Guernsey Press

‘GST has been a failure in Jersey’

Having experienced the introduction of GST in his island, Deputy Sam Mezec, leader of Reform Jersey, shares his thoughts on the subject in the hope that Guernsey might learn from Jersey’s mistakes.

The introduction of GST in Jersey in 2008 led to protests. (31554123)

AS THE States of Jersey has recently ended another fractious debate on the workings of our goods and services tax, it is interesting to see our neighbours in Guernsey now due to consider a wide range of tax reforms, including the introduction of a GST.

As a Jerseyman, it is not my place to tell the good people of Guernsey what to do. But I can attempt to share with you our history, in the hope that it may help you avoid some of the mistakes we have made.

If I could sum up Jersey’s experience with GST in just one word, it would be – failure.

The States of Jersey first introduced GST in 2008 to fill the black hole in public finances left by the adoption of the zero-10 corporation tax regime. It was a conscious decision to reduce taxes on the profits of businesses and increase them on consumers.

It was hugely controversial and provoked significant public opposition. But we were told there was no other choice. If we didn’t introduce zero-10 our economy would suffer, and if we didn’t then introduce GST our public finances would be ruined.

To make this easier to swallow, two concessions were offered. The first was that the tax would remain at a low rate of 3%. The second was that a new benefit, the ‘food cost bonus’, would be introduced to offset the regressive impact GST would have for those households on the lowest incomes and prevent them from unduly suffering.

What followed was years of everything that we were promised would not happen happening anyway.

Jersey proceeded to have over a decade of economic stagnation. By 2011, we were told that the black hole in our public finances had emerged anyway, so GST had to be raised to 5% (after an infamous election campaign where the then treasury minister said, ‘I give a categoric assurance that I will not bring proposals to increase GST’). By 2015, the black hole was back with a vengeance, leading to a cruel austerity package being implemented which saw £10m. of cuts to the support provided to the most vulnerable in Jersey.

GST failed to achieve any of what we were told it was essential we introduced it for.

Today, it remains a contentious subject. When we introduced it, we were told it was too complex to provide for VAT-style exemptions on essentials such as food. Yet somehow it wasn’t too complicated to exempt yacht fuel and private school fees. Go figure.

During the most recent States debate to introduce exemptions on food, opponents of this proposal claimed that most of the income lost would remain in the pockets of the wealthy, rather than those who most need it. This is technically true in terms of absolute monetary value. But is that really a reason to keep a tax which hammers the poor, just because a few wealthy people will feel a benefit too? If they are so concerned with that, we could easily make up for the lost revenue by closing some of the loopholes that the highest earners benefit from.

But then of course we hear ‘Ah, but if you raise tax on the rich, they’ll all leave’. That old chestnut. Are the Channel Islands really such terrible places that the wealthiest will immediately pack their bags and leave if we decide to adopt slightly more progressive and fair tax systems? Personally, I don’t buy it. I think my island home has more going for it than just its headline tax rate.

I am more concerned about the constant squeezing of Middle Jersey to fund a greater welfare bill because we seem to think the solution to growing poverty is to just raise benefits, rather than address the root causes of it, like poverty pay and extortionate rent costs.

Successive generations of out-of-touch politicians since 2008 have created conditions in Jersey which have led to growing inequality and all the problems that come with that. Introducing GST was only part of this.

Had we had politicians with a more progressive mindset, who were prepared to stand up to vested interests and put ordinary islanders first, things may have been very different.

Will Jersey’s experience of GST be replicated in Guernsey if you choose to introduce it? Not necessarily. Perhaps the conditions in your island are different enough to make it a success instead. But as a regular visitor to your beautiful island, I wish you luck in making the best decisions possible for your community.