Tuesday, 24 February 2015

Has Singapore blinked first?

Today Singapore has increased its top rate of income tax from 20 to 22 percent for highest earners. 1  It is the first increase in the top rate in many decades.  Importantly Singapore is often seen as the far east competitor to Jersey for  finance business, and it has been  suggested we have lost some  business to them in recent years.  Like us Singapore is an island state, though it has long since given up on farming  and greenery and opted for high rise high density living.  Many fear it is the model for our future if some have their way.

The move can hardly be surprising - they are subject to similar global influences on their government finances as we are. In being the first to raise the top rate they have undermined the  'we must compete' argument touted in the other offshore centres whom also have currently a 20 percent top rate.  Given the parlous position of  the States of Jersey finances the temptation must be significant. 

The real question though is who  between the Crown dependencies will blink first on the issue of 0/10 .  That's the basis of the really big loss of income to our government in recent years.  The current situation cannot persist

1 http://www.bloomberg.com/news/articles/2015-02-23/singapore-raises-taxes-on-top-earners-to-pay-for-social-spending

Friday, 13 February 2015

Divestment action day

February 13-14th is global divestment day. Here's the letter I sent to the  JEP calling for a small step by the States of Jersey in support of that aim.

Thursday, 12 February 2015


I have tried a number of times to compose a response to the Council of Ministers' proposed priorities 2015-18 document. It has been challenging not least because the document makes absolutely no sense to me. Which is a great pity as I broadly agree at least two of the four priorities ought to be objectives for the life of this elected States.  So instead of a structured posting I'm going to post some observations and see if someone elese can make a coherent formulation of either the Ministers' priorities or my notes.

I'll start at the beginning – the contents page. Now you know things are bad when even the contents page causes a problem. We have three sections presented - setting the scene, then developing the priorities, followed by creating a sustainable future. The first two seem sensible, but the third does not flow or follow. The largest part of the section has nothing to say about the future, it spends much of its wording giving justification for the selection of the four priorities. But crucially a sustainable future is NOT one of those priorities. Why would you have a major heading of a section with a title that is most definitely not what the document is not about? Either it is grossly incompetent or there is a will to deceive the casual reader of the real nature of the contents.

It is very confusing to have page numbers the header of part of the document, but not all of it. It makes referencing difficult as the on screen display does not match the layout version.

On to the Introduction. Nothing much there about the content, but why include a whole blank page with just the word Introduction on it? A complete waste for anyone who had decided to print the document.  

Setting the scene. Now things get 'interesting' . The report starts with a quote from the OECD wellbeing report. What is said is true, but it is simultaneously a half truth. The cherry picked bits are all the positives.

Notice the areas where we scored particularly badly both relatively and absolutely - civic engagement and environmental quality - do not figure in the Council of Minsiters' priorities.

At the foot of the page we have a statement “Over the next 20 years the number of people over-65 will double and there will be nearly three times as many people over-85. Fewer people working, fewer people paying tax, more demands on our health and pension systems. This is unsustainable.” The first sentence is probably true, but I note there are reasons to think life expectancy here is declining see 1 .The second sentence is almost certainly false. People do not stop being tax payers at 65 or 85 years old. Since the introduction of GST it is almost certain that everyone resident in the Island pays some tax - one of the great 'benefits' claimed by the proponents when it was introduced.

The details on page 8 are inconsistent. On the third paragraph it reads To enable us to meet this financial challenge, we need to drive productivity-led economic growth". By the 7th paragraph this imperative had transformed into "Economic growth and public sector productivity are our preferred options to meet the financial challenges we face”. We do not need to do something if it is a specific form of an option. There seems to be some very woolly thinking, or is it simply mantra regurgitation occurring here?

Health and wellbeing is covered on page 9 (or is it 8?), and there are some laudable aims here. But again we have a sentence that causes great concern. At the end of paragraph 4 we read "Declining health leads to social exclusion, loss of earnings, and adverse consequences in the wider economy." But in the section quoted here two paragraphs above we were led to think that it was the ageing population that was creating a health demand problem. Retired people do not in general lose earnings being ill because in general they are not working and so not earning in the first place. Again there seems to be some fundamental inconsistency in the minds of the ministers here.

Page 12 is the education section. Saying I have misgivings about the thrust of this section would be an understatement. More than once this section suggests that the purpose of education is to mould children and youths into supporting the economy. It is quite disgraceful to write "The fact that some of our children are not fulfilling their true potential is a waste of Jersey’s
most precious resource – our people - and an economic inefficiency we can ill afford” This notion that people exist and are valued only by the extent they make an economic contribution is outrageous. I don't believe I have seen such an unspeakably illiberal suggestion since a former Home Affairs Minister said he wanted more political control of the police force.

There is a practical problem with the proposal "Jersey’s education system is aligned to, and supports, the Island’s economic needs” It takes a decade or more to educate and train someone . We have little idea what will be the economic need in ten years time. Several members of the Council of Ministers were in the States a decade ago . How many of them then were arguing bringing propositions etc for IT education to train a generation for today's digital economy?

A remark must be made about the quote in this section: "Education is the most powerful weapon you can use to change the world". I think this is quite inappropriate to use here. Madiba first gave that quote on his visit to Boston in 1990 , just months after his release from prison. He was not talking about education his people for taking jobs in the white controlled economy of the day – he had supported campaign for divestment from South Africa! He was talking about the sort of change of world that the OECD has us scored as 0 in the the wellbeing report cited above.

Economic growth is the final priority, addressed on page 13. I cannot recall a time when the States of Jersey didn't have economic growth as a priority. It seems we just cannot get enough of it. This time round we have a new twist. This is not ordinary economic growth this is Council of Ministers' sustainable productivity-led economic growth.

In theory one can achieve a long running period of economic growth from efficiency improvements without any increase in material consumption or pollution or population growth. It is extraordinarily hard however as countless governments around the world have discovered when they have tried it. There is a rapidly diminishing return on the effort involved. It would require a society of less work and increasing low energy, low consumption leisure activity. That goes against several generations of belief that increased material and financial acquisition is the way to a better future. And therein lies the problem.

If the policy succeeds we have more people on average with more disposable income, and more tax revenue for the States presumably, but equally the potential to consume even more than now. That's not a good outcome in the face of resource limits, climate change and the ecology of the Island. But what if educated, well trained people are not motivated to have more money. Also there is nothing to suggest we would tackle the increasing inequality in income and wealth that would be expected produce. Then the policy fails as more and more comfortably off people effectively downshift work and lives at ever earlier ages.

Even if that were the intention it is quite unclear if it might be manageable. The current global economic conditions are quite unlike any in the lifetime of any of our currently elected politicians out side perhaps of Japan. Half decade lows in prices of gold, oil, iron ore, copper, corn and interest rates point clearly to a deflationary environment. Growth of any sort under such circumstances is a rare thing. The goldilocks economics proposed by the Council of Ministers works the other way round – the productivity gains eg from new technology, produces price deflation (and increased consumption). We have it the other way round – a sequence more likely to lead to recession. The more likely outcome is lower costs, lower wages and an even lower tax revenue for the States. What is suggested is a step closer to what is needed than any previous growth ambitions of the States. It is still some way however from the steady state economy2 that I would advocate.

Of course I have again to comment on the quote. “Someone's sitting in the shade of a tree today because someone planted a tree a long time ago”. Warren Buffet . You might think that in an Island so dependent on the finance industry they would have got right the spelling of the name of probably the world's most famous living investor -Warren Buffett. If you cannot get such an easily checked detail right .........

Of course Mr Buffett was referring to investing for the long term (smart man - he's right too on that aspect). However there is also a deep fallacy in that quote. It is not the case that all trees are planted by someone. Who do you think planted the Amazon, or the taiga, or the great rainforests of Africa? Trees for the most part are self seeded, they are the bounty of nature. When you start thinking that a tree can only be because someone planted it, you are in danger of thinking all that is of value is that which humans create. It also underlines a critical point so often overlooked in economics. It is nature who provides 'free services' like trees and pollinators and rain without which we would have no economy. We cannot have a sustainable economy, let alone growth, unless we have a sustainable underpinning foundation – the ecosystem services. As our species consumes and pollutes increasingly beyond the capacity of the planet 3 , as it has done since the 1970's, we get further and further from that possibility.