Taxing matters

I have been rather amused by the sudden realisation by the middle class of Jersey that their so wonderfully effective and efficient low taxing government is costing them more in tax than if they lived in the UK.  It has long been thus for some lower earners.  Actually it has also been the case for many who save and invest personally too  - if they had taken advantage of the UK's (now defunct) PEP's and still going  ISA's.  There are indeed a few who have amassed a tax free million pot.  See How to be an ISA millionaire Even at the FTSE100 dividend yield of  around. 3.5% that's £35,000 income  tax free.  Of course Jersey has no equivalent to these tax efficient saving and investing schemes


For lower earners the problem is the Jersey government's inability to comprehend that  increasing tax thresholds don't help those who fall somewhat below the thresholds.  In the  UK many equivalents of child allowances etc are credits - paid items, not exemptions.  In effect they boost income rather than allow a reduced tax bill.  It makes a difference because of course in Jersey once you are a 0 rate tax payer that's the end of the benefit.  So if like me your income is  below the thresholds by more than  a child's allowance, that allowance is worthless. That situation  does not occur in the UK where tax credits are paid.


Nor is it the case that such people will be  cushioned by having social security benefits.  The ability to claim those is quickly eroded by the  impact of capital  the potential claimant may have.  And this is not just theoretical stuff.


Each government department in Jersey  has a different perception about what is and isn't in need of assistance.  Equally each appears to think any income or assets you might have can be applied to offset any help you might get from their department alone. You can lose several times over as the same capital or income is used against you by each department  that might otherwise help.  It is a fine example of the inconsistent approach of a piecemeal  non-system without any common coherent thinking.  It is unsurprising given we elect individuals who have between them  no coherent strategy and each policy is a cobbled together compromise of individualist  foibles and interests. There is no plan or design or underpining philosophy here.


Thus it is quite possible to be in the situation I find myself.  No income tax, health charge or care charge to pay because our income falls way short of the threshold in marginal taxation.  Since I am not an employee I don't pay class 1 social security.  I am theoretically liable to play full class 2 social security ( ~£6,000 per year!), but even they have realised you cannot get blood from a stone.  Asking people with income  significantly below the tax threshold to pay that sort of money is madness.  So I have an exception. Of course I'm not entitled to most benefits and not building my pension contribution.


You might have the picture from the foregoing that we are not exactly rolling in it.  But the Education Department would disagree.  If either of my bright children want to go to university in a few years time I am, according to them, so well off that we wouldn't get a penny in help with the living costs or tuition fees.


I'll leave it to you dear reader to figure out the logic of how you can be so poor as to not be liable for tax or social security payments but simultaneously be so well off you can be expected to find £60,000 plus for each child to go to university. 

Priorities

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 7^th 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.

1/ http://ije.oxfordjournals.org/content/early/2011/03/16/ije.dyr061.full

2/ http://steadystate.org/discover/

3/ http://unearthnews.org/2013/10/01/earth-overshoot-day-how-can-we-reduce-our-ecological-footprint/