GST and the rainy day fund

The fund was set up and has been maintained for many years as an emergency reservoir of cash to be used in the event of truly dire economic circumstances. It might, for example, be spent if a major pillar of the economy were to fail catastrophically.

An event of such proportions is neither with us nor forecast, yet a range of data indicate very clearly that the economy is still reeling from the effects of the global recession and that signs of recovery – those famous green shoots – are very hard to detect.

The latest business tendency survey, undertaken by the States Statistics Unit, offers little in the way of encouragement. The economy still appears to be flat and very few business professionals seem to be optimistic about future prospects, at least in the short term.

Some – including Jersey Chamber of Commerce president David Warr – assert that the situation is so serious that the metaphorical rainy day has finally arrived. As a consequence, they say that it is time to dip into the reserves to spur much-needed growth.

Mr Warr believes that sufficient funds should be drawn down to cut GST from five per cent to three per cent, the level at which it was initially set. This, he says, would encourage spending, help struggling firms to survive and create jobs, all of which would amount to a £30 million boost for the economy.

There can be little doubt that cutting the rate of GST would be a widely popular move, especially among those who are feeling the pinch most keenly. But whether it would be a prudent move is another matter. So, too, is the idea that it could be funded from what amounts to our last-ditch bail-out fund.

In practice, Mr Warr’s comments are likely to fall on deaf ears. The preferred

messages of Treasury Minister Philip Ozouf – and, indeed, his ministerial colleagues – appear to be that in spite of this difficult phase, the fundamentals remain in good order and good times are just around the corner.