The Isle of Man Government has taken the first steps to address its revenue shortfall with a 'Budget for Change' that combines lower public spending, increased taxation and the use of reserves.
Presenting his ninth "and most challenging" Budget in Tynwald today (Tuesday 16th February), Treasury Minister Allan Bell MHK said it was the first instalment of a five-year strategy to rebalance Government's finances following the reduction in the Island's share of VAT income.
The main features of the 2010/11 Budget include:
- A £37.1 million or 6.5% reduction in net revenue spending overall (but no decrease in net spending on health and social care);
- Income tax higher rate for individuals to increase from 18% to 20%, raising £9.4 million;
- Implementation of a 1% increase in employee National Insurance Contributions (approved by Tynwald in November 2009), raising £7 million; and
- £15 million transfer from Reserves.
Mr Bell also announced an 18% increase in Personal Allowance Credit for the least well off members of society; a 1% increase in income tax personal allowance; £96 million capital spending; a freeze on salary budgets; and the loss of nearly 100 staff posts by non-replacement. The Minister stressed that there have been no redundancies, simply the culling of posts which had not been filled and were therefore counted as "natural wastage".
The Treasury Minister explained, "This is a Budget that paves the way for change while maintaining support for the least well off in our society. There are further and greater challenges ahead but we now have a clear plan to manage the transition to a new era of Government fit for the future.
"The Isle of Man is not alone in facing fiscal difficulties and we are in a relatively strong position. Our economy is still healthy and we are in a resilient and resourceful small nation with a track record of working together to make the most of changing circumstances."
A Summary of Key Features of the 2010 Isle of Man Budget:
1) The income tax standard rate for individuals remains at 10%;
2) The income tax higher rate for individuals is to increase from 18% to 20%;
3) Income tax personal allowances to increase by 1% to £9,300 for single persons and £18,600 for married couples;
4) Single parent allowance increases from £6,300 to £6,400;
5) Blind or disabled persons allowance increases from £2,850 to £2,900;
6) Age allowance for each individual aged 65 or over to increase from £2,000 to £2,020;
7) Non-resident personal allowance is withdrawn;
8) Income tax threshold at which the higher rate for individuals becomes payable remains at £10,500;
9) Increase of Personal Allowance Credit from £550 to £650 per person (18%) or £1,300 per couple;
10) Tax cap increases by 15% to £115,000 per person per annum;
11) Cap on mortgage and loan interest relief reduced by £5,000 to £10,000 per person per annum, providing relief on up to £200,000 of mortgage or loan per person at a 5% rate of interest;
12) Corporate taxation: income from banking business, land and property, including development, commercial property letting and rents to remain at 10%; 0% standard rate on all other income;
13) Implementation of Employees' National Insurance contributions: increase of 1% on earnings between the lower and upper earnings limits, with a 1% contribution on earnings above the upper earnings limit, as approved in November 2009;
14) Government net spending to reduce by £37.1 million or 6.5% over the current year's estimate;
15) Consolidated Loans Fund interest rate cut to 0%, reducing Revenue Account transfer to Capital Account;
16) Gross spending on Health, Social Services and Social Security increased by 2.6%;
17) £96.1 million capital spending for Government Departments and Statutory Boards in 2010-11;
18) £37 million spent on housing, with £14.7 million in the Government Programme, plus £22.3 million to be spent in the Government supported Local Authorities' Housing Programme;
19) £1,000 revenue surplus anticipated for 2010/11 following the transfer of £15 million from the Reserve Fund to produce a balanced budget;
20) Manx Radio grant reduced by 1.8%;
21) Decrease in Government staff of 99 posts.