OPINION: Tax – the cunning plan

APOLOGIES – for those of you who noticed, that is – over the non-appearance of this column a fortnight ago, but a dose of Covid rendered it out of the question. For those who haven’t yet had it (and the figures suggest it’s only a matter of time), yes, it’s ‘mild’ but deeply debilitating. Details available on request for those of a strong disposition.

But the better Covid news, we’re told, is that we’ve had a good pandemic, certainly compared with Jersey and the UK. We know this thanks to the EY Item Club’s chief economic adviser Martin Beck, who said that Jersey’s economy shrank by 9.2% in 2020, similar to the UK level, while in Guernsey the figure was just 3%.

I said good news, but the nervous among you might actually regard it as worrying because it joins the growing list of other ‘good’ recessions etc. we’ve had that reinforce official views that it is and must remain business as usual.

The EY Item Club is very influential and its presentation earlier this month was overall positive for the islands. That said, it’s also already out of date thanks to the unfolding horror of the Ukraine crisis and its unpredictable outcome.

What we do know from EY is that house prices here and in Jersey rose by 25% compared to the UK’s 17%, in part due to the pandemic, and that no massive correction is expected any time soon.

We also know that inflation/cost of living is rising and expected to peak in the UK at around 8% before falling, but that was before Russia’s barbarism spiked energy, commodity and food costs.

Those energy costs, we should note, are ahead of any punitive pricing pressure applied by governments, including our own Environment & Infrastructure Committee, to make us significantly less polluting by 2030 and net neutral by 2050.

Add Policy & Resources’ favoured 8% GST to the mix and you see that the choice of eating or heating quickly becomes real. Added to, in Guernsey’s case, by the shortage of affordable housing and the real risk of mortgage defaults when interest rates also spike.

But never mind, we’ve had a good pandemic after all and government predicts an £85m. shortfall in its own income.

So it’s time to hit Mr and Mrs Guernseyperson again and P&R president Peter Ferbrache wants to debate GST no later than the end of this year.

Given the uncertainty and pressure on ordinary and less well off islanders it seems self-evident that Deputy Lyndon Trott was right the other day when he suggested that increasing income tax was preferable to implementing a GST.

Actually, I’d go further and take a leaf out of Jersey’s book for a change. It has something called a stabilisation fund used to smooth out the dips in the island’s economic performance and make it more countercyclical.

Thanks to Peter Rose, a former banker and chartered accountant who knows more about this stuff than most deputies ever will, we also learn that the States’ financial picture is far better than the hand-wringers make it out to be. ‘Taken together,’ says Mr Rose, ‘we probably have “total useable reserves” exceeding £1.2bn.’

That’s enough to fund the next 14 years without any tax increases at all, he says.

So the cunning plan is this. Do nothing. Sit tight and see what happens to inflation – and the effects on the States’ own salary costs – fuel and food prices, whether that madman really does bomb Chernobyl, and, more domestically, when what Deputy Trott called the corporate tax horizon becomes clearer.

In other words, rather than penalise islanders for the States’ past spending, bide our time to when business can be taxed on their profits again and recover some of the £100m. a year ‘black hole’ triggered when zero-10 was introduced.

While adopting a zero rate of company tax was the right thing to do at the time, it’s clearly approaching its sell-by date and the island needs a stabilisation period to look carefully at how it wants to develop the post-pandemic and (hopefully) post-East-West conflict economy, and what’s needed to do that.

Better port facilities, improved communications, a focus on developing tourism, facilitating financial services and a flexible and capable workforce – whatever it takes, bearing in mind Eden Project co-founder Sir Tim Smit’s advice that ‘You’ve got to define your life in terms of the sunny uplands you’d like to aspire to’.

Not what a handful don’t like.

Which brings us on to the Government Work Plan.

The gap there, obviously, is that its four priorities – pandemic response, managing Brexit, delivering economic recovery and reshaping government – are largely reactionary. Not much in the way of gazing longingly towards the sunlit uplands.

I mean that as no criticism, because the GWP is a significant improvement on what’s gone before.

But global events unfolding by the hour have rather overtaken a plan that now needs to reflect today’s radically changed realities.

If Messrs Rose, Trott and Charles Parkinson (given his interest in corporation tax too) are correct, there is time and the funds to pause, reflect and get the tax strategy back on track without the blunt trauma of GST.

A little-remarked statistic emerged earlier this month that showed just how bad hospital ‘bed-blocking’ has become.

The target is fewer than 100 days per month in aggregate that patients stay in hospital after they are considered fit for discharge. The 2020 figure was 151 days, while last year it exploded to 387 days.

Remember, that’s a month, so you can see what a crisis this has become and what a tragedy it is for those who actually have no need to remain in hospital.

Like the tax strategy, however, there is no end in sight and no solution proposed.