Comment: Tax will have to go up - but who pays and how much?

Friday 11 May 2018

With the general election now just a few days away, you might be forgiven for thinking that a major issue for everyone, like tax, would have been dominating political campaigning.

It hasn't. The outgoing Treasury Minister has warned that taxes will have to go up, but exactly who should pay the increase, and how much it should be, has not lit a fire under this election campaign.

Express columnist Kevin Keen argues those decisions will be among the first to be dealt with by the new States Assembly, and they should be right at the top of the agenda before we vote...

"Keeping taxes low and simple has been the foundation of Jersey’s success over many years. It created and sustains our number one industry, financial services, and also had a hand in the origins of tourism and dairy farming. At its core, it also means individuals can make their own choices as to how to spend what they earn, rather than having their pockets constantly picked by government. 

Until the advent of zero/ ten we had the benefit of large amounts of taxes being paid by companies here on profits earned around the world. This meant we could spend a lot and tax our citizens modestly. In response to pressure from larger countries and in responding to competition around corporate taxes we introduced the new zero/ten system. The change saved our financial services industry but created other challenges as many companies that trade here, now pay little or no income tax. According to the 2018 budget, in 2017 income tax paid by companies will total £78 million or 16% of total income tax. Back in 2006 companies paid £192 million or £250 million in today’s prices.

Pictured: Kevin Keen asks if Jersey should be low tax/low spend or high tax/high spend.

When firms develop strategy they know that to offer low prices as a key selling point they also have to find a way to also have the lowest costs - if they want to survive, that is. In the Jersey plc context this means we have to ensure our public sector is efficient, but Islanders also need to keep their expectations of what they want government to do consistent with the desire to maintain lower taxes. Unfortunately we can no longer have it both ways.

For those who argue for increasing taxes to fund additional government services, however noble the intent, I would urge them to take care. Undermining our long standing source of competitive advantage and potentially threatening our key industry could certainly solve the population and high house price problems; but in my opinion not in a good way.

Pictured: tax from companies has fallen from £250m (in today's prices) in 2006 to £78m in 2017. 

The outgoing Treasury Minister has already warned that taxes will have to go up but as far as I can there has been little debate about how much and who will pay them.

This is probably good for news for most prospective politicians, who won’t have to make promises that come back to haunt them. I am sure though that the new States will to have to grapple with these challenges at an early point. Fundamentally we may have to decide whether Jersey should become a low tax/comparatively low spend or a high tax / high spend island. For me the answer is obvious but it will take real ingenuity and a willingness to find different solutions to our problems than those put forward 250 miles to the north.

Back to the corporate world, in a similar situation the potential response to a changing environment might include merging with another company in the same business.

Maybe Jersey should be talking to Guernsey about a merger of sorts? Think of the opportunities it could bring for both communities."

The views expressed in this piece are those of the author and not those of Bailiwick Express.