Positive Action Group - Possan Jantys Jarrooagh

Open, accountable government, rigorous control of public finances, and a fairer society for all.

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Pink Book reveals IOM Government living beyond its means - PART 2

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Our first article (11/09) created quite a stir and so here are some further thoughts…...

A. Public Sector Pensions - Future Funding

It may be that the the mounting Public Sector Pension crisis is worse than thought.

In a detailed document published by the *Public Sector Pensions Authority, "IOM Government Unified Scheme 2011, Annual Report and Accounts 2012-2013" there is a gloomy set of notes at page 30 about the PSP funding gap. It is expected to "increase as a larger proportion of the Scheme's membership reaches retirement and that additional funding will be required from the Treasury".

It's worth reading this page in the Report, if nothing else.

 

ONLY LITTLE PEOPLE PAY TAX….

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littlepeoplepaytaxLetter to Isle of Man Newspaper by PAG committee member Chris Blythe (in personal capacity):

I refer to the letter from Alan Croll last week (We’re no secrecy jurisdiction) and the faint aroma of self-interest in his assertion that tax avoidance is common sense as well as perfectly legal, his criticism of Tax Justice Network, and his statement that the Isle of Man is not a secret jurisdiction.

He is quite correct in stating that an economist’s attitude (and clearly his) is that tax avoidance is legal whilst tax evasion is illegal.  However, to the ordinary man in the street, the words avoidance and evasion are remarkably similar – to the point that it is very hard sometimes to distinguish the two, as Gary Barlow and other wealthy” tax avoiders” in the UK have found to their cost. And when HMRC tests (allegedly legal) tax avoidance schemes in court, it is often found that the borderline has been crossed and the intent of the relevant tax laws breached. In those circumstances, avoidance and evasion may be considered two sides of the same coin - “weasel words” designed to cloak the sometimes legal / sometimes slippery practices / sometimes illegal practices of well-paid tax accountants and lawyers looking for opportunities and loopholes in the wording of tax laws.

 

Fairness in Tax Matters

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“Fairness” should be at the heart of everything government does –in the way it raises revenue via taxation or from the provision of services, and in the treatment of its citizenry in providing those services. It has long been an accepted economic and social principle that those with the highest income – and thus the broadest shoulders – should bear the brunt of taxation via a progressive tax system.

 

'Toilet Tax' flushes out broader taxation issues

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loopaperThe proposed sewage charge has been comprehensively exposed as unfair in its across- the- board application to all properties from a bedsit to a mansion or hotel. It raises a wider, very worrying point about profound and retrograde changes to the whole basis of taxation and public service provision. A similar switch is happening over waste disposal charges, with Government spending being reduced, and the shortfall being passed on to households through Local Authority rates. There is a modicum of proportionality in the banding of properties, but it is still riddled with inequity.

Consider property A with four wage earners, property B with two, and property C with a single pensioner, all in the same property band. Those in A will produce twice as much waste as those in B, and four times as much as the person in C. At the same time the person in C will have to pay proportionally twice as much as each person in B, and four times as much as those in property A... .....regardless of ability to pay.

 

 

The Harsh Reality

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The Harsh Reality - And Why The "Tax Cap" Must Be Rescinded

Our politicians continue to peddle the message that there is a route back to days of prosperity (via an early return to economic growth), and that we can continue to spend, spend, spend.... but the harsh reality is that our government (and most others) has existing commitments already made to its employees and the electorate which it cannot sustain - so we, the people, will be (indeed, must be) disappointed in our expectations.

Weak growth (which is the best that is promised for some years ahead for all major european markets) means that it is likely that political promises will have to be broken, expectations reduced, and "entitlements" in terms of benefits and allowances lowered or removed entirely...... not a message our politicians want to utter nor to be held accountable for, but we are clearly already in a cycle of "salami cuts", with the necessity for a lot more still to come.

The Manx government has gratefully accepted the UK Government's policy of "Quantitative Easing" and the printing of electronic money, as it has kept interest rates down - which has helped household mortgage bills, and those with major debts incurred during the run-up to the "credit crunch" - but provided a very poor environment for those in retirement who had expected reasonable returns on their investments, or those saving for a future pension.

Unfortunately, a corollary of Quantitative Easing is inflation - and in an economy with higher than desirable levels of unemployment and wage restraint, a consequence of the QE policy is to benefit those who are asset rich (e.g. with bond holdings), whilst penalising the poor whose real wages have been squeezed by inflation - in effect, a regressive tax. But given the high levels of debt facing the UK Government (and lots of others), the era of QE and low interest rates is stretching away into the future, as it means government borrowing costs are minimised, and they can "afford" to pay the interest on those debts -
ensuring that it is their creditors who suffer a gradual erosion of the value of their investment.

One of the difficulties facing the island is that it has very high levels of income inequality - 28% of our taxable population has such low incomes that they have no liability to income tax at all, whilst a further
31% are only liable to income tax at the 10% rate - leaving the balance of 41% responsible for a massive 92% of the income tax "take" - whilst some 70+ individuals enjoy a "tax break" of £35 million thanks to the tax cap of £120,000.

Sir Martin Sorrell, head of WPP (the world's largest advertising agency) acknowledges that "concentration of wealth is a serious issue". John Caudwell, a billionaire who made his wealth with Phones4U, now campaigns for social fairness, and has paid income tax of £253 million to the UK Exchequer on his earnings in the past 5 years - and wants other wealthy individuals to stop shirking their responsibilities and to face up to the moral obligation to pay their fair and reasonable share. The tax cap clearly exists under manx legislation as a maximum for income tax liablity, and whilst it is rational to minimise ones liabilities, there are obvious problems for society to have millionaires and billionaires whilst others struggle to make ends meet with meagre pay rises and rising inflation, and a government unable to balance its books.

The inevitable result is that we will see the "politics of envy", resulting in pressure for greater equality in society, and greater contributions from the wealthy who currently enjoy significant tax concessions, such as the "tax cap", and who are able to shelter much of their wealth via low (or zero) levels of corporate taxation, and in an absence of inheritance or capital gains taxes.

No doubt many will have been following the travails of Google, Starbucks, and Apple with their minimal levels of tax payments to the UK and other governments around the world - the analogy with our own manx millionaires and billionaires sheltering their wealth under generous government tax legislation is obvious. It is perhaps time that our government ceases the pretence that the tax cap protects employment or encourages an inflow of wealthy entrepreneurs - and instead requires those wealthy individuals, just like Apple and Google, to pay their fair share of tax - just like the rest of us........ rather than a continual
cutting of services to the public or by pushing the problem on to a younger generation, as yet unaware of the scale of those financial obligations............

 

The 2013 Budget and the "Unfair Society" - Part Two

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Further to my recent article about the government's "stealth tax" on low income families as a result of the failure to raise the personal allowance since 2010/11, I would then query the continuing catastrophe of
public sector pensions. The public sector pension scheme was revamped just over a year ago, after tortuous negotiations with the unions and their members (and at a cost of well over £1 million, paid to the consultants Hymans Robertson). Shortly afterwards, it was proclaimed by government spin as a major success story, quite forgetting that it remains "unaffordable, unsustainable, and unfair to the taxpayer" (to quote Lord Hutton's review of equivalent UK schemes). I would add that it now constitutes a desperately sad situation of "pensions apartheid" - dividing the public sector (where 90% of workers will have a final salary pension heavily subsidised by the taxpayer) against the private sector where only 25% now apparently have any form of pension scheme applicable at all.

And in the private sector, a pension is almost certainly unlikely to be a final salary scheme but more probably a defined contributions scheme with significantly lower benefits. Essentially, these are "pension pots" - the contributions saved by the individual and his employer go into the "pot" and are then paid out as an annuity on retirement - but a pension pot of £100,000 currently gains at best an annuity of £5,500 per year - meaning that a "good pension" of (say) £25,000 per year requires savings in a pension pot in excess of £450,000..... and how likely is that for the average wage earner ?

By comparison and currently, public sector employees contribute approx £20 million per year in pension contributions, but take out over £60 million in benefits - the difference of £40 million+ being courtesy of the taxpayer. Having a job in the public sector is now the equivalent of being born with the proverbial silver spoon. Broadly, many public sector worker will pay in two years salary (5% of salary per year over 40 years) in pension contributions, but then benefit to the extent of half salary (index linked, and with some very important other side benefits) after retirement - which is now expected to be the next 25 years or so - a phenomenal rate of return for a very modest investment. Those pensions are reckoned to be worth the equivalent of another 40% on top of already generous government salaries – and the bulk of those pensions is paid for by the taxpayer, 80% of whom have neither the certainty nor generosity of such a pension. Can that really be considered to be affordable, sustainable, and fair to the average taxpayer ?

At the same time, this is creating an inter-generational divide - with a growing percentage of our population going into retirement as a result of ageing, leaving our younger population effectively to pay all the (rapidly increasing) pension bills. The electorate broadly trusts government to make the right decisions for society as a whole, but on public sector pensions, I fear the trust is sadly (and badly) misplaced - it remains an area dominated by the self-interest of those in receipt of these overly generous, under-contributed, and unfair pensions - which clearly includes our elected representatives......

 


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