medium Term Financial Strategy plans to control spending so that the shortfall in staff pensions funding, currently met from the Public Service Pension Reserve, can be accommodated after the reserve is depleted in 2021/22.
Mr Teare told Tynwald:
‘Given the rights of the existing members of the pension scheme, the lead time that any changes made to new entrants take effect and the scale of the funding deficit, solutions to this major problem cannot be achieved in the short or medium term.
‘However I cannot over emphasise how important it is, for Government and its staff, that an affordable solution to the long term funding of public service pensions is determined. In reaching this arrangement Government, as the employer, must be firm but fair and everyone involved in the process must be responsible for delivering an affordable solution which provides confidence and certainty for all.’
Other key points from the 2016/17 Budget:
- A new more transparent way of presenting Government’s financial information, including a revised Budget ‘Pink Book’ which now features commentary from each Department, Office and Board
- Establishment of the Enterprise Development Fund to support the delivery of the Enterprise Development Scheme with year one funding of £10m
- A capital programme of £93m is planned which includes construction and engineering work worth £71m, £23m more than the previous year
- Creation of a new £5m contingency fund to be available in exceptional circumstances, including extreme weather damage
- No change in income tax rates, Personal Allowance Credit or the ‘tax cap’
- Basic state pension to rise 2.9% in line with the UK, but no change to the Manx Pension Supplement. There will be an additional increase of £5 per week for the poorest pensioners, those on income support
