Difficult choices lie ahead
As the great tax debate resumes today, Matt Fallaize offers his analysis of the current situation – and explains how we got to this point
PREDICTABLY, it was an illusion.
It always seemed unlikely that the two quasi-parties in the States could broker a form of detente on tax and spending.
For 72 hours, there were soothing noises about the possibility of a compromise amendment after a meeting led by the president of the Policy & Resources Committee with the leaders of the self-styled ‘fairer alternative’ tax plan.
At the peak of his impressive career, Peter Ferbrache was the island’s most streetwise and pugnacious lawyer.
It is rumoured he earned a nickname which likened him to a fox only because no one could think of a catchy moniker based on a rottweiler.
But believe it or not, in this oddest of Assemblies, as president of P&R, Deputy Ferbrache is on the more emollient and conciliatory wing of the States’ senior committee.
After appearing on Friday to reach out across the aisle, as they say in the United States, by Monday Deputy Ferbrache had been reined back into the partisan line by more trenchant and tribal forces on his committee.
And so the States’ great tax debate resumes today in the same shape as when it was adjourned.
P&R, which usually commands a majority, has undoubtedly lost the argument with the decisive ‘small government’ part of its coalition. And the ‘fairer alternative’ crowd, essentially the minority faction of the past two-and-a-half years, fear they are still just short of the few additional votes they need to prevail.
In this States, despite the occasional synthetic protestations from the top bench, it’s so often about factions, and sometimes it’s even about stopping the other lot from winning more than winning yourself.
It’s a sad and recent but pervasive and possibly irreversible development in local politics.
To the extent that there is any substance left in this debate, it is largely around the timing and speed of tax increases.
The need for more revenue has already been accepted by all but a handful of deputies, based on the Treasury’s projection of a hole in States’ finances of not far off £100m. a year later this decade.
P&R’s first choice, option A, is GST, higher social security contributions on the better off, a bit more corporate tax and a few spending reductions here and there.
Its second choice, option B, replaces GST with higher taxes on property and motoring, more spending reductions and either higher social insurance rates or lower benefits.
It says it loathes its third choice, option C, which replaces most of the tax rising with much deeper spending cuts, but loathed or not it still wants to force a vote on this option, and indeed until a few days ago this was its second rather than third option.
The key theme running through all of P&R’s options is that it wants agreement now on how to eliminate all of the projected deficit.
The big bang approach.
It says this is the only responsible way. Its critics say it has succumbed too easily to an exercise in accountancy.
On the other side, the leaders of the ‘fairer alternative’ – two accountants, ironically – argue for a more phased approach. Some tax rises now, together with some spending restraint, while launching reviews into the potential for more corporate tax and greater savings, including on capital projects they see as undeliverable or wasteful. Their critics say they are ignoring the scale of the financial black hole, possibly in the hope that it turns out to be smaller than projected and possibly so that what remains of it can be filled only once P&R is under different leadership the other side of the next election.
There are voices of complaint that the media have not adequately reported the redistributive effects of P&R’s tax plan. This is easily disproved by the number of articles and broadcasts headlining why and how the least affluent half of the Bailiwick would be better off than it is today. In any event, it rather misses the point. The more relevant question is why so few deputies are interested in, much less persuaded by, the redistribution inherent in what is now known as the option A plan.
The adjournment in debate lasted three weeks. It wouldn’t have mattered if it was three days or three months. P&R cannot get option A through this States while it includes GST.
And the chance must be no more than 50/50 of either P&R getting a majority for its newest back-up – option B, with big increases on TRP and motoring – or of the ‘fairer alternative’ crowd getting a majority for its next package.
It’s going to be a long and convoluted end to the week.
The last game in town?
IF YOU want to know why we’re facing proposals for GST, despite it being hated by so many, and why P&R and its temporary cheerleader, Deputy Peter Roffey, are pushing it so resolutely, you need look no further than the reaction to Guy Hands’ idea of an annual levy on open market homes.
Initially, casually, making no commitment at all and speaking very generally, the P&R president, Deputy Peter Ferbrache, told the States that it was an interesting idea worthy of further discussion. Then, at the speed of a hare for a States which usually moves more like an asthmatic tortoise, P&R issued a statement ruling out any further discussion.
P&R could have said it was interested in looking at the pros and cons of a levy on higher value properties while noting that targeting only those on the open market could be unacceptably discriminatory. It could have said it would embrace Mr Hands’ central point: that it may be possible to extract more tax revenue from those of significant means without forcing them out of the island.
It just stamped on Mr Hands’ initiative as quickly and as forcefully as it could.
It chucked it onto the pile of things to avoid taxing or at least avoid taxing much more. It’s a large pile. It includes income because 20p in the pound is sacrosanct. And capital gains and inheritance because wealth taxes are foreign. And property because some less well-off pensioners live in large family homes. And profits because the companies who make them might relocate. And motoring because it has become almost a national pastime. And social insurance because taxing employment discourages growth.
We’ve gradually boxed ourselves into a corner on tax. We know health and pension costs are rising considerably as our population ages. But we have spent years ruling out one tax idea after another. Many of them potentially fairer and more palatable than GST.
P&R deserves much criticism for the way it has failed to sell its option A package, including GST. But perhaps it can be forgiven for concluding that GST is not so much the only game in town as the last game in town.