Lib Vannin leader Lawrie Hooper will this month try to gain support for closing the tax cap scheme to new applicants.
The tax cap allows rich people to pay a fixed income tax of £200,000 for an individual and £400,000 for a jointly assessed couple for a period of five years.
The idea behind this has been that by attracting rich people to the island, they will invest here and generate jobs, though to what extent this is true is disputed.
Mr Hooper’s motion would end that system to new applicants from the next financial year.
He said: “The challenge with the tax cap, ultimately, is talking about things like the 2% you’re asking people earning less money to pay more, but the people at the top end actually are getting a cap on their taxation and the way that the tax cap works is you have to satisfy the assessor that you would pay that much tax anyway, so we are losing out on tax revenue here.
“The counter argument has always been, ah, but these super rich people will invest in the island. They’ve never been able to demonstrate that, and that’s despite being asked. So I remember asking a lot of questions in the last government about this, and they’ve never managed to demonstrate that actually the policy works.”
Targeting
The Ramsey MHK said the recent publication of a report by the Economic Policy Review Committee just reconfirmed that the island’s tax system is weighted towards supporting richer residents.
He said: “We have a tax system that is not geared towards helping working families at a time when we’re trying to attract and retain working families, so what is the Treasury doing about that?
“This is part of the reason for bringing the motion, is, if we’re going to be targeting tax breaks, if we’re going to be targeting tax measures at people, we should be targeting those at working families, at the people, we really need to come here and work and fill the island’s vacancies, as opposed to a handful of very rich people who, quite frankly, could easily afford to pay their fair share.”
Investing
Despite his motion, Mr Hooper said that the high net people who do come to the island and use the system and invest should not be put off coming here.
He said: “I know some of these guys are and I’m not trying to get at people that are wealthy and investing here, because I know some of these, these high net worths, are here, investing in the island because they want to, because they believe it’s the right thing to do, because they believe in the island.
“That is absolutely fine and there are other ways I think the tax system could incentivise that sort of behaviour.”
Answers?
Mr Hooper said a recent written answer he received from the Treasury had failed to outline the overall benefits of the tax cap.
In that response, Dr Alex Allinson explains the tax cap and how it is used to attract people to the island.
However, he added that “Treasury has not commissioned an assessment of the overall benefit of the tax cap” but it does form part of the package the island can offer potential new residents.
He said: “Those high net worth individuals seeking to invest or relocate have many options open to them so it is important that the Isle of Man can offer an internationally competitive package.
“It should be noted that when compared to many close neighbours including the other two Channel Islands, the island’s tax cap is not necessarily the most competitive financially, however the Island’s package approach enables a level of financial certainty, whilst also capitalising on the other factors of the Island’s proposition, including safety, stability and security.
“Therefore, the Island positions itself as a desirable place not just for financial reasons, but because of the many benefits it offers. To not seek to offer a package for high-net-worth individuals would represent a significant change of policy direction, for which ultimately the broader impacts would need to be considered.”
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