Thursday 4 September 2008

“If Jersey is a tax haven, how come I have to pay tax?”


The above question has appeared on a couple of local forum sites lately. Surprisingly, even finance industry workers, who might be expected to understand such things, don't always manage to do so. The short answer is that you have to pay, so that the finance industry's clients do not, to keep their staff in jobs. This answer does not go down very well, though, so I am revisiting the subject in a little more depth.
Half a century ago, public expectations of government services were somewhat lower than they now are, and less taxation, in real terms, was needed to meet those expectations. In fact, by allowing a modest number of very rich people to settle in Jersey, and taxing them fairly, but more lightly than where they came from, enough could be raised for taxes to be very low indeed for the masses. Back then, we did indeed have a tax haven in which the hoi polloi did not need to pay.
From there, it was a short and simple step to move the holding companies for the very rich people's corporations here, too, so that they too could share in the benefits of the low tax. And, once it was clear how much business there was in doing this, one more little step not to tax them at all, directly, and just tax the large amount of lucrative work they generated. That step has made many thousands of ordinary islanders pretty rich, and probably done more than they realise for the many thousands more who are not actually on the gravy train. On the other hand, it also moved us on to being a tax haven to our customers,but not for ourselves. Mr. Powell also gave our very rich immigrants parity with their companies, by requiring only nominal personal taxes from them, too. The company tax on the finance companies, and the personal tax on their workers amply made up the shortfall. It would not be fair to tax the finance workers differently to anyone else, though, so we all have to join in paying the tax to make up for what the finance industry's clients are not paying.
And there you have it; a tax haven in which the locals have to pay more and more tax to keep it as a tax haven. And if they did not, they would soon have to pay a lot more still, if they were still in work, as the tax haven is now the foundation of the economy.

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