'Caretaker' P&R has no mandate to bounce through big changes to tax

I had already filed yesterday’s column when Deputy Trott stood in the States to again address the £16m. in missing tax revenues.

I had mentioned it in a light-hearted manner, suggesting he and Sir Keir might have been exchanging jokes about their respective fiscal black holes at the recent Labour Party conference. Yet beneath the humour lies a serious issue – the risk to our fiscal sustainability posed by a shrinking finance sector, which no politician seems willing to acknowledge.

I don’t usually listen to States debates on the radio, but it was hard to avoid Wednesday’s news of a second set of missing millions – £15m. in addition to the previously mentioned £16m. When, how, and where these figures originated remains unclear to this bystander.

This adds to the usual high confusion surrounding the state of our public finances. The real concern is not the immediate financial hit, but its ongoing impact on our fiscal position. Reading the reports, I’m none the wiser what that might be. The state of Deputy Trott’s glass provides me no clues.

What’s should be most concerning to us is the presentation this ‘sudden’ worsening of the States’ finances, accompanied by an exaggerated sense of doom.

Earlier this year, I predicted that our economy was heading for a recession, and, as I reiterated yesterday, our finance sector has been shrinking for years. Let’s stay a little grounded, the States has a very poor record of forecasting growth and revenues. The issues of the sustainability of our public finances have not just suddenly materialised out of thin air.

But the hyperbole makes for good political drama, and out of the theatrics of the week proposals to make a fundamental structural change to our tax regime start to emerge. For a change the basic rate of tax, which has held steady at 20% for over 60 years, would certainly qualify as a major structural change to our tax regime.

Raising income tax disproportionately burdens workers and working families, and it is a burden that increased when introducing the zero-10 system, with a promise to monitor and control that rise – a promise that has never been kept.

Increasing income tax harms our international competitiveness, especially for middle earners whose burden is high when compared to the UK, let alone Jersey.

When you factor in labour taxes, such as social security payments and irrationally high thresholds, comparisons against Jersey become even worse. And raising income tax makes our overall tax revenues more volatile and less resilient – basic textbook stuff.

Raising income tax, compounding the problems created by zero-10, is not the sustainable long-term solution.

The issue – undeniably – is that the structural deficit created by the zero-10 tax system was never properly addressed. Successive political administrations have ignored, swept under the carpet, or glossed over it for the past 15 years, hiding the problem behind fiscal sleight of hand and constantly altering how the finances are presented.

This problem has only worsened over time, with welfare spending rising – driven not just by demographics – and no real attempts to control it. It’s a structural imbalance we’ve had for 15 years, exacerbated by our stubborn refusal to introduce a GST like 97% of the rest of the world – clinging to a misplaced notion of fairness.

There’s a misguided belief that the absence of GST makes our tax system fairer than those in social market economies like France or Sweden. It doesn’t.

One of the many flaws in our political system is its lack of accountability. It should be an important point of principle of any democratic system. This P&R is a caretaker committee. It has no mandate to bounce through, without due process, analysis or consultation, far-reaching structural changes to the tax system.

Deputies should remember – ‘something must be done, this is something, therefore it must be done’, is not a winning argument.