THE Treasury Minister's statement on the VAT Revenue Sharing Agreement continued...

"We must remember that we do have a strong economy, we have the buffer of reserves to draw upon where necessary and we have a continued determination for the Island to develop and prosper.

"Government fully appreciates that the initial reaction to this revision and its financial implications for the Island will be one of concern, anger and may well create some uncertainty. So I will set out clearly and plainly why we have agreed to the new TBMM Revenue Sharing Arrangement.

"The new arrangement provides for certain - and not insignificant - income going forward which in turn will provide greater certainty and stability when rebalancing, planning and formulating our budgets into the future.

"The Customs Agreement itself provides for the Island's continuance as part of the EU VAT territory and so continues to offer us many opportunities which are not open to competing international business centres.

"The continuation of the Customs and Excise Agreement benefits Island business, residents and government.

"Without the agreement:

- Business would suffer increased administration, compliance and cash flow costs as they would need to separately register and file indirect tax returns and customs declarations in both territories as trade with the United Kingdom would become imports and exports.

- We would suffer the increased costs of setting up customs barriers to identify revenues on imports that would otherwise be lost whether that be through mail order, internet purchases or residents on shopping trips to the United Kingdom.

- Residents would be faced with the probability of customs barriers when they travelled and the possibility of double taxation on their purchases from the United Kingdom unless they carefully followed and complied with the United Kingdom’s retail export scheme.

"These are just a few of the implications of not having the Customs and Excise Agreement - it is a river that runs deep.

"Turning to the financial implications the broad strategy for rebalancing the budget as set in last year's Pink Book remains valid although in future budgets the relative balance between spending reductions, taxation revenues and use of reserves will need to be adjusted.

"Clearly there will need to be continued and even more rigorously applied downward pressure on public spending including consideration of the future scope of government. 

"It is too early to be precise as to how this will be achieved and over what period. That will require the refinement of government’s policies and have to form part of ongoing budget considerations with departments and other public sector bodies.

"However it will be government's ambition to continue to do this within the broad principles we have previously set out - namely to protect where possible front line services and the more vulnerable in our society.

"It is understood that in a situation like this it is natural that the thought and talk of abrogation might arise. But let me emphasise that government is satisfied that the Island's immediate and long term economic interests are best served by the continuation of the Customs and Excise Agreement with the United Kingdom, and those interests have been protected by the acceptance of the new Revenue Sharing Arrangement, even with the significant reduction in revenues that it brings.

"There will be those who say that government has not fought hard enough, that we should have refused to accept any revision of the Revenue Sharing Arrangement, or that more robust political lobbying in the United Kingdom could have improved our position. To those I would say the Isle of Man Government has negotiated robustly in a much harsher economic and financial world than most people on the Island have experienced. The world has changed - we have to get real.

"The present financial situation within the United Kingdom is serious and their government is substantially reducing department budgets and fund allocations to local authorities. To expect sympathetic or preferential treatment from the UK Government especially in the current economic climate would be naive.

"What government has done is to work hard over the best part of a year to get the best deal realistically available for the Island and to secure a stable foundation from which to rebalance our public finances. We have the resource and determination to plan, invest and manage both our economic development and to sustain our core public services.

"I emphasise that it is the wish and intention of both governments, which was confirmed at my meeting last week with Minister David Gauke, the Exchequer Secretary to HM Treasury, that the acceptance of the new arrangement will produce a period of stability and certainty and as such should not require any further significant review of the sharing arrangement in the short to medium term.

"It is in our Island's nature to continue to diversify and grow our economy so that together we can generate the income that we need to provide public services. This will not change. We will continue to do all we can to safeguard employment and most importantly the quality of life we all enjoy.

"We have achieved this in the past and I am confident that having secured the Customs and Excise Agreement, as long as we are all committed to work together for the good of our Island and its people, we will continue to achieve this in the future."

To go back to the first part of Mrs Craine's statement click here.

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