Tax inspecting
WHEN Deputy Mike Hadley fails in his attempt to get the States to sign up to a goods and services tax at this month's States meeting, it is unlikely to be the last we hear of the idea.
WHEN Deputy Mike Hadley fails in his attempt to get the States to sign up to a goods and services tax at this month's States meeting, it is unlikely to be the last we hear of the idea.
Like a bad penny, this unwelcome and unfair system of raising government revenue will keep coming back. In particular, once a new corporate tax regime is in place, if there is still a significant budget deficit, it is almost inevitable that GST will be one option considered by T&R for filling the gap. Such a move should be resisted strongly unless there really is no alternative.
I have to say that I can't help admiring Deputy Hadley's totally fearless style of politics. I frequently disagree with him, but he really does go into policy areas where angels fear to tread. I particularly enjoyed his rallying call to local environmentalists to stop breeding and turn vegetarian if they really wanted to help the planet. However, political courage doesn't always equate to political wisdom and on GST he has got it badly wrong.
In support of his amendment, he claims that a sales tax will hit the wealthier more than the poor because they spend more. In fact, the opposite is true. Of course in terms of pure pounds and pence the well-to-do will pay more GST than low earners, but in terms of a percentage of their income, the biggest burden falls on the poorest. Why? Put simply, it is because the modestly-paid have to spend all of their income on basic living expenses. So if there is a general GST of, say, 3% with no exemptions, then they will pay 3% of all their earnings on GST. By contrast the higher paid, while spending more, can also save, so they pay the taxman a smaller percentage of their income in GST. It's a classic regressive tax.
The same problem torpedoes Deputy Hadley's second argument, which is that it's a tax that the citizen has a choice about paying. Choose to spend less, claims Deputy Hadley, and you pay less tax. That may be true for someone on £50,000 a year, but not if you are trying to keep a family on £15,000. The option of not spending everything you earn really doesn't exist if you want shoes on your kids' feet and food in their bellies. Under a general GST, both of these basics will go up in price.
Where I do tend to agree with Deputy Hadley is that new sources of States revenue must be considered, but there are more ways than one to skin a cat – or fleece a population. First, the States must show that it has taken really positive action to curtail spending in every way that doesn't destroy vital services. Then, if there still needs to be extra taxation, the States needs to use its imagination.
Either new taxes should fall most – in percentage terms – on those who can best afford them or they should attempt to change behaviour in areas where there really is a lifestyle choice to be made. Environmental taxes would be a classic example.
A general GST, by contrast, would be a blunt instrument which represents an easy way to sting the population with no attempt at fairness. Why should the poor pay more for their basic food and clothing while luxury homes costing millions of pounds still change hands by share transfer without a penny being paid in stamp duty?
Perhaps the biggest danger is that once you go down the route of GST, it becomes an easy solution to any future budget deficit. Just look at Jersey. There, it is a relatively new tax but it is almost certainly about to be hiked up steeply from its current 3% rate. Or look to the UK where VAT – admittedly with certain items exempt – will hit 20% in the new year.
So I give two cheers to Deputy Hadley for being a champion of public services and a caring society. I hope he will continue to campaign for social necessities such as a wheelchair service and bowel cancer screening. I even reluctantly agree that if I – along with other islanders – have to stump up more to maintain such vital services, then I'll have to learn to live with that. All I ask in return is that the States doesn't take the easy option of GST but instead works hard to devise a far fairer tax system.
