GST rise is the lesser of many evils

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The doomsayers have been warning us about it ever since their little outing in the Royal Square. A 3% tax may not be much, they said, but it’s bound to go up soon.

They are right, of course. It is bound to go up, but certainly not as quickly as they predicted. For despite all of the many economic problems facing the Island, we are still going to be able to balance the States books for a few years to come without any increase in GST.

Indeed, it’s not until 2012 that a deficit of £60 million per annum starts showing up in the latest financial forecasts included in the report by the Fiscal Policy Panel. Like all good practitioners of the dismal science, the three expert economists have also erred on the side of caution, so it’s by no means certain that there will be so much permanent red ink in the accounts.

There is a danger, of course, that it can be worse than predicted, so caution is the best policy.

The Treasury Minister, like all good Treasury Ministers, has insisted that even if there is what the experts call a structural deficit, there will be no new taxes. This follows the recommendation by the FPP for the States ‘not to commit to medium-term expenditure greater than that currently forecast.’

But we’ve been here before. The FPP economists said virtually the same thing in their first report – and what did the States do? Approve a significant increase in spending.

I know that was the previous Treasury Minister and the previous Council of Ministers, but it’s a good illustration of how politicians sometimes believe they have to ignore good advice.

Now, don’t get me wrong. I’m not saying they shouldn’t have increased spending. Indeed, regular readers of this column will know that I’m a keen advocate of the States using taxpayers’ money – the more, the better – or at least that’s what my critics would have you believe.

All I’m saying is that our political masters have to take a much wider view of issues than merely worrying about the Budget. It shows how difficult it is to cut States spending without cutting services, and the public don’t want their services to be cut. Indeed, they want them to be improved.

So how are we going to get around this particular conundrum? Easy. We’re going to be taxed more, so thank goodness for GST.

I’m no expert, but I really don’t see any other way to meet the increasing demands of the population for health care, education, retraining, child care, redundancy protection, children’s services, more policing, more Customs officers, better investor protection, planning for an ageing population, keeping Brig-y-Don open, diversifying an economy that could suffer collateral damage by attacks on tax havens, more overseas aid … you get the picture.

Take the long-delayed New Directions policy being put together by the Health and Social Services department. Now this could solve several of the major problems facing the Island, including provision for the elderly and how to help OAPs who are currently forced to sell their homes to pay for their care.

Then there’s the well-known adage that prevention is better than cure, so there is a host of services that need to be reorganised and improved in order to ensure a healthier population. And we have a new Health Minister who apparently wants a new hospital, and who would say she is wrong?

These are all very worthy aims, and ones that a responsible government should be striving to achieve. But they are going to cost tens of millions of pounds and perhaps might even go into nine figures if you include a new hospital. Where is the money coming from?

You have to admire the confidence of the Treasury Minister when he says that there will be no new taxes and that departments ‘will not be given any more money’. Apparently, any new initiatives will have to be funded by efficiency savings.

Now not even ‘disgusted of St Saviour’, or any of the other hardened critics who complain constantly about the States wasting money, can believe that there’s enough scope to make savings to meet an annual deficit of £60 million or more. Our reserves will be severely depleted by the recession, so there’s only one solution: higher taxes.

That, of course, will send shivers down the spines of many people; and, to be frank, I don’t like the idea much either. But I like the alternative even less. I wouldn’t like to see the Island stagnate just because we don’t have the funds to invest in public services or our economic future. If we want better services, we are going to have to pay for them, and increasing GST is by far the best option.

WE will still be far better off than most. GST could increase threefold and we would still be paying less than most other countries, and our other tax rates continue to be much lower than most.

Thanks to some clever forward thinking by the States, we also have reserves to see us through the recession so that there will be far less damage to the economy, jobs and prosperity.

So we might come out of it with a structural deficit, but you don’t have to look far to see how much worse off other jurisdictions will be. Guernsey is talking about borrowing £175 million to pay for capital projects, they will be using up half their reserves just to fill the black hole left by zero/ten and they have no money for a fiscal stimulus even if they wanted one.

Thanks to us, they know what the solution is. Welcome to the world of GST.

Peter Body is editor of Business Brief magazine

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