Tuesday, 9 November 2010

GST - The Third Option

Now Geoff Southern has put forward a proposal to peg GST until 2012, the battle lines are drawn. Of course I think that Deputy Southern has little chance of gaining enough support for his proposition to pass but it will no doubt consume considerable amount of States time in speeches before coming to a vote, in which I suspect he will get around 15-20 votes, and his proposition will fail.

We had been told time and again by Philip Ozouf that to exempt food and utilities will mean that GST would have to rise to 6%. In the hands of Senator Ozouf, this is a scaremongering technique designed to ward off any objections to the rise from 3% to 5%. However, rather than taking it as the worst option, I think we should perhaps take the long view and consider it the best of two evils.

This kind of proposition has been seen in the States recently when Senator Francis Le Gresley successfully argued the case for retaining the Christmas bonus for all the local people who were receiving it rather than removing it or restricting it by some kind of means testing. His argument was that if the bonus was reduced but the recipients remained the same the cost would have been the same as if Deputy Gorst's proposition had been passed. Moreover, he was of the opinion that if a proportion of the population lost the bonus they would never get it back but if it was reduced it could be increased when the economy recovered. But the principle fact which enabled him to succeed is that his proposition was neutral in terms of spending cuts -- it did not matter in terms of monetary savings whether his proposition was passed or that of Deputy Gorst - the arguments were conducted quite different grounds and it undercut support for Deputy Gorst.

I would like to see the same kind of neutral proposition brought forward by a State member for GST -- that is to say that GST would be increased to 6% (or perhaps 6.5%, because modern computer systems, as with VAT can easily deal with decimal fractions) together with an exemption from food and heat, light, and water -- the basic domestic expenses which everyone, rich or poor, has to pay. The decision then would depend upon the long-term -- in other words, if future years saw the necessity for further rises in GST to raise revenue, it would no longer cause quite the same level of hardship as it would otherwise do. And if I was a gambler (being a mathematician, I'm not) I'd bet anyone that GST will go up again sometime.

The long view then looks at the possibility of GST rising even to 10% at some point (a scenario deemed a real possibility by the Auditor-General) and the corresponding need to increase the levels at which income support can help all, and bring more people into the net of paying back monies from GST raised, as an increase to around 10% (eventually) would bring many more people to the margins of subsistence living.

And yet unlike the proposition by Deputy Southern, it would be economically neutral, and would be considered on quite different grounds. Remember, once exemptions are in place, it would be very difficult politically to remove them, as in the UK, and if the economy got better or worst, whatever the rate of GST, it would no longer be quite the regressive form of taxation that it now is. So let's hope someone at least puts the Third Option on the table to vote for.

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