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Reducing GST would send a really positive message
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From David Warr, president, Jersey Chamber of Commerce.
I READ with interest the Treasury Minister’s explanation as to why reducing GST from 5% to 3% to help stimulate the economy is not a good idea.
I couldn’t help but think how it reflected his lack of empathy with the enormous challenges currently faced by many businesses in their attempt to survive the current economic maelstrom.
I fully understand why we had to move to a zero-ten tax regime and, as a result, why it was necessary to bring in GST. I understand, too, why 20 means 20 and why the additional 2% social security charge was introduced. The revenue that once poured in so readily from the finance industry has dwindled and we as individuals now increasingly pay the bills of government.
But, as we all know, that only tells half the story. These changes have taken place against a backdrop of a global recession. The Treasury Minister has in effect come up against the perfect storm.
The numbers are huge. When GST was first introduced in 2008 it was intended to raise £45 million. As we now all know, that wasn’t sufficient to fill the infamous ‘black hole’. The 67% increase in GST that took place last year was intended to raise a further £30 million. On top of this, £18 million is in the process of being raised from the latest increase in Social Security contributions and 20 means 20 has seen all of our tax bills go up as reliefs have been reduced. Finally, government ‘savings’ of circa £57 million have dampened demand.
It doesn’t take a rocket scientist to work out the consequences of emptying our collective pockets by around £100 million annually. The evidence is there for all to see. The last two business tendency surveys, the latest retail sales figures and the latest ‘footfall’ figures on our high street all tell a sorry tale.
The Treasury Minister talks about how reducing GST fails the ‘timely, temporary and targeted’ rule and, as a result, is a non-starter. I fundamentally disagree.
If GST were reduced by 2% by next quarter at a stroke the minister would leave £7 million in the private sector, plus you get the benefit of the multiplier effect in our economy. I can’t think of anything more timely.
I see any reduction in GST as being temporary unless far greater savings are achieved in the public sector. That’s not meant as a criticism, as I know huge efforts are already being made in this area. I would suggest that any reduction should be put in place for three years, with a review at the end of the second year. So I am meeting the ‘temporary’ criteria.
Finally, the minister believes that any reduction wouldn’t be targeted and could leak out of the economy. Wrong again – targeting the business community will lead to an improvement in the cash flow of hard-pressed businesses. Don’t, though, expect an immediate fall in prices on the supermarket shelf, but do expect more inter-business activity – activity that should put businesses on a firmer footing and build confidence for the future. A government that reduces taxes in recognition of the challenges faced by business sends out a really positive message.
So who ultimately pays for a reduction in GST? As the Treasury Minister has pointed out on numerous occasions, Jersey Plc has a very strong balance sheet – a balance sheet that has been built up over generations in the good times in recognition that one day we might need to draw on our savings. This is not a new concept – after all, Joseph and Pharaoh came up with a similar arrangement thousands of years ago.
A three-year reduction in GST would require us to spend £100 million of our collective savings but, importantly, still leaving money in the reserve. So to the three ‘T’s’ I would add an ‘A’ – affordable.
Changing our tax regime wasn’t wrong. Its timing was, though, unfortunate.
Our government is in the fortunate position of being able to send out a really positive message to business. That’s why I’m advocating a reduction in GST.
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