Stealthy Options

Chamber of Commerce criticises Senator's savings target tweet

BUSINESS leaders have reacted angrily to Treasury Minister Philip Ozouf's claim that the £65 million public sector savings target may now be impossible to meet. Senator Ozouf conceded this week that the States decision to delay proposed cuts to the funding of fee-paying schools would make it extremely difficult to achieve the public sector savings target. But that assessment has been heavily criticised by the Jersey Chamber of Commerce, which is now calling on ministers to stick to their promise of taxing and saving. Chamber vice-president James Filleul said that the group had strong feelings on the comments made yesterday by Senator Ozouf. (1)

The interesting question about Philip Ozouf's comments is the kind of spin that will be given on his own response in raising extra taxes. I can see that two options available to him will be to bring in stealth taxes, which always go and do some kind of euphemism such as "user pays", neglecting the fact that the user has already paid taxes and that this is an additional kind of tax added on. Or the other option will be to raise goods and services taxes further, not perhaps immediately, but a few years in the future.

The failure of obtaining savings can be used as an excuse for having to raise GST, and setting aside any promises made, as recent promises by the Treasury Minister on keeping GST at 5% were (cleverly) always conditional on savings being made - he has learnt not to give unconditional promises!. In the short term, this would be politically unacceptable, and so stealth taxes are far more likely.

These will of course impact on poorer people far more than rich ones. They will also allow the fiction that taxes in Jersey are relatively low, because they will not feature in the base rate of income tax at 20%, nor will they feature in the 5% GST charge.

This will undoubtedly be presented as a stark consequence of the failure to make cuts. If we cannot make cuts, then we have to seek further forms of funding for public services. But fundamentally stealth taxes will be popular with the Treasury Minister because by and large they can be "invisible".

That is not to say that the general public will not notice them, but that opposition to them will be harder than, for example, a rise in the base rate of income tax GST. They will be more loosely spread and hence harder to quantify in terms of the impact upon the general public. Therefore they are ideal as an escape mechanism by which Philip Ozouf can raise extra taxes. An extra charge, ostensibly for dumping, on bin collection. A sewage charge for the maintenance of the drainage system and treatment of sewage. These are but two examples of how services that are already funded from tax revenues can be used to claw back additional funds on the specious argument that the user should pay; in fact, as with most stealth taxes, the user effectively ends up paying twice, because they were paying for the service already through central taxation.

This is not just a local strategy, of course - it is world-wide. But we should ensure that locally, stealth taxes don't come in without measures to help the hardest off. Pensioners, especially those above income support levels, can off course be hit by stealth taxes, just as they were with GST, and an inflexible system of stealth taxes would be one more nail in the coffin of the elderly - the metaphor being particularly apt.

At a time when political leaders in Europe and the United States are committed to no additional income-tax burden on the middle class, they also share the advantage of raising revenue without drawing too much attention to the tightening fiscal noose. As a result, analysts say, taxpayers from California to Copenhagen should brace themselves for more "stealth taxes" - indirect levies like sales taxes, or microcharges on services once provided free, like registering a pet.

Such charges can have many benefits for tax collectors. For one thing, they are less volatile and less dependent on the economic cycle than corporate or income taxes. For another, they are less prone to avoidance and cheaper to collect. Finally, analysts say, they are generally easier to enact. (2)

Of course, this may not be the chosen path locally, in which case I will eat humble pie, but otherwise, it we will all be grinding our teeth on stealthy options!

Links
(1) http://www.thisisjersey.com/2011/06/18/chamber-of-commerce-criticises-senators-savings-target-tweet
(2) http://www.nytimes.com/2010/03/18/business/global/18tax.html