Order Matters

We don't just remember. We re-enact, eating matzah, the unleavened bread of affliction, tasting maror, the bitter herbs of oppression, and drinking four cups of wine, each a stage in what Nelson Mandela called the long walk to freedom. And it all begins with the question asked by a child: why is this night different? I can still picture in my mind those nights long ago when I was the child. They gave me my first induction into the ideals I've tried to carry with me into adult life, above all a sense of fellow feeling with others who suffer, eating their own bread of affliction. (Jonathan Sacks)

I have always held the opinion that any tax which taxes life's essentials is immoral, unfair and falls disproportionately on the less well-off....The argument that has always been used by successive Ministers for Treasury and Resources in regard to GST is "keep it simple", "it's only 3%". I sign up to keeping things simple, but not to an inequity; it was wrong to tax these items at 3% and to consider taxing food and heating at 5% is indefensible (Andrew Green)

Does order matter?

Freeze GST for 6 months?

Freeze GST for a year?

Keep GST at 3%?

GST rise to 4%

GST to 5%, but with exemptions

GST to 6%, but with exemptions?

GST to 5%

Does the order in which a debate is carried make a difference to the final outcome? Where there are so many amendments on the table to the final option (GST at 5%), I think it could well make a difference, and that the person controlling the order by which the choices are given (the agenda maker) has great control over the outcome. There is a considerable body of literature which has examined this phenomena, starting with Schwartz's groundbreaking study on "Agendas and Control of Political Outcomes".

Understanding amendment rules and voting methods is important for political analysis because it reflects the degree to which outcomes depend on structure rather than votes

After a bill is reported to the floor and amendments are offered, the voting method employed can have significant effects on the final collective choice. The method of choosing between mutually exclusive legislative proposals, and the position of the status quo (i.e., when it comes up in the decision sequence and when it is the default alternative), varies across countries.

The voting agendas in place to decide on the details of the bill vary cross-nationally. The two most studied procedures are the so-called amendment and the sequential-elimination procedures. The first is employed primarily in Great Britain and its former colonies including the U.S., and the latter is mainly used in Continental Europe and Latin America. The two archetypical methods have existed since at least the Roman Empire (Farquharson 1969) (1)

Jersey uses the "amendment procedure" rather than the "sequential-elimination procedure"

Under the amendment procedure, amending votes precede an enacting vote: a draft bill is pitted against amended versions until, at the end, a surviving version is pitted against the status quo. The winner is the alternative chosen in the last vote, after all other alternatives have been voted at least once

Under the sequential elimination method, mutually exclusive alternatives are voted up or down in a given order. If a majority chooses one alternative, it is the outcome; voting on that section stops, and all other mutually exclusive alternatives are considered rejected. (1)

How can this effect outcomes?

In the 1950s Duncan Black first noted that under the amendment procedure the later an alternative enters the voting stage, the greater its chance of adoption. Under sequential elimination agendas, it is the opposite: the sooner and amendment comes up for voting, the greater its chance of winning (Farquharson 1969). (1)

So the order in which matters are presented in Jersey, and the amendment system means that the likehood is that items such as a 4% rise on GST rather than a freeze would have stood a better chance. In fact, Senator Francis Le Gresley tried to boost support for the freeze by withdrawing his own suggestion to raise GST to 4% instead of five. Philip Ozouf then (citing the "mood of the house"!!) withdrew the amendment to GST of 6% but exemptions from the table, so the only choice was over exemptions - against which he could argue a revenue loss, rather than a tax neutral option.

But if the freeze options had come last, before the final 5% with no exemptions, it would have been a straightforward tussle between the two options. With no other options in the pipeline, such as GST at 6% but with exemptions, there was always a chance that those who were convinced of exemptions, such as Andrew Green, Brian Le Marquand, Jacqui Hilton and Ian Gorst, might have voted for a freeze, which might have given time, both for a changed economic outlook, and, of course, a changed political outlook as with even the 6 months option (taking the rise to December 2010), a new house would be sitting.

As it stands, it is a "win win" situation for some politicians who voted against exemptions, such as John le Fondré, because come the next election, they can say they had voted for a delay in GST, and they can even get off Montfort Tadier's "GST Party Win's Again" list, even though they were only voting for a delay, not a cancellation!

(http://mtadier.blogspot.com/2010/12/gst-party-win-again.html )

Francis Le Gresley's vote was surprising, especially as the Citizen's Advice Bureau took a completely different line. Clearly once he had withdrawn his 4% offer, there was nowhere else for him to go but 5%, as he didn't want exemptions.

Jersey's citizens advice bureau says people living there less than five years will be hit hardest by the rise in the goods and services tax (GST). Malcolm Ferey, from the bureau, said they may not be able to apply for income support. Jersey politicians voted to keep GST on food and fuel and to increase the tax to 5% from June 2011. Malcolm Ferey said he was disappointed the States did not allow goods and services tax (GST) exemptions. He said there was a portion of the community that falls into the gap and loses out on support (BBC News)

Here is the voting list - it can be seen that Ian Le Marquand, Jacqui Hilton, Ian Gorst - who have consistently been elected on a mandate of exemptions on GST have continued to honour their commitment. Ministers or Assistant Ministers they may be, but they still show an independent which is to be welcomed, and which derives from thinking ethically rather than managerially about the debate. There is, I think, too little discussion of ethics, and what would constitute a just society, in today's politics, and too much concentration on a "fixit" economics. While we need to have a budget that works, we should also be mindful of the poorer members of society, and not just look for an easy managerial solutions.

Anne Dupre had another change of mind, citing 5% as too high, although less generously minded commentators such as myself think that as she voted against exemptions just after the last elections, she needed to do something to boost her credibility before next year's elections.

The Constables are split by 9 parishes to 3.

POUR: 24 CONTRE: 26 ILL: 3

CONTRE
Senator Terence Augustine Le Sueur
Senator Paul Francis Routier
Senator Philip Francis Cyril Ozouf
Senator Terence John Le Main
Senator Frederick Ellyer Cohen
Senator James Leslie Perchard
Senator Sarah Craig Ferguson
Senator Alan John Henry Maclean
Senator Francis du Heaume Le Gresley, M.B.E.
Connétable John Le Sueur Gallichan
Connétable Daniel Joseph Murphy
Connétable Michael Keith Jackson
Connétable Silvanus Arthur Yates
Connétable Graeme Frank Butcher
Connétable Peter Frederick Maurice Hanning
Connétable Leonard Norman
Connétable John Martin Refault
Connétable Juliette Gallichan
Deputy Robert Charles Duhamel
Deputy John Benjamin Fox
Deputy James Gordon Reed
Deputy John Alexander Nicholas Le Fondré
Deputy Anne Enid Pryke
Deputy Angela Elizabeth Jeune
Deputy Edward James Noel
Deputy Tracey Anne Vallois

POUR
Senator Ben Edward Shenton
Senator Alan Breckon
Senator Bryan Ian Le Marquand
Connétable Kenneth Priaulx Vibert
Connétable Alan Simon Crowcroft
Connétable Deidre Wendy Mezbourian
Deputy Frederick John Hill, B.E.M.
Deputy Roy George Le Hérissier
Deputy Judith Ann Martin
Deputy Geoffrey Peter Southern
Deputy Carolyn Fiona Labey
Deputy Jacqueline Ann Hilton
Deputy Paul Vincent Francis Le Claire
Deputy Shona Pitman
Deputy Kevin Charles Lewis
Deputy Ian Joseph Gorst
Deputy Philip John Rondel
Deputy Montfort Tadier
Deputy Daniel John Arabin Wimberley
Deputy Trevor Mark Pitman
Deputy Anne Teresa Dupre
Deputy Michael Roderick Higgins
Deputy Andrew Kenneth Francis Green M.B.E.
Deputy Jeremy Martin Maçon

ILL
Deputy Collin Hedley Egré
Deputy Sean Power
Deputy Deborah Jane De Sousa

Links:
http://www.eduardoaleman.net/LRAPealeman.pdf

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?

Links
(1) http://jdajersey.co.uk/Geoff%20Southern.htm
(2) http://www.taxationweb.co.uk/forum/m-s-till-receipts-i-m-confused-t32011.html
(3) http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_001540&propertyType=document

GST and Exemptions: The Pros and Cons

Treasury Minister Philip Ozouf has been insisting that the Budget that he and his advisers have drafted is such a carefully constructed set of proposals that there can be no deviation from what it recommends. As well as undermining the idea that the budgetary sums can be made to add up in only one way, proposals to exempt food or fuel would cast doubt on a principle that has so far underpinned the operation of GST in this Island - the single uniform rate. It has been consistently argued by the executive that this is the only way in which excessively costly administrative overheads can be avoided.(1)

In fact, by November 22, 2010, Philip Ozouf had already considered the option of allowing a debate on tax exemptions on food and domestic fuel, but with GST at 6% (a tax neutral option, as it has the same effect as GST at 5% on everything). However, he is still against exemptions.

His argument against exemptions is twofold:

(1) He is of the opinion that 5% is the absolute threshold at which we can't bring in exemptions, but that if we sort out our finances, we should not have to go above 5%. Given his failure to keep it at 3%, which, in fairness, was in part due to circumstances beyond his control - the world economic downturn - this seems an unduly optimistic assumption.

(2) He argues that 5% is the better option because it is simpler for retailers, and also has higher compliance rates, and the evidence is that exemptions bring about more difficulties with complying with the GST law because it is based purely on the value of goods rather than contents. Once exceptions come in, mislabelling and other avoidance strategies increase the amount of work done to check goods, especially imports.

In "The Economics and Management of Small Business", Graham Bannock provides a degree of support for that argument. After looking at various studies, including one by the OECD, Bannock notes that:

the real resource costs absorbed by regulation per firm are very large indeed (about £1,700 on average for all firms in the United Kingdom with fewer than 250 employees), and these resources have alternative uses.(2)

Bannock comments that:

There are, of course, other reasons for high administrative compliance costs. As noted in the discussion of taxation above, regulatory systems have become more complex in an effort to achieve fairness. As an example, if VAT were levied at a single rate with no exemptions and on the whole of consumer expenditure, the compliance cost of the tax would be greatly reduced. Pressure for exemptions (food, for example) prevents achievement of this simplicity in most countries.(2)

This is found in Denmark and New Zealand, precisely because they have simpler systems:

Denmark and, to a lesser extent, New Zealand, have very straightforward VAT systems. However, Denmark is being forced to complicate its system in the interests of European tax harmonisation. (2)

Here is where the effect of "distortions" of the market, comes in, because there is a cost to complying with exemptions, and the more complex the rates of VAT and exemptions, the more this regulation costs the retailer or service provider:

There is no such debate about regulation, the costs of which are unknown to the electorate - and, indeed, until recently, to the legislature. The public is largely unaware that there are any costs to regulation. Where they are aware of costs, it seems to be assumed that these costs will simply be borne by business instead of, by large firms at least, passed on to the public. (2)

But of course, at least part of the cost of compliance will undoubtedly be passed onto the consumer. Most local businesses are quite hard pressed financially anyway, and with rents still going ever up (despite the recession), they will not be able to absorb all the costs, and the consumer will end up paying more:

Where regulations increase market distortions, then costs (in addition to compliance costs) are incurred in the economy. These costs are known as 'excess burdens', 'efficiency costs' or 'deadweight losses'. Excess burdens are difficult to assess but are thought in some cases to be a multiple of compliance costs. (2)

The fact is that VAT is inherently a complicated tax that is costly to administer in business... The best VAT systems are those with single rates covering virtually the whole of consumer expenditure. Political pressures resulting in multiple rates (e.g. higher rates for luxury items) or exemptions (such as food) create additional compliance costs for firms dealing in goods with different rates, as well as economic distortions. (2)

If Jersey did decide to go for exemptions, the simplest solution regarding food would be to use the lists already available in the UK. These have some patent absurdities - for example, a sandwich may be free of VAT but a toasted sandwich, classed as cooked food, attracts it - but at least if we were tied to UK lists, it would avoid costly litigation.

The other area which a more complex GST system with exemptions would impinge upon the public would be increased staffing costs. In "Public Sector Economics for Developing Countries", Michael Howard notes that:

Staffing of the VAT office is a significant aspect of VAT administration. The staffing requirement is a function of a large number of variables, including the tax treatment of various sectors of the economy, the extent of exemptions, the frequency of returns, the complexity of tax rates, and the existing computer systems. For example, the higher the level of transactions omitted from the VAT, the more staffing needs are reduced. Further, if a large amount of the VAT is collected by the customs at the import stage, this reduces the demands for staff in the VAT office. Finally, the more complex the VAT, the greater is the need for staff to administer it. A multiple rate VAT requires more staff than a single rate VAT. (3)

This is necessary, not least because a more complex system, with more exemptions or different rates, leads to increased forms of tax evasion. At present GST leveled on imports is simple - it is based on the value of the goods imported. But if exemptions are allowed, then large imports by retailers (where foodstuffs were involved) would require a more careful check and breakdown of the inventory, to ensure that mislabeling (a common means of evasion) is not taking place, and that requires more staff.

Like New Zealand, Singapore adopted simpler systems precisely because of this problem with complexity:

Singapore had learnt from the experience of other countries that operate VAT systems with multiple rates and multiple exemptions. These administrations had encountered many difficulties arising from countless disputes with the businesses on the scope of tax. Multiple rates and exemptions also pose higher compliance burden on the businesses. It was also recognised that a complex system with multiple rates could potentially lead to more abuses. (4)

But against these arguments, the question is really whether 5% is a permanent solution, or whether the tax rate will have to go up. If GST has to increase, then it makes better sense to go to 6% - an increase of 1% - and introduce exemptions on food and domestic fuel - rather than have to introduce exemptions later, when the increase in GST with exemptions would have to be considerably larger to account for the loss of revenue.

Moreover, the experiences of New Zealand and Singapore - both countries with simple GST systems - cast considerable doubt on whether the tax can remain low. In New Zealand, GST was brought in on October 1, 1986 at 10%, and later increased to 12.5% on July 1, 1989, and was increased to 15% on October 1, 2010. In Singapore, GST was implemented at a single rate of 3% on 1 April 1994, with an assurance that it would not be raised for at least five years. This promise was kept, but it was later increased to 4% on 1 January 2003, and 5% on 1 January 2004. It was raised again to 7% on 1 July 2007. Keeping a lid on the rate is not as simple as one supposes. Denmark, while it has one rate for VAT, has it at 25%

The other argument is that while GST goes up, targeted assistance is provided to lower-income families. The trouble with this is threefold:

(1) deciding the amount of assistance is problematic, and can fall below the threshold of what is really needed because it is extremely complex to assess the needs of individual families, and consequently the analysis of needs works from a simplified model;

(2) there are always people at the margins, who are hit by GST, but who are just above the level at which they could claim for assistance. While the GST bonus scheme can address some of this, there still seem to be marginal cases, just above various thresholds for claiming support, who are penalised and find it more difficult. It is particularly areas such as food costs and domestic fuel that they have to struggle with. The Parish Welfare system was very good at proactively identifying cases of hardship, but this seems a weakness of the more simplified and centralised income support system, which increases in GST will only exacerbate

(3) rapid changes in market prices, such as a large increase in domestic fuel (which does occur), for example, will invariable not be offset by immediate increases in the amount of assistance; there is a time lag in reviewing the figures, and taking decisions, which increases the chances that the targeted aid will simply not be sufficient.

I can see the merit of some of Philip Ozouf's arguments, but I can also see the problems at the lower end of the scale, and I remain unconvinced that targeted assistant works efficiently enough, either at its thresholds, or if economic situations (as with fuel) change rapidly. Given that GST will probably have to increase yet again - the experience of Singapore and New Zealand suggests that it will do so - I think that the GST at 6% with exemptions on food and domestic fuel is the wisest option.

References:
(1) http://www.thisisjersey.com/2010/11/29/exemptions-now-will-ease-the-pain-later/
(2) The Economics and Management of Small Business: An International Perspective, Graham Bannock, 2005
(3) Public Sector Economics for Developing Countries, Michael Howard, 2001
(4) GST in Singapore: Policy Rationale, Implementation Strategy & Technical Design, 2004

Little Figures that Don't Add Up

Lennie Godber: Blokes by me bet on how many bricks are in the cell.
Norman Stanley Fletcher: That's common.
Lennie Godber: I can't think. It drives me mad, listening to their recounts. "341, 342..."
(BBC TV, Porridge, "The Hustler")

There were calls for the Treasury Minister to be sacked last night amid claims that he lied to Islanders about raising the rate of GST. Senator Philip Ozouf came under heavy fire from all sides at last night's protest rally at Fort Regent, organised by the union Unite, and a petition is now circulating to get him removed from office. The minister, who recently went back on a promise to the States not to bring a proposal to increase GST, was branded 'Pinocchio' and posters bearing his face on the body of the cartoon character, complete with long nose, were placed around the hall. Around 180 people turned out for the rally - far fewer than were expected and well short of the 1,000 who attended the last protest against GST. However, the crowd remained defiant and many expressed their anger and frustration at the proposed cuts and the current state of Jersey's political system.

A rally against tax rises and government budget cuts was attended by about 450 people at Jersey's Fort Regent on Wednesday evening.
The treasury minister, Senator Philip Ozouf, wants to raise the Goods and Services tax (GST) to 5% and cut £65m from States spending.
He was called "Pinocchio" at the union rally for breaking a promise made in 2008 not to increase GST.(2)

It was a disappointing turnout for the organisers of Wednesday night's union rally against public sector cuts in Jersey. They'd expected a thousand, but only 400 people went along to air their gripes over pay cuts, reduced public services and the planned rise in GST. Despite the low turnout - the union behind the rally won't back down without a fight. They now plan to ballot members on industrial action.(3)

So how many people did attend the rally at Fort Regent? The JDA reports on the meeting on their own website, but doesn't give any figures.

Said Mr. Vibert: "This was a chance for islanders who feel strongly about the issues to come together at Fort Regent and by their presence illustrate to the Council of Ministers how deep the feeling is against the path they are walking."(4)

But he doesn't say how many came together at Fort Regent.

The BBC reported "about 450", while Channel Television was slightly behind that at 400. How the JEP managed to get 180 turning out is beyond belief - either their reporter was simply unable to count or just looked around and guessed - or it was an example of deliberate spin - "far fewer than were expected..." certainly indicates it was used in that way.

Interestingly, while both the JEP and CTV mention an expected turnout of around a thousand, that figure made its way into the BBC but with a much more positive slant concerning a petition (unmentioned by the JEP or CTV):

A petition calling for Senator Ozouf to be dismissed as treasury minister has been signed by about 1,000 people.(2)

Geoff Southern made a great show of making Philip Ozouf out to be a liar, but somehow failed to mention that Philip Ozouf had made a very public apology at the end of October and explained why he had to change his position. Can we now expect an apology for Geoff Southern regarding his own change of position?

The St Helier deputy and Jersey Democratic Alliance member says if Senator Stuart Syvret doesn't return to the island in April he'll put himself forward in the by-election.(5)

Yet Senator Syvret did return to the Island, and Deputy Southern did stand against him. Clearly Senator Ozouf is not the only one who can be called Pinocchio!

The JDA website notes that: "Regardless of the fact that Trevor, Shona and Debbie are no longer part of the JDA, they still support all of our objectives and we will not be putting up candidates against them." Let's hope they stick to what they have said this time!

The rally also disclosed the possibility of industrial action.

Despite the low turnout - the union behind the rally won't back down without a fight. They now plan to ballot members on industrial action. (2)
Unite is now planning to ballot its members about possible industrial action over the planned government spending cuts.(2)

It is good to see they are balloting their members on this occasion, especially as last time, when Deputy Southern stood for election as Senator, the union decided to sponsor him and back him with money - despite not deciding to ballot members before spending their money. I asked one or two union members whom I knew about this, and they not only told me their had been no ballot of membership, but that they would have voted against any such decision as a waste of money, since Deputy Southern was already in the States.

Is it any wonder that so few people decided to turn up to Fort Regent, especially Union members who are used to the rank and file not being consulted? If there is to be better democracy in Jersey, then the lack of democracy within the JDA and the Unions is not a good sign. I am certainly not that happy when I also read on the JDA AGM that:

In discussions under " any other business" the president outlined that he had prepared a training programme for new members who are prepared to stand under the JDA banner in the forthcoming elections) (4)

I couldn't find details of that programme, despite it being described as "available elsewhere on this site", but it sounds very much as if there is a JDA "mould" and candidates are expected to conform to that, thereby reducing possibility of dissenters such as those who left the party before. Aren't members supposed to help decide policy rather than the other way round?

Links
(1) http://www.thisisjersey.com/2010/11/25/ozouf-must-go-call/#ixzz16cVXYC00
(2) http://www.bbc.co.uk/news/world-europe-jersey-11838085
(3) http://www.channelonline.tv/channelonline_jerseynews/DisplayArticle.asp?ID=491963
(4) http://jdajersey.co.uk/default.asp
(5) http://www.channelonline.tv/channelonline_jerseynews/displayarticle.asp?id=486042&showallcomments=1

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.

A Hall of Shame

I am extremely disappointed in the failure of the exemption on domestic energy, especially as I noted one Assistant Minister voted against the exemption, despite having mentioned in conversation to me personally that he could see a case for that, and might be in favour, because with just one supply of electricity, there would be no complications, or manpower considerations.

Will the tax thresholds - as last time - be adjusted to allow for the massive increase in JEC costs this year, or are the measures proposed to adjust tax thresholds last year just a "one off" which has been mostly wiped out by the staggering rise in the price of electricity? That was always the
weakness of the position advocated by John Le Fondre, that rising costs could wipe out any short term amelioration given by this strategy.

Here are a few more disappointing politicians:

Paul Routier:
JEP 31.03.08 record of election pledge: vote for exemptions
Actual result: voted against

Len Norman, Constable of St Clement
JEP 31.03.08 record of election pledge: vote for exemptions
Actual result: voted against

Well done to newcomer Ian Le Marquand for keeping his promise, despite being on the Council of Ministers; also to newcomer Deputies Higgins, Green, Rondel, Tadier, Wimberley and Dupre.

Whether for or against GST exemptions, I respect those with other convictions such as Sean Power or Ian Gorst.

What is less worthy of respect are election promises made and clearly broken - or in the case of Alan Maclean - as the JEP noted - a vaguely conditional form of words which tried to please everyone, but promised nothing in detail. He wins the Jim Hacker Award!

GST Exemptions - The Spectre of Complications

I have been reading Sean Power's election pamphlet in which he says he is against the idea of GST, but now that it is here, should be given time to settle down, and exemptions would create a bureaucratic VAT style UK nightmare. Notoriously, the case of the Jaffa cake illustrates this. Chocolate covered biscuits are a luxury and subject to VAT at 17.5%, but the manufacturers argued that Jaffa cakes were not biscuits but cakes, and therefore exempt!

I can see where he is coming from with regard to food, where the UK is notorious for some foodstuffs being charged VAT and some not. But what about heating and lighting expenses? The chain of supply is very limited here - electricity, gas, coal, domestic heating oil. Is it really so difficult to identify those and exclude them? And what about school uniform? As anyone with young children at school will tell you, school uniform is precisely defined by the school, and such a readily identified item again could easily be excluded. GST would still remain pretty simple if excluded from these.

So I am not convinced with this "spectre of complications" argument, which seems to look to the UK for the most complicated set up, and then assume that it would have to apply to every kind of exemption proposed. It doesn't, and I hope Deputy Power thinks again on this matter. With electricity costs threatened to rise by 25%, and a global recession on us, I am not sure we can afford to elect politicians who cannot allow any exemptions because of some rigid dogmatic stance. To those who go on about the need to "keep it simple", I would say to look at the global picture, look at proposals to lower VAT rates in the UK to help out, and don't behave like simpletons!

Bad Arguments on GST

If you make an exemption of GST then you benefit the richer rather than the poorer - that was Deputy John Le Fondre's argument according to BBC Radio Jersey. It is also the only cited by Peter Body and loads of other pundits writing to the JEP.

And it seems sensible, until you realise that the proposed exemption is on food.

As the late Benny Hill used to say, you can only eat so many meals in a day.

How are the richer people going to benefit more? There is not a huge margin between different foods, and who wants a permanent diet of caviar and lobster anyway? A Herald Tribune article on expensive foods mentioned "Beluga caviar and hippopotamus steaks" as the world's most expensive foods - who is going on a diet of those? I think Benny Hill had a very good point.

If the GST is coming off food and drink, the drink element is easily rectified for alcoholic beverages by increasing the duty - which after all is still a tax. That will offset any loss on champagne or fine wines etc.

Regarding restaurants, they are providing a service - so they will still be charging GST if their turnover is high enough, which the fits the most expensive ones. Are the rich people going to slum it down at the chip shop every night?

John Le Fondre's scheme benefits those getting income support or paying taxes. But what about people not paying taxes, because they are perhaps home owners on a small pension? Because they are home owners, they will probably not be eligible for much income support, yet they still have to eat. So these poorer people will not be better off.

Moreover, as food prices rise, so does the amount of tax gained by GST on food. Will the exemptions and income support be index linked to take account of cost of living rises on foodstuffs, or will it go up below that, so that more people end up paying GST on food in the long run.

This is an old government trick - the UK did it with inheritance tax, moving the thresholds up so slowly that now thousands of ordinary people are paying crippling taxes because house prices have increased - what decimated the landed gentry is now decimating ordinary families.

So I suspect that no firm index linking would be made, only political promises, which are often as ephemeral as the politicians who make them.

Links:
http://www.iht.com/articles/2008/07/17/business/17Forbes-expensivefoods.php

GST, Food and the Devil's Bargain

http://www.thisisjersey.com/2008/08/23/ministers-back-down-on-prices/

Ministers back down on prices By Ben Quérée
MINISTERS have been forced into an embarrassing U-turn on GST exemptions. Faced by the prospect of a defeat in the States over exempting food just weeks before the elections, they have agreed to mirror the UK system of exempting non-luxury food items from the 3% sales tax.

http://news.bbc.co.uk/1/hi/world/europe/jersey/7576431.stm

People living in Jersey will no longer be charged the goods and services tax (GST) on food in future. The Council of Ministers has decided to scrap the 3% tax on food from next spring because of increasing prices.

http://www5.channelonline.tv/news/templates/cinews2.aspx?articleid=16160&zoneid=2

GST on food in Jersey is to be scrapped. The Chief Minister, Senator Frank Walker, made the announcement this morning. It followed an emergency Council of Ministers meeting yesterday. .. GST was introduced in May and the levying of the three per cent tax on food was opposed by a number of States members. But the Chief Minister denied this morning's announcement amounted to a climb-down. Senator Frank Walker told Channel Online: "This is a positive and appropriate reaction to absolutely unprecedented increases in food and fuel costs. "It's no climb-down at all, the decision to keep GST at the lowest possible level and as simple as possible, as endorsed by the States on more than one occasion, was the right one at the time, but what we've done, while other governments talk about the increases in food and fuel costs that are international, they don't just apply to Jersey, we've reacted."

At first sight, a reading of the JEP article suggests that there are two kinds of food - "luxury" and "non-luxury", rather than the impression given by the other news stories that all food is "a non-luxury item" - in other words the kind of distinction made by Freddie Cohen, when he was suggesting GST would be taken off "healthy food". But the official statement at the Chief Ministers site does say "zero rating GST on food", so that is clear, despite the JEP saying "essential foodstuffs" and "non-luxury food items", which is terribly ambiguous, especially after Freddie Cohen's earlier suggestion.

(http://www.gov.je/ChiefMinister/News/CouncilofMinisters+responseto+foodandfuelpricerises.htm)

There is a sting in the tail, though, and that is the official statement about GST being brought in "at the lowest possible level and as simple as possible". Note the "at the lowest possible level". Now that it is off food, what remains of the devil's bargain that it would remain at 3% for the next five years, as that seemed to be the bargaining counter by the Council of Ministers when it was introduced without exemptions.

It is also not off food until next April, giving plenty of time for another U-turn, once the new States are firmly under a new Chief Minister, who will therefore be able to re-assess the situation. The statement is giving them all a good "breathing space" so that it is not an election issue, but there is plenty of time for other considerations to be made.

Another question - will we now see GST on the till, as a separate total for till receipts from retail outlets? If there is no way of assessing which are GST at 3% and which are zero rated, then if a business is registered for GST, and buying food and non-food items, how will it know what the GST element is? At the moment, it is simple to calculate back on the total to get the net and GST parts, because all items at a retail outlet have GST applied. But if that is no longer the case, we are going to need to see the GST element separately on till receipts, even if they are giving items marked at gross. It will therefore be possible to calculate how much is added by rounding differences over an "add GST at the till" alternative.

The arguments for exempting basic foodstuffs from GST

I came across an excellent paper which looks at "Sales Tax Equity Again: By Age Groups and Income Classes"

http://pfr.sagepub.com/cgi/content/abstract/6/3/343

It is American based, but none the poorer for that, because it has a wealth of data to draw upon, and it examines in detail, using empirical methods, and what the result is on different age groups and income classes of including a sales tax on food or excluding it.

The conclusion was that for "each age group the rate schedules based on the food-taxed structure are generally more regressive than those based on the food exempt structure". Indeed, "The exclusion of food from the base substantially reduces sales tax regressivity for each age group. This finding is not surprising; other studies which investigated the equity effects of food exemption, regardless of characteristics such as age, have obtained similar results."

All taxes hit different groups at different rates; a regressive tax, like GST, will always hit the poorer harder than the richer. But what is significant is the extent to which this occurs with food taxed; remove food from the equation, and while the tax still displays some inequity in its effects, that regressive impact is considerably reduced.

The report also highlights pertinent facts regarding exempting food from sales tax.

(1) The principle of horizontal equity ("equal treatment of equals") is violated generally for each of the three age groups, in that each group bears varying sales tax burden at comparable income levels, whether subject to the food-taxed or food-exempt structure.

(2) In most income classes, the burden is usually the highest for families with heads in the 35-44 age group, followed by the under-25 group, and then the 65-and-over group. This phenomenon holds particularly in the lower income classes.

(3) These horizontal inequities are less pronounced under the food-exempt structure than under the food-taxed structure.

(4) For each age group the tax burden differentials under the two structures are greater in the lower income classes and narrower in the higher classes. This is to be expected, since food expenditures tend to be a larger fraction of the lower income budgets than of the higher income groups.

Having seen these details, I am personally convinced that the GST on food is a tax which effects mainly the poor and vulnerable sections of society, and while support can be proffered (albeit with the ritual humiliation of a 20 page means test), it is by no means clear that this will mitigate the effects of GST sufficiently, and it is clear that it certainly will only help the very poor.

Those on the margins, perhaps pensioners owning their own home, or with small private pensions, or those earning just enough to be outside the support limits, will face this burden.

And if you are interested, in the USA, to cushion the effects on the poor, twenty-seven of the forty-five states that levy a general sales tax exempt food purchased for home consumption. Another three states tax food at reduced rates.