GOVERNMENT BUDGET RISES TO CHALLENGE OF REVENUE SHORTFALL
In his last budget before moving to head up the new Department for Economic Development, Treasury Minister Allan Bell MHK showed the Isle of Man Government had risen to the challenge of its revenue shortfall, and adapted to ensure the Island remains an attractive place to do business.
The Budget was prepared against a backdrop of the worst global economic situation seen in the past 60 years, and is positioned to allow the Island to compete strongly and to maintain the attractiveness of the Isle of Man to inward investment.
Minister Bell put forward a Budget for 'change' that combined lower public spending, limited increases in taxation and the strategic use of reserves. The Budget he set out was the first instalment of a five-year strategy to rebalance the Government's finances following the reduction in the Island's share of VAT income from its union with the UK.
The Treasury Minister explained, "This is a Budget that paves the way for change while maintaining support for the least well off in our society. There are further and greater challenges ahead, but we now have a clear plan to manage the transition to a new era of Government fit for the future."
In many ways the challenge has been lessened because of the success the Island has enjoyed in recent times. The 26 years of unbroken economic growth, record levels of investment in public services and infrastructure have contributed significantly to the Island's economy, making it stronger and more diverse than in any previous slow-down. This puts the Island in a comparatively strong position, as does its ability to draw from reserves.
The Minister continued, "The Isle of Man is not alone in facing fiscal difficulties and we are in a relatively strong position. Our economy is still healthy and we are a resilient and resourceful small nation with a track record of working together when faced with changing circumstances.
"Our ability to deal with such challenges was illustrated when Standard and Poor's recently confirmed the Island's 'AAA' credit rating, commenting that the Government's robust financial position will enable it to deal with the ongoing budgetary and economic pressures" he said.
Another key aspect of the Government's strategy has been to announce proposals for a major restructuring of Government Departments with a focus on growing the economy to generate new income for the Island through the creation of the Department of Economic Development.
Minister Bell said, "The Budget is part of a wider work in progress. Members of Tynwald recently approved proposals for a major restructuring of Government Departments, with attention focused on generating new revenue streams."
Under the new plan, Government functions have been reorganised under nine Departments, six of which are entirely new and will become effective on April 1.
The Chief Executive Officer for the new Department of Economic Development will be Colin Kniveton, who will take responsibility for securing more inward investment and further diversification of the Island's economy.
Budget at a Glance
RESTRUCTURING TO FOCUS ON GROWING THE ISLAND'S ECONOMY
The Isle of Man Government is placing greater emphasis on growing the economy as it seeks to enhance its status as a leading international business centre.
The challenge of bringing together various economic strands of Government under the control of one Department is being spearheaded by Allan Bell MHK, who has been appointed as the new Minister for Economic Development.
Mr Bell brings a wealth of experience to this important new position having served as an MHK for 24 years – the last nine as Treasury Minister.
"The creation of a Department of Economic Development is a further milestone in the Isle of Man's progress as a leading centre for international business," the Minister said.
"The finance industry has been the cornerstone of our economic success in recent years and I look forward to continuing my close working relationship with the private sector in an effort to stimulate further growth.
"This fresh drive for new business and new revenue is particularly important in the current fiscal climate."
The departmental changes are a core element of the Island's plans to manage a period of financial transition following the revision of the VAT sharing arrangements with the United Kingdom. Other measures designed to tackle the shortfall in public revenues include lower public spending, moderate increases in taxation and the limited use of reserves.
This restructuring represents the most comprehensive overhaul of Government since the introduction of the Ministerial system in 1986. It is being viewed as an opportunity to drive forward greater efficiencies aimed at helping the Island to emerge leaner, fitter and even better equipped to face the challenges of the future.
The Island is entering this period of fiscal readjustment on a firm footing, with low unemployment, no external borrowing, sound reserves and a solid reputation as a centre for international business.
The Isle of Man economy, while not immune to the fall-out of the worldwide downturn, has responded positively to changes in the international environment and is expected to have grown by 2.5% during the 2009-2010 financial year.
Economic diversity continues to provide great strength and resilience, with emerging sectors such as e-business, space commerce and the shipping and aircraft registries helping to stimulate new business and employment.
Driving forward this strategy of diversification is high on the agenda of the Department of Economic Development as it builds on the Island's record of 26 years of unbroken economic growth.
Economic Development Chief Executive Colin Kniveton said: "Maintaining the positive working relationship between Government and private enterprise will be paramount to the creation of new niche sectors to sit alongside the more well-established income generating industries.
"This spirit of co-operation has helped to deliver the resounding economic success of the last two decades – a period in which the Island's GDP has increased fourfold in real terms.
"I am confident that we will not only cope with the fiscal challenges that lie ahead, but that the Isle of Man will continue to provide a world-class, business-friendly environment that meets global standards on financial regulation and taxation."
That optimism appears to be shared by the Island's business community with more than two thirds (69%) of companies taking part in a recent survey saying that they expected to grow over the next 12 months.
Harnessing this potential for growth will be one of the main priorities for the Department of Economic Development. Minister Bell said:
"I am looking forward to bringing together the income generating strands of the economy to help safeguard the future prosperity of the Island.
"The partnership between the Government and private sector is a positive one and I am confident that we can continue to work closely to ensure the Island emerges from this period of global uncertainty in a position of strength."
FINANCE SECTOR CONFIDENT FOR YEAR AHEAD
A recent survey of business leaders from Isle of Man based financial and professional services companies revealed confidence levels on the Isle of Man remain strong despite global economic uncertainty and pressures facing finance centres from the international community.
Almost three quarters of financial and professional services businesses admitted they had seen a reduction in turnover since the start of the recession, but looking to the year ahead, almost three quarters of companies said they expected to grow over the next 12 months.
A fifth of those companies expect to grow substantially, and nine out of 10 firms said they expect to post a profit in the next financial year, revealing there is a light at the end of the tunnel for the Island's finance sector.
Minister, for the Department of Economic Development, Allan Bell MHK, said, "Following a difficult year for financial services across the world, it is encouraging to see that the Island's finance sector is remaining resilient and positive for the year ahead.
"The finance sector's optimism is enabled by the talent and adaptability of the businesses on the Island. In addition, our commitment to transparency and meeting the highest standards of international regulation has created the right environment for our finance sector, which is reflected in our OECD white listing as a leading financial centre in transparency and cooperation. The Island recently received positive endorsements from the IMF and Foot Review and has retained its triple AAA rating from S&P, meaning the Isle of Man is still a great place to do business."
Over half of the Island's finance companies do not see themselves taking any cost cutting measures over the next year. For those that expect to reduce outgoings, it appears the focus will be on 'people costs' with salaries and day-to-day expenses such as travel and entertainment being the main areas businesses would look to cut back on if necessary, rather than more severe cost cutting measures that have been a mark of the global recession in 2009.
Steven Beevers, Deputy Director Isle of Man Finance, said, "It is a positive sign that so many companies do not envisage taking any cost cutting measures this year, and those that do are primarily considering cutting basic day to day costs if necessary. This survey is a strong indication that businesses in the Island's finance sector are confident about the future."
ISLAND SEES ESTABLISHMENT OF £1 BILLION CHARITY
Isle of Man Philanthropist, Albert Gubay's has publicly thanked the Isle of Man Government for its help in creating The Albert Gubay Charitable Foundation.
Having made provision for his family, Albert Gubay has spent recent years organising his affairs so that on his death the companies he has built up can be left intact to the charity. The companies in question could already be worth £800 million but he is determined that the end result will be a £1 billion charity that could generate annual income for good causes of at least £20 million.
The charity trustees have already received the bulk of his wealth, and he now has the comfort of knowing that he has started the process that will lead to the fulfilment of his charitable ambitions. In the meantime he continues to work hard on behalf of the trustees to grow the fund that will end up in the charity.
Albert Gubay believes that it is the Isle of Man's new private charity regime that has allowed him the freedom to base the Foundation in the Isle of Man.
The Island was already an attractive location for the establishment of charities, being well regulated, with a good professional and financial infrastructure and with licensed organisations who are used to managing large complex financial arrangements. However, as in other jurisdictions a perceived disadvantage for privately funded philanthropic arrangements can be the degree of regulation attached to charitable status.
Albert Gubay wanted to base his charity in the Isle of Man and to protect potential beneficiaries he wanted it properly regulated. However, some aspects of existing charity regulation did not seem appropriate for privately funded arrangements.
The Isle of Man's response was the introduction of the Charities (Exemption) Regulations 2008. This new regime does require the approval of the charity and ensures that the legitimate concerns of regulators and potential beneficiaries are met without, for example, the public filing of accounts or potentially onerous investigations into investments.
For a charity to be approved under the new regime, it must meet the following key tests.
- The initial funds must originate from named persons who must be clearly identified to the Attorney General.
- The name of the institution must be approved by the Attorney General.
- The governing instrument must be approved by the Attorney General and in broad terms must incorporate the following elements.
- No further funds can be solicited or received from any person other than the original donor, and certain persons connected with the donor.
- The majority of the trustees or directors must be resident in the Isle of Man and all meetings of the trustees, or directors must take place in the Isle of Man.
- A trustee or director who is regulated under the Corporate and Trust Service Provider licensing regime must be appointed to accept service of notices and other documents.
- The Attorney General must be notified of certain trustee appointments.
- Each year audited accounts must be sent to the Attorney General, together with a certificate confirming compliance with the provisions of the governing instrument.
- Certain amendments require the prior approval of the Attorney General.
The new Isle of Man regime is aimed at wealthy individuals who want to fund a charitable arrangement which will not collect further funds from the public. It will be particularly attractive to individuals who do not need relief from estate taxation in respect of the funds passing to the charity. This may be where the estate of the individual or the trust that will fund the charity are in any case outside the scope of estate taxation.
Albert Gubay's charity was the first to be approved under the new regulations, but it seems likely that the regime will attract other privately funded charities to the Isle of Man.
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