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Estimating government receiptsand expenditure from Jersey households

4th April 2019

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IntroductionEstimating receipts and expenditure

Aim: To provide estimates of the level of government receipts and expenditure to and from Jersey households.

• Receipts considered:• Personal income tax• Goods and Services Tax (GST)• Impôts (excise duty)

• Expenditure considered:• Health• Education• Income support• An allowance for “other” States expenditure

Consideration also given in respect of receipts into ring-fenced funds and the application of the States annual contribution into the Social Security Fund (“supplementation”).

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General approachEstimating receipts and expenditure

Inputs

Estimates

Modelled household

• Number of working adults in the household• Number of (school age) children in the household• Total household earned income• Income split (if more than one adult is working)• If the household is entitled to receive income support

• Government receipts• Government expenditure

• For example: couple with one child & household income of £80,000

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Basis of estimatesEstimating receipts and expenditure

Estimated directly from household characteristics and income

Estimated using analysis from other sources

Examples:• Income tax allowances• Social security contributions and

supplementation• Income support

Examples:• GST• Impôts• Income tax relief

Estimates

Two main approaches to producing estimates:

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Example of approach from other sourcesEstimating receipts and expenditure

Household Expenditure Data

Individual household estimates of GST paid

Fitted model

• HES survey conducted 2014/15• Detailed information on expenditure

of Jersey households

• Assumptions made as to GST paid based on classification of expenditure

• Regression model approach to give estimates across all households

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Important caveatsEstimating receipts and expenditure

• Estimates are for households that contain at least one adult working for an employer.

• Estimates represent broad averages across all households that fulfil the input criteria. Therefore will not be representative of a household’s specific circumstances.

• Estimates are dependent on the specific assumptions used - these assumptions can be varied.

• Point in time analysis – based on 2018 rates, allowances etc.

• Should be considered a starting point for further analysis and policy discussion.

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Examples of estimatesEstimating receipts and expenditure

Primary outputs consist of a series of tables for example households. These tables provide estimates for:

• Household outflows / expenditure to government• Estimated receipts (general revenue and funds)• Estimated expenditure on households• Overall tax-balance

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EstimatesEstimating receipts and expenditure

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Tax-balancesEstimating receipts and expenditure

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Tax-balancesEstimating receipts and expenditure

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Potential applicationsEstimating receipts and expenditure

Outputs should be considered a starting point for further analysis and policy discussion.

Can vary which elements included, which not and also changes in rates, assumptions etc.

Some examples of potential applications:

• Overall tax / contribution rates• Estimates of “take-home” pay• Applying to model income distributions

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Overall tax / contribution ratesEstimating receipts and expenditure

Concept of total effective tax / contribution rate experienced by a household.

Average rate at which a household’s earned income is subject to a tax / charge.

This example includes:• Personal income tax• GST• Impôts • Social security and health insurance employee contributions• LTC contributions

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Overall tax / contribution ratesEstimating receipts and expenditure

0%

5%

10%

15%

20%

25%

30%

Income Tax LTC SS Fund Health Fund GST Impôts

Example overall contribution

rate:

Single adult

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Overall tax / contribution ratesEstimating receipts and expenditure

Single adult Married couple, both working, two children

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“Take-home” payEstimating receipts and expenditure

Using as an example:

Includes• Earned income• Income supportLess• Income tax• Social security employee

contributions• Long-term care charge

Single adult, 5 year resident

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“Take-home” payEstimating receipts and expenditure

Married couple, 50/50 income split, no children, 5 year resident

Using as an example:

Includes• Earned income• Income supportLess• Income tax• Social security employee

contributions• Long-term care charge

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Applying to model income distributionsEstimating receipts and expenditure

Work primarily focused on looking at an

individual household

Can be extended to look at multiple households

in the aggregate

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Applying to model income distributionsEstimating receipts and expenditure

Pareto distribution: • Full-time workers• Minimum salary level

Log-normal distribution: • More suited for general population models

Need an income distribution: Can use a model or can empirically derive

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Example full-time worker modelsEstimating receipts and expenditure

Minimum earnings = £15,000Mean earnings = £21,000

(Alpha = 2.5)

Minimum earnings = £18,000Mean earnings = £27,000

(Alpha = 2.0)

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Estimating receipts and expenditure

Final points

• Same caveats apply to distributions as to the individual household estimates

• Distributions shown are examples, different scenarios can be explored by varying the parameters of the distribution in the same way as varying the assumptions for the household estimates

• Should be considered a starting point for further analysis and policy discussion.

Applying to model income distributions

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QuestionsEstimating receipts and expenditure

Any Questions?