Bankruptcy warning for Jersey
A top British tax campaigner yesterday predicted that Jersey could go bankrupt.
The stark warning from Richard Murphy of Tax Research UK came after the States of Jersey predicted a shortfall in government income of more than $188 million (£125 million) by the end of 2019.
Mr Murphy — a leading campaigner in the UK against the use of tax shelters — said: “One of my recurring themes from 2007 onwards was that Jersey would one day, as a result of its introduction of a zero corporation tax, face an insurmountable financial black hole that would bring its States' finances to its knees.”
The Jersey Evening Post reported: “To plug the gap ministers have suggested a budget-balancing programme of £130 million in new income — £35 million from a new health charge, £35 million in other efficiency savings including benefit changes and ‘user pays' services charges and £60 million in staff savings.
“The money is needed to combat lower-than-expected revenue, coupled with increasing funding pressures on key areas such as health and education.”
And it added: “No measures have been ruled out, with compulsory public sector jobs cuts being considered for the first time in order to save money.”
Jersey Treasury Minister Alan Maclean, who unveiled the new savings plan at an Institute of Directors lunch, said: “What I'm concerned about is making sure we learn from the past and make sure we continue to have strong public finances.
“Hindsight is a great thing and it's been proven that our optimism wasn't as justified as it could have been, but we live in a particularly volatile world at the moment.”
Mr Murphy said that he had predicted a shortfall of $135 million ($201 million) by 2012 several years ago.
He added that “I got the timing wrong” but explained that Jersey had headed off a financial crisis through “privatisation, raising reserves and cuts.”
But he said: “Such measures cannot hold off the inevitable forever. I repeated the warning many times since then.
“All were ignored by Jersey's Ministers who said I was completely wrong. The evidence now makes clear who read the runes correctly.”
Mr Murphy suggested there were several reasons for the crisis — including a lack of tax, tougher scrutiny of the offshore sector and a refusal to change.
He wrote: “The first is that you cannot run an economy on the basis of not properly taxing your biggest economic activity, which in Jersey's case is finance.
“When so many companies using Jersey pay no tax at all and those in the finance sector that do pay tax pay at half the normal rate of course there is going to be a financial crisis in the island.
“It did not take genius on my part to predict that. It only took an honest appraisal of the data, which is what I delivered.”
And Mr Murphy added: “Second, Jersey has remained wedded to a tax haven model for its economy when tax haven activity has come under scrutiny and many of the reasons for using Jersey provided opportunities for abuse have been taken away as a result of the efforts of tax justice campaigners.
“We said we would win, and Jersey was for a long time the target of much of our comment. We have won, but Jersey was always in denial about the fact.”