GIVEN the depth of the present global recession and predictions that it will take years rather than months to put economies back on track, it is hardly surprising that the economic landscape in the Island has seen a further seismic shift.

Prudent fiscal strategies might have been devised and in part implemented to deal with the initial ‘black hole’ which was forecast, but we now learn that other deficits are in the offing and that by 2012 there could be a £60 million gap in public finances.

But that is not the end of the bad news. The three wise heads of the Fiscal Policy Panel – Joly Dixon, Christopher Allsopp and Marian Bell – say that the new deficits will be ‘structural’, which means that they will not be the result of transient economic circumstances. They will instead reflect fundamental and permanent changes in the income streams we can expect to receive.

As matters stand, the present downturn is likely to mean that our economy will shrink by as much as six per cent this year and by between one and three per cent next year. However, hopes that the end of the recession will mean a rapid return to the prosperity – public and private – that we have enjoyed for so long can only have been dashed by the new forecasts. An intense struggle to balance the books will have to continue even as we return to conditions of growth.

The scale of the likely problem can be appreciated through the consideration of two statistics. Firstly, the predicted hole in our finances might, within a few years, amount to ten per cent of the total tax take. Secondly, if the goods and services tax were used to plug the gap, the rate would have to increase by at least four per cent to seven per cent – a level which would most certainly make a serious impact on people’s pockets.

Tempting as the GST route to balanced books might be in terms of ease of implementation, it is unlikely to be favoured by any Council of Ministers with any sensitivity to public opinion. A more acceptable – and prudent – approach based on a number of measures will in all probability be adopted, though all conceivable blends of public-sector savings, economic growth and taxation present their own problems.

Increased taxation will always be deeply unpopular, the States have not yet proved themselves adept at making major savings, and who knows when it will be possible to say that economic growth can, once more, be relied on as part of the fiscal
solution?