BEFORE the Goods and Services Tax became a fact of Island life last year, it was abundantly clear that a great many people objected to the additional burden that it was about to impose. However, many others were prepared to see it as a necessary evil because of the role it would play in filling the infamous tax ‘black hole’ and in diversifying the tax base.

Moreover, those who accepted the principle of GST were reassured that its initial low rate – three per cent – was to be pegged for three years. A uniform rate was guaranteed to minimise the cost of collection but it also promised to minimise the impact on the less well off.

Now, although GST is apparently on track to yield the £50 million that it was intended to raise this year, the inevitable appears to be happening. As was generally forecast by both the opponents and many of the proponents of the new tax, talk of raising the rate at which it is levied is very much in the air.

Chief Minister Terry Le Sueur has warned the Island that, in spite of the tax’s initial success, it could well have to go up. This would not be in response to the factors which led to its inception but to the unforeseen developments which sparked the present global economic crisis. In short, recession has been added to the fiscal problems that we were bound to address because of outside pressures on our tax regime.

Although eventually increasing the rate of GST is an obvious strategy in the event of shortfalls in public revenues caused by lower tax receipts and poorer returns on investments, the rush towards the simple solution would not be without its dangers.

The extent to which the rate was raised would obviously be contentious. GST must never be seen as government’s magic means of conjuring money out of a hat. There must always be recognition that, even after the first three years of operation, the overriding intention must remain to keep it at the lowest possible level.

In addition, if the case in favour of raising GST finally becomes overwhelming, the question of exemptions and the zero rating of essential items will have to be revisited. Even if it can now be demonstrated that the tax is not an excessive burden on the poor, this is unlikely to be the case after even a moderate hike in the rate.