The Treasury Minister Alfred Cannan’s Budget Speech on 16 February 2021 was badged as ‘A Budget of Resilience’. This is the final Budget for this Government and it ends the five year cycle which has focussed upon shoring up the Island’s finances and establishing a foundation for growth.
Taxation matters were put on hold, the prime focus being economic stability at a time when many other countries are suffering the huge economic impact of the COVID-19 pandemic. The short-term aim has to be to protect businesses and the workforce, which the Government appears to be succeeding in with their timely and professional response to the pandemic.
COVID-19 has dominated somewhat, and naturally it has had an impact on resources, albeit the Government’s response means that we are currently in a more favourable position compared to our close neighbours, and in relative terms we have been well insulated against the financial effects of the pandemic.
The cost to the Island of COVID-19 is estimated to be just over £200m, comprising around £100m in direct support payments to residents and a further £100m in other related costs.
The estimate for annual revenue for 2020/21 is slightly down on the previously budgeted figure, as is to be expected due to elements of inactivity in the economy through the Spring and Summer months of 2020. The budgeted increases in revenue from 2020/21 through to 2024/25 suggests an average annual growth rate of around 3.4%.
It is anticipated that Government spending for 2021/22 will increase by 3.9% to £1.161bn, which includes an additional £15m set aside for new capital projects. Further amounts have been drawn from reserves during 2020/21 to cover the unexpected costs associated with the pandemic and further amounts will be drawn in 2021/22 in respect of increased expenditure.
The expectation is that less reliance will need to be placed on the reserves over the coming years, although it will clearly depend upon future events, which are generally more uncertain than in recent years, given the ongoing pandemic, the finalisation of Brexit and a change of administration in the US.
The structural deficit and public sector pensions liability continue to be an issue, and there will certainly be a continuing obligation to address these matters over the coming years. Whilst controls on spending and stimulating economic growth will help, in the longer term it may require something more radical.
As an aside, the Treasury Minister reported that the population has grown by 472 within the last year. In our experience, one of the consequences of the constant lockdowns that our near neighbours are experiencing and the success that the Island has had in that respect, is that there is increased interest in the Isle of Man, particularly from entrepreneurial individuals. It would be no surprise to learn that the influx continues through the current calendar year, which should be encouraged.
Rates & Allowances
After five years of consecutive increases, the personal tax allowance for 2021/22 remains unchanged from the prior year, as do all other allowances, income tax rates and bandings, and national insurance rates and thresholds. In essence, this is a slight regression for taxpayers once inflation is factored into the equation, although understandable given the unforeseen costs of the COVID-19 pandemic.
The only tax point worthy of note is that National Insurance Holiday Scheme which commenced on 6 April 2019 will continue for another year, which should be welcomed.
In relation to taxation matters, there was nothing much to report from the Budget. The focus was principally on economic stability, protecting business and job retention due to unexpected recent events. Whilst encouraging economic growth and managing expenditure are paramount, there continue to be more fundamental challenges ahead which still will need to be addressed at some point, namely the structural deficit and the public sector pension issue.
Partner, Tax Leader, PwC Isle of Man
Tel: +44 (0) 1624 689714
Director, PwC Isle of Man
Tel: +44 (0) 1624 689465
Director, PwC Isle of Man
Tel: +44 (0) 1624 689713