This Is Guernsey

By Peter Body

Those of you who don’t read Business Brief (and you really should, you know) won’t have seen recent comments from experts about the different ways in which Jersey and Guernsey are tackling the zero-10 tax shortfall. I mention this because Guernsey is now being held up as an example for Jersey to follow because the black hole has mysteriously disappeared and the Guernsey authorities say they probably won’t need a general sales tax.

Now I’m not going to rant on about GST because, frankly, I’m sick and tired of hearing the same old arguments trotted out again and again in Jersey, with nothing new or worthwhile being said.

I will never forgive the Jersey Consumer Council for misleading the public into believing that there’s a simple solution to our tax problems.

All we have to do is stop GST and we’ll find a magical solution that doesn’t hurt and which the JCC tells us is out there (although they haven’t even bothered to find it).

So the Constable of St Helier trots off to Guernsey because it has apparently found a way around the problem without requiring GST. This unholy alliance between the constable and the JCC would indicate that the solution is simple.

It would seem that all Jersey has to do is put off GST and then it can follow Guernsey’s example of massive increases in social security, further cuts in public spending even if it means continuing to pump sewage out to sea and much higher property taxes, gamble the reserves on the outcome and then hope and pray that economic growth continues.

Unfortunately, this approach could mean missing the wood for the trees.

The need to introduce a GST is not just a fiendish plan to upset consumers and businessmen. It’s because of the need for a zero-10 tax structure to protect the vital financial services industry and to ensure it remains competitive.

In order for it to do so, taxes must remain as low or lower than other jurisdictions, but equally importantly other costs have to be low as well.

Those who see an increase in social security contributions as an alternative to a GST miss the point.

Increased social security contributions will add to the cost of doing business as much as paying more tax.

As a leading tax expert from PricewaterhouseCoopers said in Business Brief recently: ‘In Guernsey the increased cost of social insurance will ﾓstickﾔ to the employer, theoretically leaving business with a higher total tax contribution. The competitive impact will depend on the degree to which business is deterred by these costs.’

Guernsey would apparently rather take this risk than introducing a completely new tax and particularly one that the politicians say is so easy to increase once on the statute book.

I’ve never really been able to understand this argument.

If the States needs more tax to balance the books, it will have to find it from somewhere, so is it sensible to make it more difficult? Politicians will find the money anyway.

There’s even an argument that says it’s better to have a flexible tax which you can adjust easily according to the needs of the moment. Believe it or not, that’s why Jersey has got its GST all wrong now. What is proposed is not flexible enough because it should have been introduced 10 years ago when it could have been brought in slowly at a very low rate. Now Jersey has to rush GST because there is a black hole looming.

Those in the States 10 years ago could be excused for their lack of foresight. After all, forward thinking is not one of the strong points of the States in either island. They tend to wait to take unpalatable measures until they are forced to do so (recent Jersey history would suggest they are right to be wary of public reaction). That appears to be the attitude of the Guernsey authorities who want to put off a GST until they actually find themselves falling into the black hole.

However, it wasn’t just a case of faulty crystal-ball gazing 10 years ago. It had been apparent for many years that Jersey and Guernsey were dangerously reliant on direct taxes (you only had to make the comparison with the Isle of Man). Internationally, there was also a trend away from taxing income to taxing consumption.

This trend is now even more obvious because consumption taxes are fairer and more efficient. This has virtually been ignored in the so-called ‘debate’ about a GST in Jersey and Guernsey.

It would have been far better to have a low, flexible GST introduced years ago when pressure on achieving a certain level of revenue from the tax wouldn’t have been so acute. It could therefore have contained many exemptions that would have taken some of the steam out of the inevitable opposition.

That was not to be in either Jersey or Guernsey, so Jersey now faces a GST scramble and Guernsey looks for alternatives to put it off even longer.

So Guernsey’s strategy is to reduce States spending even further, something that particularly appeals to the Constable of St Helier who is supported by all those good people who seem to think that the Jersey States spends money like water and that there is no control at all.

It is true that compared to Guernsey, Jersey spends more per head on public services.

This would suggest that Guernsey has less scope to cut costs any further without damaging services, although perhaps maintaining quality of service hasn’t got as high a priority in Guernsey.

As Jersey’s Economic Development minister said recently, also in Business Brief, Guernsey still sends its sewage out to sea and hasn’t invested in its schools until recently. So is that a Guernsey example that Jersey should follow in order to keep public spending down and avoid a GST?

The islands are therefore taking a very different approach to zero-10 and one of them will be proved wrong in a couple of years.

But why the islands couldn’t have worked together to tackle this problem beats me. They might have had to design slightly different solutions to suit different circumstances in each island, but there’s much more in common than there are differences.

States members in both islands would probably throw their hands in the air in horror and insist they couldn’t work with the other on this because we compete against each other, particularly in financial services and therefore on tax as well.

Well, virtually no one else in the world seems to believe this and even the City of London lumps the islands together and makes very little distinction.

For more on, this you can read the next edition of - yes, you’ve guessed it - Business Brief.

* Peter Body is the editor of Business Brief, a monthly full colour magazine with a readership of approximately 13,000 in the islands. There is also a new iViewer online edition here.