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It’s businessmen who make the case for higher taxes
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They might not see it in quite the same way, but two former Chamber presidents and the current one have all highlighted the Island’s fundamental economic dilemma: taxpayers are not contributing enough money to maintain the level of public services that the public have been used to in the past and expect to continue in the future.
For example, a former Chamber president has pointed out that the average annual cost to the taxpayer of a States employee is about £53,000, which he says is getting close to the average pay in the finance sector. He makes no further comment, but the clear message I get from his comparison is that the former president doesn’t think the public sector worker is worth it, while the finance sector worker is. It’s a silly argument, but I know which one would be of more value in an emergency if we had to choose between the two.
As I say, it’s a silly argument, but it does illustrate the continuing belief by some that public servants are a necessary evil whose pay has to be kept as low as possible, while the real wealth creators can get paid handsomely for shuffling bits of
paper around.
There is of course no valid comparison. There are civil servants who do nothing but shuffle bits of paper, and there are bank workers worth their weight in gold. There are also skilled surgeons included in the former category who literally save lives, while there are some in the finance sector who spend their time redirecting the mail back to head office. You simply can’t compare the two categories.
Perhaps the former president was merely using these figures to illustrate the increasing cost of the public sector. If that’s the case, I don’t know why he mentioned finance industry workers, particularly as he will note that their contribution to the economy is falling – which is another problem we face.
No, the bald figures on States income and spending are graphic enough to make the point. As the former Chamber president has noted, States income stayed about the same between 2002 and 2011 at constant prices, whereas expenditure grew from £550 million to £635 million. That’s the Island’s problem in a nutshell.
We could, of course, enter a lengthy debate about why the figures are as they are, and that might be interesting, but it won’t solve the problem. So what is the solution? Simples: you either increase income or you reduce spending, and then Mr Micawber will be happy.
Naturally enough, Chamber of Commerce presidents have concentrated on the spending side of the equation. Perhaps they still believe after years of a sometimes brutal Comprehensive Spending Review that there are huge cost savings that can still be made in States spending without anyone really noticing.
Unfortunately, there’s not a shred of evidence to support that belief. Indeed, Chamber presidents and all the anti-States moaners have been totally unable to suggest areas where significant savings can be made.
That’s not really surprising because most of the spending is on wages and salaries and most of the wage and salary earners are essential workers principally in health, the emergency services and education. You will note that I don’t mention Social Security because there is a large and growing chunk of taxpayer’s money going towards income support. It may surprise readers to know that I do think this is an area where there is waste which needs to be cut. There appears to be increasing evidence that the income support scheme is too generous and that some are getting support who really don’t need it. Housing also has to be careful about helping only those who need help.
Therefore I have to admit that there are further savings that can be made by the States (as no doubt there always will be), but not enough to make an appreciable difference to the overall figures.
Perhaps the fact that States spending has grown so much is because the government is trying to do too much. The problem might be ‘big government’ as the Small Society seems to believe (whatever happened to the Small Society?).
The figures show the reverse, unfortunately. If you look at government spending as a percentage of GDP, in 2012 Spain’s government will spend 42.4% of GDP, France 56.3%, Malta 44.4% Germany 45.6% and the UK 47.4%. Jersey doesn’t publish comparable figures but according to my calculations the Island will spend about 20% of GDP this year, and that’s a very conservative figure. So we can’t blame our predicament on ‘big government’.
On the revenue side of the equation, we also fare much better than most of our competitors. It’s true that some international finance centres, such as Bermuda, get away without levying any income tax at all. However, they have high payroll taxes and customs duties, and they are also paying off government debts at a rate of $300,000 a day.
I won’t bore you with more statistics, but it’s safe to say that Jersey’s direct and indirect taxes are among the lowest in the world. Even the infamous GST, which puts the fear of God into Chamber of Commerce members, is a mere 5%, compared to 23% in Finland and Greece, 20% in the UK and 18% in Malta, with which Jersey is sometimes compared. Gibraltar still doesn’t have GST, and the Jersey rate is the same as that in Canada and Japan. However, Japan’s VAT goes up from 5% to 8% in April 2014 and to 10% in October 2015. They have done the sensible thing and built in rate increases into their forward plans, whereas Jersey tries desperately to do the opposite.
The thing about taxation, of course, is that no one likes it. I certainly don’t want to see taxes increase, and I’m in that awkward middle bracket that gets clobbered from all sides.
However, if the alternative is for Jersey to slip back into a third-world economy and a third-world society, I think it’s worth paying up. Jersey’s economy certainly won’t prosper unless there are also high-quality (and therefore expensive) public services.
If sensible and perhaps even innovative tax policies are applied, the process of moving from a low tax, low spend jurisdiction to a high spend, higher taxed jurisdiction may not be too painful.
However, where I do agree with the Chamber of Commerce is that there needs to be a well-informed, unemotional debate on the subject first. Unfortunately, the attitude is ‘Don’t touch taxation – we might upset everything’. True, our success has been built on stability, including stable taxation, and we certainly don’t want to be fiddling with fiscal policy on a regular basis.
However, we’ve got to get it right to begin with, and the debate hasn’t really even begun about that yet.
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