Tax rises will not raise enough on their own to rebalance the public finances - and could damage the economy.
Chief Minister Allan Bell admits he has had sleepless nights over the raft of new ‘painful and unpopular’ charges announced last week - but insisted there was no alternative.
There has been widespread criticism as Department of Infrastructure plans to charge £25 for residential parking permits, to charge some government staff £275 to park at work in cental Douglas, to make children pay 50p to travel on the school bus and to end 30-minute free parking at the airport.
These come on top of plans to replace the flat rate toilet tax with a sewerage rate based on rateable values, and moves to switch the cost of more local services onto the rates.
Mr Bell said: ‘I know the changes which we are bringing in are painful in some quarters and are clearly not going to popular.
‘It gives no one in government any pleasure to introduced these charges and put a further burden on the Manx taxpayer. None of these decisions are taken lightly. It certainly gives me some sleepless nights.’
But he said tax rises were not the answer.
The Treasury has confirmed that putting 1p on the top rate of income tax would raise just £5.86m.
Mr Bell pointed out that the government had lost £200m of VAT revenue.
He said: ‘People say why don’t we just put up tax rates - “that would solve the problem”.
‘But we have to maintain a competitive rate of tax. A 10p increase would generate about £50m. But it could cause serious damage to the Manx economy.’
Top rate income tax was last increased – from 18 per cent to 20 per cent – in April 2010.
So how about raising the tax cap? Mr Bell said he would not rule it out altogether but again the amount that would be generated would not be sufficient to plug the VAT shortfall.
A £10,000 increase in the tax cap is estimated to raise about £700,000, according to Treasury Minister Eddie Teare.
The tax cap is currently £120,000 but because of the new system where tax cappers elect to pay that amount for five years, any increase will not generate any new revenue for five years.
Mr Bell said there was no doubt that government over the last few year had become ‘too big, too flabby’ and the one ‘silver lining’ of the VAT bombshell was that it has forced government to review the way it delivers services.
‘That has been absolutely essential, If simply putting up tax rates had been the only solution we would not be taking these steps,’ he said.
The number of full-time equivalent posts in government fell by 676, or 7.8 per cent, from 8,662 in 2010/11 to 7,986 in 2013/14.
Government redundances cost £2m this year, according to figures released in Tynwald last week.