Isle of Man budget 2023: continued focus on economic growth
The Treasury Minister Dr Alex Allinson delivered his budget speech on 21 February 2023 and, as expected, it followed the broad trend of more recent budgets.
The theme was a common one, namely a spending and investment plan which would continue to encourage economic growth and, in the medium term, ensure less reliance on reserves. The strategy to boost jobs growth and stimulate economic activity in an effort to redress that reliance remains in place and, encouragingly, the headline numbers for new tax registrations, new job creation and unemployment in 2022 appeared to be strong.
This will not eliminate the need to call on reserves in the coming years, but if the trend continues, it may go some way to reducing what are, in reality, annual deficits on both the revenue and capital accounts, particularly if the stated aims of achieving a population of 100,000 by 2037 and additional revenue of £200m by 2032 are met.
At the macroeconomic level, government revenue is forecast to increase at an average non-compounded rate of approximately 5.9% per annum over the coming four fiscal years to 2027/28 inclusive, calculated on a baseline probable revenue of £1.156bn for 2022/23. Expenditure broadly follows suit and small annual surpluses are forecast through to 2027/28 after transfers from reserves.
The encouraging statistic is that revenue for 2022/23 is likely to be around 1.6% higher than was budgeted last year. This seems to have arisen as a direct result of the factors noted above, with an influx of new residents who may have tired of government measures elsewhere during the Covid-19 pandemic, worsening economic metrics and the increasing burden of taxation suffered by residents of the UK and further afield. For these reasons, the Isle of Man must continue to offer a highly competitive tax environment and quality of life.
For the same forecast period to 2027/28 inclusive, there are shortfalls on capital spending plans which will inevitably be shored up by reserves again, albeit the suggestion is that on both the revenue and capital accounts, these shortfalls will reduce over the forecast period.
For the taxpayer, there were few changes to report on. Income tax rates and bandings for 2023/24 will remain static at their 2022/23 levels, the broad effect being a reduction in the allowances and bandings in times of inflation. However, there was one novel departure with which higher-rate UK taxpayers will be familiar. Higher earners will begin to lose their personal allowances as annual income breaches the £100,000 level. The single personal allowance of £14,500 will gradually taper, by £1 for every £2 of income exceeding that amount, until the allowance is completely lost on an income of £129,000 (these amounts are doubled for jointly-assessed couples).
In relation to national insurance contributions, there were 5% increases in the thresholds and upper limit, while the lower earnings limit remained static. Again, when factoring in the current rate of inflation, the reality is the vast majority of taxpayers will be slightly worse off in 2023/24 than in 2022/23, at least in terms of spending power.
It is not clear at this stage as to precisely what the system of national insurance will look like in a few years’ time, but it seems clear that there will be overhauls of elements of the system. Based upon the Treasury Minister’s comments, we might expect to see changes introduced in 2024/25 and 2025/26.
As ever, the real challenges remain ahead of us. The structural issue still needs to be adequately addressed and international initiatives continue to apply pressure on the low tax territories. In relation to the latter, the Isle of Man has been consistently compliant in its approach and continues to do so in relation to Pillar 2, the new global minimum corporate tax rate imposed on the world by the US.
The significant longer-term domestic issue continues to be pensions, which the commitment to the triple-lock has not aided, although fully warranted. Future economic prosperity is the priority along with tighter fiscal control.
Overall, the budget was what we might have expected, given the recent focus on economic growth and fiscal responsibility.
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