Nobody likes taxes, but they are a necessary evil…
It was in 1789 when writing about the new American constitution that Ben Franklin wrote his famous quote, “…in this world, nothing is certain except death and taxes.”
27 miles to the west of us there is an ongoing debate about whether or not the Guernsey government should follow suit and introduce a General Sales Tax as Jersey did in 2008.
I remember the outcry at the time not only from the general public but principally from business leaders about the cost of the change, and then having to work with colleagues to map out a new system to be implemented to account for that change. I’m not going to lie, it was a painful and costly project that each organisation had to go through, and all for 3%.
Of course there were promises from the government at the time led by Frank Walker that there wouldn’t be an increase, and yet 3 years later we were at 5% which is where it has stayed.
The reason behind introducing the new tax was principally as a way of making up a shortfall in government income when Jersey felt bound to follow the Isle of Man with their zero 10 policy, in fear that failing do so would have have resulted in a significant loss of investment in Jersey’s finance industry.
Households need income to run, businesses need to generate value to earn income and countries need money to provide public goods and services. The difference between the three is the source of income, and for a country that is mainly generated through taxation.
Nobody likes paying more tax, and there has been many a political voice who has challenged the tax, how it is levied and whether it should be included on food and other essentials.
I think that it would be utter madness to take it off food locally for a couple of reasons. Firstly, by keeping it on food it is in the public domain and affects everybody, so the likelihood of any government increasing it further and risking public outcry are as good a reason as any to leave it where it is. And secondly, to remove it from food would lead a huge shortfall that would need to be found from somewhere else.
Jersey is still a low tax jurisdiction, especially when compared to our mainland counterparts, and we shouldn’t lose sight of that. Yes there are elements of living here that are undoubtedly more expensive, but there are also benefits, and I’m going to list a few:
20% income tax versus 20% rising to 40% and then 45% for top earners in the UK
5% GST vs 20% VAT (that was increased from 15% to 17.5% in 1991 and up to 20% in 2011)
Lower Social Security
No inheritance tax
No capital gains tax
So at present Guernsey folk are kicking back hard against the proposal to introduce GST, but the issue is probably compounded by the timing of the proposal when many folk in the western world are already feeling the pressure. Should they have acted sooner? - Hindsight is a wonderful thing.
My take on the whole situation is that people in general have been encouraged to overstretch themselves over the last 10 - 20 years, have lived in a ‘dreamworld’ of cheap and available money and are now, possibly for the first time in their lives having to tighten the belt.
Life isn’t easy, it never really has been, but it is how you manage it and your expectations.
As part of Gen X and having been brought up in the 80s and 90s, we were given pocket money and encouraged to save before spending, whereas for Millennials and Gen Z living on credit (or worse than that, the absolute ‘never, never’) is a culture. Their attitude towards consumption is very different and so any shift in tax and cost of living is likely to have a bigger impact, coupled with the fact that as they are more recently on the bandwagon of life they are far less likely to have assets to steady the ship.
Every generation from baby-boomers to now have faced challenges, be it soaring interest rates in the 70s to a generally higher cost of living now.
Back to taxes. If we accept that they are a necessary evil, it is how public finances are managed that becomes the focal point. Pressures on a government to try and please more of the people more of the time are higher than ever, coupled with higher costs of regulation. All of that takes time and costs money which can lead to inefficiency and perceived ‘waste’ and that is where the frustration creeps in.
The two most painful taxes have to be CGT and Inheritance tax, as they are in effect penalising you for foresight and / or a tax on what is the result of already taxed income. Let’s be thankful that neither of those affect us in the Channel Islands… yet.