TAX is in the news again. Well, when isn’t it? However, the Irish must have been a bit surprised when it was confirmed this week that their rate of VAT was to increase next year by 2% to a whopping 23%.

This had already been leaked in the German parliament, of all places, but it must have been a shock nevertheless.

There are various exemptions to Irish VAT, so it’s not all bad news for Irish consumers or those trading with and visiting the country, but there’s no doubt that ordinary consumers are paying perhaps more than their fair share of the total tax burden.

One of the reasons is that Ireland has one of the lowest corporate tax rates in the world – just 12.5% – which is now considered a pillar of the economy and therefore sacrosanct. It’s a bit like Jersey’s 20% income tax rate.

The French and German governments don’t like it very much because it smacks of tax competition, but the low corporate rate of tax has attracted such industrial giants as Pfizer and Google to the small country on the fringe of the EU.

So the Irish finance minister preferred to increase the burden of indirect taxation and keep corporate tax low. That’s because his plan to get Ireland out of a mess is to generate more jobs, and the best way to do that is keep corporate taxes low and rely on consumption taxes such as VAT or the dreaded GST.

So what has this to do with Jersey? Well, it’s certainly a reminder, if one is needed, that low corporate taxes are good for the economy. It’s also an indication of how far you can increase consumption taxes such as VAT and GST without causing an outright revolt. Indeed, some other countries have higher VAT rates than 23%.

Of course that’s not something to be proud of and it’s not a target that Jersey should be aiming for – quite the reverse – but our GST rate is so low in comparison that it proves there is room for manoeuvre, should we need to do so.

Some might say that there’s also room for manoeuvre in the area of direct taxation, but apart from tinkering at the edges, there’s not much scope to raise direct taxes without damaging both the Island’s low-tax reputation and much of its economy. As the Irish finance minister said, raising direct taxes is a tax on jobs.

It is obvious that the best option is not to raise any kinds of tax at all, which is what Jersey tries to do, although I think it’s becoming increasingly obvious that this is not going to be possible in the medium term.

All the long debates about tax and spend have tended to skirt around the main issue, and that is how much tax Jersey needs to pay for its public services. It’s pretty obvious that the current level of taxation, whether direct or indirect, is not sufficient.

However, in the good old Jersey way of wanting it both ways, we continue with the illusion that we can keep on cutting spending without affecting public services or our ability to grow the economy. It would be wonderful if we could, but I’m prepared to eat my hat on the day the States sign off on the £65 million savings net of any so-called investment for future savings.

Some States Members are even peddling the myth of gold-plated public services when they say taxpayers would be quite content with copper-plated ones. Please pull the other one.

If anyone thinks that Jersey’s public services are gold-plated, they haven’t been to a country where they do aim for the best (and that doesn’t include the UK). Yes, our public services are good; in fact, they are very good, despite the enormous burden placed on them by the cost-cutters. But they are not that good.

Even our much-vaunted Health Service can’t deliver to everyone because some are put off going to the doctor and the dentist because of the high cost. We also have heart-rending stories about a few patients who have had their care limited because the Health department, like every other States department, has to keep to a copper-plated budget. So I won’t even mention education.

Now, of course, we also have unemployment to worry about, particularly youth unemployment, which is much higher even than Guernsey’s. What are we going to do about it? Well, the new Council of Ministers is pulling out all the stops to come up with a strategy (perhaps a bit late under the circumstances), and there will no doubt be a lot of shuffling around at little cost. But where is the money coming from if some real investment is needed? Is this the rainy day we’ve been expecting all these years?

Perhaps the way we approach our spending and investment in the future means that we will always wait for a crisis to happen before we loosen the purse strings, when perhaps prevention could be better than cure.

I’m not saying that it’s an easy call to make. The exact timing of any support for the economy, whether it’s by using reserves or borrowing, is horrendously difficult. Do it too soon and everyone will think the treasury minister is an easy touch; do it too late and there are a lot of pieces to pick up.

I personally believe that the States are reluctant to touch reserves or to borrow because they are expecting worse to come, and then they really will have to spend. Everyone keeps on telling us how lucky we are compared to debt-ridden, profligate countries elsewhere. It just doesn’t seem like we are lucky sometimes.

It goes without saying that we must ensure that we are getting value for money (that should be the case whether we are in recession or not), but a bit more judicious borrowing and use of reserves could perhaps prevent worse happening.

If that doesn’t work, then of course we can always look forward to GST at 23% – although at that rate we really will have introduce some pretty hefty exemptions.