Budget Heralds New Era of Economic Discipline

Despite a “worldwide recession which appears to be getting worse by the day”, the Isle of Man is still economically robust. This was the reassuring message from Treasury Minister Allan Bell during his post-Budget breakfast address to the Junior Chamber of Commerce this morning (Wednesday 18^th February). He was, however, emphatic about the Government’s need for financial discipline in the face of the economic slowdown and warned that a time of “great uncertainty” lay ahead.

Speaking at the Hilton Hotel to an audience of over 200 people, Mr Bell gave a comprehensive breakdown of what he called “his most difficult Budget” and its implications across the Island’s community and industries. “The discipline imposed today is a permanent feature, not just to get us through a little blip” he cautioned, but stressed that “confidence will keep the Isle of Man going and we have every reason to be confident”.

Political Pressures

Commenting on the backdrop against which Budget has been finalised, Mr Bell described the “unprecedented political pressure” which the Island has faced as a result of scrutiny from the new US administration, stressing the need to demonstrate the difference between low tax areas such as the Isle of Man and the “secrecy jurisdictions” which are Obama’s chief target.

More positively, he pointed out that the Isle of Man has been removed from Australia’s tax haven blacklist and is close to clinching a record total of 12 agreements with member countries of the OECD (Organisation for Economic Co-operation and Development), making it fully in line with a growing international agenda of automatic tax agreement exchange.

Impact of VAT Reduction

In touching on the issue of VAT reduction, Bell launched an unequivocal broadside against the UK Chancellor (“we have had the joy of Alistair Darling’s attention”), calling the reduction of VAT from 17.5% to 15% a “complete waste of time…a chasing exercise, a political headline” which has nonetheless cost the Isle of Man ?24.5 million in loss revenue over 2008/09. He doubted whether the rate would be raised prior to the forthcoming UK elections, concluding that this remained an area of great uncertainty.

Domestic Forecast

Addressing the health of the local economy, Bell insisted that the Island is in ‘positive territory’, explaining that the current 2.2% unemployment rate stands well below that of the UK (6.3%) and Ireland (9.2%), and predicting 2 – 2.5% economic growth for 2009/10.

He identified only three sectors as having been significantly hit by the downturn in the economy – retail, hospitality and construction – and pointed to the growth of e-Gaming and the Aviation and Shipping Registry as reliable signs of health.

The Island’s stability is further reinforced, he said, by having (“utilities aside”) no external debt, which has led to its ‘Triple A’ Rating being renewed by both Moodys and Standard and Poors.

Pitched against this were sobering rejoinders to Government financial estimates – at ?587 million, revenues for the current year are approximately ?12 million below budget – and a surplus budget which is at its lowest since 1991. While the projected figure for the current year was ?32 million, the actual figure has been revealed as ?14 million. This is expected this to drop to ?200, 000 at the close of the next financial year.

Capital Programmes

During his focus on capital programmes, the Minister made it clear that a balance would have to be struck between retrenchment and support for local industry. While the allocation of funds from revenue to capital schemes has been reduced, ?11 million of this year’s surplus is being ploughed into the Government’s capital account to boost the construction industry. Commenting that only 66% of capital projects were achieved in 2008, Bell emphasised that “the riot act had been read to a number of departments”.

Maintaining a Positive Image

Having set up the Marketing Initiatives Fund two years ago, Bell said that, now more than ever, it was particularly important to promote the Island’s “international personality” and “make sure that the Isle of Man’s story is better understood….we cannot afford to take our foot off the marketing pedal”. Defending the renewal of a ?5 million PR budget, Bell said that this allocation had been instrumental in fighting negative representation of the Isle of Man (notably, following the collapse of Kaupthing Singer & Friedlander) and continued to be essential in promoting the Island on an international platform.

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