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Looking ahead on tax
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The increased economic activity across the board that such a recovery will bring will, of course, be good news, yet we should not imagine that it will automatically end all our troubles.
Earlier this week the latest pronouncement by the Fiscal Policy Panel, the three independent advisers who help the government to frame economic policy, issued an important warning. In essence, they said that forecast budgetary deficits must not be blamed exclusively on these recessionary times because they are, in fact, structural and will persist if appropriate action is not taken.
The panel’s advice about what can be done was stark. It boiled down to this: spend less or tax more.
In reality, we are likely to see some combination of these measures, but whereas cuts in public spending are likely to be widely applauded – if they are neither to deep nor too widespread – increased taxation is most unlikely to be popular.
There is, however, one redeeming feature of the present fiscal situation. The recent revelation that the European Union and the UK are insisting on our rethinking zero-ten tax structures was initially greeted as a bombshell, but it at least offers the opportunity of reassessing the tax mix and how the tax burden might most fairly be distributed.
A further bright patch on the horizon can be detected in the Fiscal Policy Panel’s attitude towards the Island’s £44 million stimulus package. This, they have said, is being used prudently, in a timely fashion, and is helping us to weather the present storm more effectively than comparable jurisdictions.
They have also backed the idea that the States Business Plan should in future set a framework for spending over a three-year period rather than the present 12 months.
Comments by Treasury Minister Philip Ozouf in the wake of the panel’s latest advice suggest that the experts’ comments and recommendations have been taken on board and will help to shape the government’s response to current and future difficulties.
In particular, the important principle of taking determined pre-emptive action rather than merely waiting passively for the good times to roll again has clearly been accepted.
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