With the decline in the offshore financial centres e-gaming has grown as a proportion of GDP in states such as Alderney, Isle of Man and Malta. The push to attract more e-gaming operators has never been greater as all these jurisdictions grapple with a decline in financial services.
Jersey, for example, published its new e-gaming law in 2011 and there was a push at ICE 2014 to get more companies to take up licences. The Isle of Man is putting great effort in expanding its e-gaming sector.
Both need to do so because the decline in financial services on both islands has created problems for government budgets.
The States of Jersey, one of the most successful Crown Dependencies and financial offshore centres in the world, announced in October 2015 that its citizens were about to face austerity.
The recent budget announced that savings mostly from the public sector of £145 million had to be passed to avoid the State going bankrupt by 2019. Households, it is said, will be £1,000 a year worse off.
Among the plans are £90 million of cuts from Jersey’s public sector, including £70m of staff savings, and cuts to the welfare bill to save £10m, including the axing of the pensioners’ Christmas bonus of £83 a year. Add to this a new health charge of £35m and a charge for sewage raising £10m.
Jersey is not alone. The Isle of Man faces similar problems.
The financial sector has undergone considerable consolidation and rationalisation in recent years following the FATCA measures introduced by the USA coupled with similar UK legislation to prevent off shore being used by companies to save tax.
In fact the Isle of Man has been hit harder than Jersey. The IOM had a VAT sharing agreement with the UK which in 2009 and 2011 was renegotiated in favour of the UK that resulted in a loss of £200m, a third of the Manx government income.
Balancing the budget since then has been an arduous task. Personal tax allowances that were once more generous than the UK are now less so. All this has taken a toll on property prices with the average house for sale in the Isle of Man now £20,000 less than in the UK.
The IOM economy, however, is more diversified and is less reliant on the financial sector than Jersey.
E-gaming is now one of the island’s main tax contributors, add to this the aircraft and shipping registers and a space registration programme along with the Government taking responsibility for adjusting the budget in 2009. The island is in better shape than Jersey.
But none is out of the woods. The IOM has a huge public sector pension deficit, as does Jersey.
The question then arises if the money is leaving the financial centres of the IOM and Jersey where is it going?
According to the World Bank, Singapore’s GDP per capita has just reached an all time high of USD 38,087. Hong Kong is doing better at USD 52,551 up from USD 43,446 in 2007 when the Great Recession began. Both economies have managed to grow during the recession.
Looking at the banking sector, five of the twelve safest banks in the world are based in Hong Kong and Singapore, according to Bloomberg. None is British.
The biggest loser of FATCA and the UK equivalent has not been the IOM, Jersey and the other Crown Dependencies. It has been the UK. The billions on deposit in the Crown Dependencies could not be invested in those small markets; the money was re-cycled through to the City of London where it was put to good use. Now it is being invested in Asia. One in three jobs was lost in the City from 2008 to 2012.
There is a certain irony that when political dogma trumps financial pragmatism politicians always seems to be able to shoot off their own foot.
The problem now facing all offshore e-gaming sectors is that the UK has introduced Point of Consumption Tax which causes operators to licence in the UK. Start ups wishing to be offshore now have to face the prospect of paying two license fees, offshore and onshore, at a time when they need to conserve their resources to develop the company. Most will choose to go to the UK. Avoiding corporation tax in the first three years of operation is not an issue; most will lose money in the early years.
The Crown Dependencies need something new if they are to survive. One thing is for sure, do not look towards the UK for help, you are on your own!
by Warwick Bartlett