Centralising the Rates?

I've just been reading "Property Tax Review: Publication of Green Paper and Pwc Paper"

I wonder how much Price Waterhouse were paid for their review of property tax. That is not stated here!

The preamble states that the purpose of reform is not to raise additional revenues, so I suppose we can take that with a pinch of salt (and in fact a close reading suggests a sack of salt).

In fact, on reading the report, it is certainly likely to raise rates. It states that:

“it aims to ensure that Jersey’s property tax system is put on a sound footing, by identifying principles to help shape the development of a modern, efficient, coherent property tax system”

“Jersey’s property tax system should be joined-up, balanced and have no unintended consequences, while also supporting the States strategic objectives.”

Philip Ozouf has been at the managerial thesaurus, and almost overdosed on it, to write that sentence. Notice the “empty” linguistic qualifiers, words which sound good, but are so devoid of meaning that almost anything can be read into them – “joined-up”, “balanced”, “sound”, “modern”, “efficient” and “coherent”. It is as if nothing has been learnt since the time that George Orwell wrote “Politics and the English Language”:

“as soon as certain topics are raised, the concrete melts into the abstract and no one seems able to think of turns of speech that are not hackneyed: prose consists less and less of words chosen for the sake of their meaning, and more and more of phrases tacked together like the sections of a prefabricated henhouse”

How to Make a Failure Sound Like a Success

This is a marvel from the start of the review:

Jersey has undertaken considerable efforts in recent years to stabilise its public finances by broadening its tax base. Steps already taken include: 

• Increasing the number of taxpayers by introducing GST, so that all Islanders contribute to the cost of running the Island, while still protecting the least well-off through targeted benefit payments 
• Strengthening the personal income tax base to reduce the reliance on income from corporate taxpayers, through the implementation of 20 Means 20 and the gradual 5 withdrawal of most personal tax deductions, allowances and reliefs from higher earners  

What has happened, of course, especially after the loss of “deemed dividend”, is that profits tied up in companies stay in companies unless paid to shareholders, and if non-Jersey shareholders, no dividends ever make their way back to Jersey. As it is, this disaster of a policy has left a “black hole”, which has been plugged by the introduction of GST.

But dressed up in the way the report does, you would think it was something planned rather than an act of desperation, clutching at what the Isle of Man had already proposed.

Modernising the basis for charging annual property taxes

“One of the reasons why recurring property taxes are an appealing source of revenues is that the tax base can be relatively stable and does not reflect the same fluctuations that other types of taxes do.”

In other words, you can’t physically move property in the same way you can shift funds from a bank account!

Revaluations of Property

“The rateable value of all properties in Jersey is based on their notional rental value in 2003 adjusted, first, to ensure that similar properties had the same rateable value, and then adjusted to reflect any significant changes to the properties that have taken place since 2003. Under the Rates Law, it is not possible to undertake a mass revaluation of all properties in the Island.  ”

“This means that for many ratepayers, the rateable value of their properties has not changed since 2005. While this does provide a degree of certainty for ratepayers, it also means that rateable values in 2014 do not reflect changes in relative property values over the past eleven years””

“A revaluation exercise would however allow an adjustment to the proportion of total rates paid in respect of different types of property to reflect the current value of those properties. If, for example, offices are proportionally more valuable now in comparison to other commercial properties than they were in 2003, then the proportion of rates paid by offices could be increased while the rates paid on other types of commercial property would fall.”

In fact this is a gross over simplification. Any changes or improvements to properties since 2003 have been reflected in rates. It does not appear that the preparers of the report have talked to rates assessors anyway. As the current system

“PwC suggest that taxpayers could be asked to assess the value of the property themselves. Another option could be to undertake a revaluation exercise of all domestic properties in the Island on a regular basis, such as every five or ten years, and base assessments on that. “

So in addition to rates, either a costly revaluation could be done of the whole island – and that better be done in one go, or the burden for valuation falls on the ratepayer – an extra expense. And how can it be guaranteed that this is more “objective” than the existing system.

There was a disaster in the 1980s, under the time when Len Downer was Constable in St Brelade, when the revaluations (after all it is a large exercise) could not be done in one year. The result was one year in which half the Parish was one on revalued properties, and half on the unrevalued properties, some rates rising by 14%, some relatively static. If anyone thinks that a revaluation of a large Parish is a simple system, they should think again.

If the revaluation comes from professional valuers, who is paying for them? The Parish or the States, in which case the burden will again shift to the rate payer or the tax payer.

The current system, we are told:

“is not set up to raise significant revenues: The current rates system allows a low level of revenue to be raised in an efficient way, but it would struggle to collect significantly higher sums, if the States decided to increase the amount of tax raised from property.”

So here we have the core of the reform – to allow the States to grab more from the Island rate! Quite how “significantly higher sums” coheres with not “raising additional revenues” is another matter, but I suppose a policy which describes itself as “coherent” is unlikely to be so.And how much higher will the Island rate go?

And there is more on this:

“The current system allows for very few reliefs for those who cannot pay, and it is left to the discretion of the parish authorities to waive or reduce the rates assessment in the case of genuine hardship. This is possible when rates are set at very low levels, but would be more difficult to apply in a consistent manner if rates assessments were higher and more people found it difficult to pay. A modern property tax system would build in targeted reliefs, so that those on the lowest incomes were protected from the effects of the tax. “

“The current rates system is efficient and cost-effective to administer. However, if a larger amount of revenue was to be collected, it may not be possible or appropriate to continue to rely on the goodwill of volunteer assessors and parish authorities.”

So instead of a fairly simple system, cheap to administer, we are having suggested a more complex system, with a calculation of reliefs, perhaps not unlike the tax system, and instead of volunteer assessors, we are talking a paid professional workforce. How much that will cost is another matter, but you can be sure that it means rates will rise!

The bottom line, never states, but I suspect lurking beneath the surface is to move to a rating system which is collected centrally, and then handed out to the Parishes. It is a move towards the Government and County Council system in the UK.

Do Parishes want to lose control of their finances? This question is nowhere asked, not surprisingly, but it is clearly implicit in the recommendations.

Installments

I do think one deficiency of the current system is the problem for those on lower incomes to pay. Most Parishes do permit an instalment system, but it is on request. Yet income tax is collected on an instalment system (ITIS), and property insurance (often pretty hefty) can also be paid by standing order. It is about time the Parishes bit the bullet, and started to suggest a standing order system for repayment, initially perhaps over 3 months, but gradually to a twelve month period.

The move to a three monthly instalment system would ease the burden on the rate payer, but also would mean that Parish revenues would not be significantly effected, especially if it had to take the first instalment immediately, so balancing the time displacement of revenue against those who pay their rates towards the end of the period for payment anyway.

Windfall Tax and Capital Gains Tax

“Introducing a land development tax to tax the owner of land which has increased sharply in value as a result of a States decision to change the use to which it can be put. “

Former Deputy Daniel Wimberley tried to get this through the States, and it is a suggestion which has considerable merit. It ensures the States gets some benefit from the “windfall” that rezoning land can bring to the owner and developer.

“Charging all property owners, apart from owner-occupiers of residential properties, on the uplift in the value of their property which is not attributable to their own efforts when they sell, subject to the introduction of a rate of return allowance or some other measure to limit the amount charged to tax”

This seems much more difficult to implement. Do you consider itemised bills on improvements done, and how do you incorporate these into the value of the property? How exactly do you limit the amount charged? In effect, this is a capital gains tax, but it is only specified in the vaguest of terms.

I think the French system is much better and simpler. Charge a 100% capital gains tax for the first year, and then on a sliding percentage scale, so that after so many years (perhaps 5 or 10), it reduces to zero. It discourages speculators, but means that those who invest time into improving their property can benefit from it.