Tax expert GREG JONES of KPMG in the Isle of Man presents his analysis of the island’s Budget in this special report.

Every newly-elected Manx government knows it has at least four years before it has to worry about the impact on the electorate of making unpopular decisions.

The moral is thus – make them early on!

With the November 2016 election still fresh in our memories, I worry that Alfred Cannan, in his first Budget may not have made enough unpopular decisions.

He will have garnered support for the increase in the income tax personal allowance to £12,500, thereby taking a number of lower-paid workers out of the tax net altogether.

Many more Manx residents who, like me, have often been prevented from getting home by fog at Ronaldsway will be pleased that the landing system at the airport is to be upgraded at a cost of £1.5 million. (Now if only we could sort out the weather at London City….)

Unfortunately some of the Government’s other proposals are still shrouded in mist.

Public sector pensions, for one. The current annual cost of this is almost £100 million.

Manfully, Mr Cannan has laid down a marker by announcing that the Government’s contribution to the PSP fund will going forward be limited to 15 per cent of the (public sector) salary bill rather than the present 20 per cent, with the balance to be funded by the public sector pensions reserve.

It’s not entirely clear, though, what happens when the reserve runs out in three years’ time and economic growth is not enough to make up the shortfall. I think if I were a public sector worker – let alone a pensioner – I’d want a little more certainty.

Nor is it clear how we are going to reduce our dependence on reserves generally, which over the next five years we’ll plunder to the tune of nearly £400 million.

We will be targeting savings, but we’re not sure where they are all going to come from. That doesn’t sound like cutting your suit according to your cloth.

One decision which will certainly gain local support is the proposed increase in the ‘tax cap’, to £200,000 by 2020. The cap has long been criticised by those who believe it effectively creates an inappropriately regressive income tax system.

Laudable though this proposal may be from a social justice perspective, however, I believe it will seriously affect the island’s ability to attract and retain high net worth individuals – which is not a problem if our economic strategy is indifferent to them.

With this increase, though, I can see the total number of tax-capped residents dipping to single figures within the next five years or so.

Notwithstanding all this, I do have to congratulate Mr Cannan on two things. First, it was not until page eight of the Budget speech ‘Brexit’ was mentioned (and a £1m fund set aside to help manage the consequences.)

Secondly, Donald Trump gets no mention at all. Now that’s got to be worth something……