Would you rather be George Osborne or Philip Ozouf? I think it’s fair to say that even the UK Chancellor of the Exchequer would prefer to be Jersey’s Treasury Minister at Budget time.

Some observers have pointed out that this week’s UK Budget shows the similarities between the financial problems facing the UK and
Jersey. We both have to deal with deficits and need to cut back on spending and/or raise taxes.

However, this can be a dangerous comparison because the extent of the problem is obviously very different. The financial crisis facing Jersey is nothing like the UK’s, although I would have to admit that the available solutions are very similar.

Increasing VAT to 20% was a pretty unpopular move in the UK, although once the initial shock and complaints were over, most people accepted that it was a necessary measure and certainly much better than alternatives, such as increasing direct taxation.

In Jersey, of course, we still look upon the prospect of raising GST from 3% to 5% with absolute horror, and those who demonstrated in the Royal Square will probably never accept that it’s the best option.

However, it is probably the front-runner because it is a tax on consumption and it is relatively easy to administer. GST at 5% would also still be very much lower than most of our competitors.

However, there is one very significant drawback with GST in Jersey: it applies to everything, and that can make it unfair to low-income earners who have to pay a higher proportion of their income in tax on essentials compared with the more wealthy.

I fully understand that GST was designed this way in order to keep it simple, which is obviously a worthy aim. It was also not such a problem when the tax was only 3% and low-income earners could be compensated in other ways. But now it is probably being raised to 5%, it’s time to look yet again at exemptions, even if it does make GST more difficult to administer.

It’s all very well aiming for simplicity, but unfortunately simplicity and fairness don’t often come together where taxation is concerned. Fairness should come first, and if we are looking at tax options, then this is the opportune time to ensure that GST is as fair as possible, as well as being simple.

Of course, first of all, some of us have got to grasp the realities of the Island’s new financial position. In case there is someone reading this who doesn’t know what I think, that reality has little to do with spending beyond our means or failing to control States expenditure.

That may be part of the problem, but the major difficulty the Island faces is trying to adjust to dramatically changed financial circumstances.

We are moving from an era when we managed to run the Island on the cheap because the finance sector bore most of the burden. Now the burden has shifted and we are beginning to realise the true costs of the services we have become used to.

In other words, if we want public services, we are going to have to pay for them.

Unfortunately, some of our politicians are in denial. Some will claim that our current difficulties are due to the global recession affecting our income while our expenditure keeps on rising. However, they must have shorter memories than even politicians are usually credited with. States finances were already creaking before the downturn made matters worse.

Then those same politicians will tell you that taxes should not be increased until we can prove that we have got rid of all the waste in the public sector – you know, waste like lifeguards, hydrotherapy pools, school milk etc. From this it would appear that one man’s waste is another man’s benefit.

The problem with this argument is that we are never likely to get to the stage where we can confidently say that the public service is running as efficiently as possible and the only alternative we now have is to raise taxes.

How can you prove that the States administration is as efficient as it can be? You could say that it’s when they are forced to get rid of lifeguards and school milk, but that doesn’t go down too well with the critics who claim that there are millions of pounds worth of virtually painless savings to be made.

These are the same people who will also tell you that any organisation can make itself more efficient. So how can you ever say that increased taxation is the only option?
Of course you could do what the Treasury Minister has done and pluck a figure out of thin air, and decide that once we’ve achieved those savings, we’re justified in raising taxes.

It’s the accountants’ approach, because all it does is concentrate on the bottom line. That’s fair enough for the Treasury Minister, who has got to worry about these things, but it’s not just price, it’s value that we should all worry about.

Apparently this message hasn’t got through to some of our business leaders, however. For example, the president of the Chamber of Commerce was on the radio describing savings such as the withdrawal of lifeguards at Havre des Pas as ‘tokenism’. Obviously any saving that can’t be measured in seven figures will be considered a token by some business leaders rather than a genuine attempt by many States departments to save money.

THE Jersey Chamber of Commerce president believes that the solution to our problem is pretty obvious: we have to cut out whole areas of activity where the States shouldn’t be involved. That would save real money. There is only one slight problem: the chamber president didn’t or couldn’t tell us what these activities are.

It would obviously have to be a major item to produce the savings required as a series of ‘tokens’ would not be enough. So perhaps the States should forget about replacing the Island’s ageing sewers.

There are also obviously too many bobbies in town deterring shoplifters from taking items from chamber members, so we could get rid of a few policemen. We don’t have to wait longer than a few weeks to get an operation, so there must be too many surgeons. Some youngsters leave school without qualifications, so fewer teachers won’t make much of a difference.

Yes, there are lots of opportunities for big cuts to be made; all we need is someone like the chamber president to identify them for us.

This could even provide opportunities for chamber members, because as one of our cost-cutting Senators pointed out the other day, there are many private-sector companies waiting eagerly in the wings to take over some of the functions of States departments.

Mind you, this is the same Senator who claims that there are seven or eight layers of management in the Health department, so perhaps we should take that with a pinch of salt.

Interestingly, the radio interview with the chamber president was immediately followed by an item about Jersey’s bid to host the Island Games in 2015, which will cost in the region of £2 million. That is in addition to the capital costs of upgrading sports facilities, but the Education Minister said that had to be done in any case (he obviously hasn’t heard about the Comprehensive Spending Review).

I am personally not particularly interested in the Island Games, although I could see it having significant benefits for the Island. However, I don’t see how we can justify spending that kind of money on a sporting event, when our political leaders tell us we may not even be able to afford lifeguards at Havres des Pas.
Perhaps the private sector will step in instead.

Peter Body is editor of Business Brief magazine