The States of Jersey, faced with a budget deficit following a fall in revenue due to the recession, is considering abandoning its traditional 20 per cent flat rate of income tax and imposing a 30 per cent tax on earnings over £100,000 ($151,621) and has launched a public consultation on the issue.

The four key proposals in the consultation document are: to raise income tax from 20 per cent to 30 per cent for earnings over £100,000; to triple domestic property rates – the current average rate paid per household is around £350 per annum, compared to around £1,000 in the UK; to raise goods and sales tax from 3 per cent to 5 per cent, and to raise the social security threshold (above which social security is not paid on earnings) from £43,752 to £115,000.

The proposals are being evaluated on grounds of fairness, economic efficiency, competitiveness and revenue, and each measure is estimated to raise an additional £30 million of revenue per year, so they score equally on this count.

The introduction of capital taxes – Jersey levies neither CGT or IHT, although some investment gains are taxed as income, and stamp duty is sometimes applicable on inheritance – is not being considered.

Jersey has also launched a review of business taxes and a comprehensive spending review (CSR), designed to cut spending by £50 million by 2013. It has been known for a while the States is also considering personal tax rises to fill the budget shortfall.

It is estimated the deficit would reach at least £100 million for 2012 if changes are not made and spending not brought back under control, according to the document. To avoid this and continue to pay for and maintain recent investment in vital services, the government would need to raise an extra £50-£60 million per year, even with real term savings of £50 million from the CSR.

Currently 43 per cent of the Jersey government’s income is derived from income tax, and up until recently the States’ strong economy has enabled it to raise ample revenue despite its low tax rates. However, Jersey’s economy like most has suffered of late and the need for the island to raise taxes demonstrates the way few governments have escaped the crisis unscathed. For instance, Jersey in Figures 2009, the government’s annual publication of socio-economic and environmental statistics, showed a large drop in fund assets administered on the island last year compared to the prior year.