Wednesday, 1 December 2010

Southern Spin and Chamber Conceits

Southern Spin

Geoff Southern, on the JDA website noted that

"Whilst wages are frozen, GST costs for the average family will go up by over £900" . (1)

I'm not exactly sure how this was calculated.

By my reckoning,

If you spent £46,000 that was subject to GST in a year
The net figure would be £46,000/1.03 = £44,660
The GST at 3% on that would be £44,660 * 3% = £1,340
(as a check, note that £1,340+£44,660 = £46,000)
5% GST on £44,660 would be £2,233
The difference between £2,233 and £1,340 would be £893.

In other words, to get GST to go up by over £900, you must be earning (and spending on GST - which excludes medical bills and dentists bills and other items like the TV licence) - over £46,000!

So according to Deputy Southern, the average family income is just over £46,000. Somehow, I think he's got his figures a teeny bit wrong. Evidently mathematics was not his strong point as a teacher.

I think he means go up to £900 not go up by £900, which means a spend on GST related goods and services of £18,000. That is closer to low income wages, and means that on £18,000 (before GST is added) the 3% currently on that is £540, making an increase of £360 per annum.

Now I'm not saying that is not substantial to a family on a small income of around £18,000-£20,000 - it could mean, on a stretched budget, that people leave off dental check-ups, or try to keep from going to the doctor when perhaps they should (and end up off work taking sickness for a longer period).

If rents go up as well, and rents never seem to feel the recessionary pinch, then the family budget could be stretched even more, and may need more income support, thereby drawing more money from the State, and promoting a dependency culture.

But it does mean that Geoff Southern is indulging in a certain amount of spin, and I don't think that kind of argument is any good; it is easily demolished, and in doing so, the case for exemptions may also suffer by association with a discredited approach. If the JDA wants to provide arguments for exemptions, they need better ones that that. Senator Ferguson has already indicated that she thinks Geoff Southern's figures are suspect - let's hope he doesn't repeat the argument in the States.

Chamber Conceits

I also heard a spokesman for the Chamber of Commerce (on BBC Radio Jersey this morning) trotting out the argument that exemptions would make administration for his members much more difficult. This conjures up the image of a Victorian shopkeeper, whose handwritten ledgers are full of calligraphic beauty, and who has to go through endless painstaking checks on each item sold. It is an absolute nonsense.

What is more - he persisted in saying "most members" whereas the recent survey which included an opinion on the GST rise had only a response rate of approximately 17% of the membership, and it is very conceited to assume that this was somehow representative of the missing respondents. The survey, in fact, only asked "Do agree or disagree with the Budget proposal to increase GST to 5%?" and no question arose about exemptions. How does he know, then, what the bulk of the members think? And how representative is the Chamber of Commerce of all Island retailers who would be involved in any changes?

It is true that - with exemptions - there would be an initial cost of adjusting rates on various items, and adjusting till systems, but we do live in the age of the computer, and that is one area where computer programs speed up this kind of process. It is also true that there will be an additional burden to compliance (as I noted in an earlier post), but we are not adopting complex systems like the UK, where there is GST at 0%, 5% and 17 /1/2%, and a wider range of items at 0%. All the local proposition relates to is food (which can follow the UK list, which should therefore be easier for large retailers) and domestic fuel.

Regarding till receipts, UK systems are not necessarily more complicated:

Receipts to general public don't have to show VAT at all - however; if you inform M&S you need a VAT receipt and provide them with your VAT number they are obliged to provide you with a proper VAT receipt - usually retailers invoices would show sufficient info to avoid people doing this and causing large queues (2)

Waitrose (as an example) clearly indicate on each receipt the breakdown of VAT and Zero Rated goods and give a running total. The only way to identify VAT rated items on an M&S standard food till receipt is by an * against the item. And yes, that is clear enough too. (2)

All that is needed, is the VAT registration number, and some means of flagging items, and the UK EPOS systems have had plenty of time to do this, so it is not as if Jersey has to re-invent the wheel. Indeed the UK tax department already has plenty of guidelines which we just need to adopt - far easier for the States than producing masses of local pen-pushing:

A good system will print the VAT code, or similarly meaningful indicator, on the till receipt (3)

Most modern accountancy software allows stock, for example, to be clustered by category, and for a global change in VAT rates to be applied to selected items all at once. Perhaps the very smallest shop keeper may not have a computerised till system, but let's not forget there is a turnover limit before firms have to register for GST, and the smallest shop keeper would certainly not be registered.

And remember, GST at 5% would be the "tipping point" - Senator Ozouf has made it clear that if it goes above 5% at any time in the future, there will probably have to be exemptions, and associated costs. Has the Chamber of Commerce considered that?



Jon said...

If you use the Co-op you get a 4% dividend refund on what you spend so if a poor person uses the Co-op for all food and then gets a GST refund from benefits they are laughing.

Anonymous said...


I think that the average income that is alluded to here would need to be a heck of a lot more than 46k. You dont pay GST on rent or mortgage so if you have 46k disposable income you are likely to be earning a lot more. Probably more than double that in order not to be thrifty with your spends.

Therefore, it shows in my view that this bloke really does not have a clue what he is on about.

I maybe completely wrong, but my figures stack up and so it seems to me that he has really effed up. He is trying to show how it affects the poorer in society but looks to me he has only shown how it affects the more well off with blatently more disposable income.

Have i missed something?

TonyTheProf said...

That's what I think is the trouble - by making bad mistakes in his arithmetic, he could cause the States to reject exemptions, because some members will be swayed by seeing him discredited.