States Meeting Transcript - 25/10/2006

STATES OF JERSEY OFFICIAL REPORT

WEDNESDAY, 25th OCTOBER 2006

PUBLIC BUSINESS – RESUMPTION..........................................................3

1. Goods and Services Tax: exempt or zero-rated items (P.86/2006)......................3

The Bailiff :....................................................................................3

1. Senator M.E. Vibert :.....................................................................3 Deputy C.J. Scott Warr en of St. Saviour:......................................................5
2. Connétable S.A. Yates of St. Martin:....................................................6
3. Deputy J. Gallichan of St. Mary:.........................................................6
4. Connétable A.S. Crowcroft of St. Helier:................................................8
5. Deputy R.G. Le Hérissier of St. Saviour:................................................9
6. Deputy G.C.L. Baudains of St. Clement : ...............................................10
7. Deputy J.B. Fox of St. Helier:..........................................................11
8. Deputy I.J. Gorst of St. Clement:.......................................................12
9. Deputy P.N. Troy ofSt.Brelade:.......................................................13
10. Deputy G.W.J. de Faye of St. Helier:...................................................14
11. Deputy P.J.D. Ryan of St. Helier : ......................................................16
12. Senator B.E. Shenton:..................................................................20
13. Connétable M.K. Jackson of St. Brelade:...............................................22
14. Senator L. Norman: ....................................................................23
15. Connétable J.LeS. Gallichan of Trinity :................................................24
16. Deputy F.J. Hill of St. Martin : ..........................................................24
17. Connétable D.J. Murphy of Grouville :..................................................26
18. Senator F.H. Walker :...................................................................26 Senator T.A. Le Sueur:.......................................................................29 Deputy P.N. Troy : ............................................................................30 Deputy C.J. Scott Warr en: ....................................................................30 The Bailiff :...................................................................................30
19. Deputy S.Pitman:......................................................................30
20. Deputy D.W. Mezbourian of St. Lawrence : ............................................30
21. Senator W. Kinnard:....................................................................31 The Bailiff :...................................................................................32

LUNCHTIME ADJOURNMENT...............................................................32 PUBLIC BUSINESS (Continued)...............................................................33

Goods and Services Tax: exempt or zero-rated items (P.86/2006) (continued) ..............33

The Greffier of the States (in the Chair):......................................................33

22. Deputy A.J.H. Maclean of St. Helier:...................................................33
23. Senator S. Syvret:......................................................................34 The Greffier of the States (in the Chair):......................................................37 The Greffier of the States (in the Chair):......................................................41 The Greffier of the States (in the Chair):......................................................46

2. Fields 190 and 192, Rue de la Sergente, St. Brelade : petition (P.75/2006).............47

The Greffier of the States (in the Chair):......................................................47 Deputy P.N. Troy : ............................................................................47 Senator F.E. Cohen (The Minister for Planning and Environment):...........................48

The Connétable of St. Brelade : ...............................................................48

1. Deputy S. Power of St. Brelade : ........................................................48
2. Deputy K.C. Lewis of St. Saviour:......................................................51
3. Deputy J.J. Huet of St. Helier : ..........................................................51
4. Deputy S.C. Ferguson of St. Brelade : ..................................................52
5. Deputy J.B. Fox:........................................................................53 Deputy R.G. Le Hérissier:....................................................................54
6. Deputy G.C.L. Baudains:...............................................................55
7. Senator T.J. Le Main: ..................................................................55
8. Deputy C.J. Scott Warr en: ..............................................................56
9. Deputy R.C. Duhamel of St. Saviour:..................................................56
10. Senator P.F.C. Ozouf :..................................................................57
11. Deputy J.A. Martin of St. Helier:.......................................................58
12. Deputy C.H. Egré of St. Peter:..........................................................59
13. Senator J.L. Perchard:..................................................................59 Deputy F.J. Hill of St. Martin : ................................................................60
14. The Connétable of St. Brelade:.........................................................60
15. Deputy J. Gallichan: ....................................................................61
16. Deputy G.W.J. de Faye:................................................................61
17. Deputy A.D. Lewis of St. John : ........................................................62
18. Deputy J.A.N. Le Fondré of St. Lawrence : .............................................62
19. Deputy S.Power:.......................................................................63 The Bailiff :...................................................................................64

3. Composting Facilities at La Collette, St. Helier : cessation (P.76/2006)................65

The Bailiff :...................................................................................65 Senator J.L. Perchard:........................................................................65

1. Deputy G.C.L. Baudains:...............................................................65
2. Deputy J.J. Huet:.......................................................................67
3. Senator P.F. Routier: ...................................................................69 Deputy G.W.J. de Faye:......................................................................69
4. Deputy K.C. Lewis :....................................................................70
5. Deputy J.B. Fox:........................................................................70

ADJOURNMENT PROPOSED.................................................................71 Deputy R.G. Le Hérissier:....................................................................71 The Greffier of the States (in the Chair):......................................................71

ADJOURNMENT................................................................................71 The Greffier of the States (in the Chair):......................................................71

The Roll was called and the Dean led the Assembly in Prayer. PUBLIC BUSINESS – RESUMPTION

1. Goods and Services Tax: exempt or zero-rated items (P.86/2006)

The Bailiff :

The debate continues on the proposition of Senator Syvret. Does any other Member wish to speak, or may I call Senator Syvret to reply?

1. Senator M.E. Vibert :

I would be surprised if I am the only one who is going to speak before Senator Syvret's reply, but someone has to set off. It seems like a case of déjà vu for me because, certainly, this is the third time we are debating the issue. I appreciate for the new Members it is the first time, and I think it is a very important first time for them. They may have had some of the same reactions as I had when the idea of sales tax was first mentioned. When it was first mentioned, my instant reaction was we must have loads of exemptions for all those things that Senator Syvret has listed. That was my instant reaction. I wanted to exempt everything. Like everyone else, I did not really want the tax at all. But, as I looked into it, I accepted we must have G.S.T. to make up the shortfall in income because of Zero/10.' So it is to pay for the social services provided by the State. The more I looked at it, and the more hard evidence I examined, I realised my first reaction in favour of a whole host of exemptions was totally wrong. All the evidence showed a low, simple flat rate covering all goods is the right choice. As this is the third time we are debating this issue, I believe those State Members who have already debated the issue twice and made up their minds twice are unlikely to change their minds. I say "unlikely" particularly as no new arguments in favour of exemptions have been brought forward by Senator Syvret or anyone else speaking in favour of them. It is the same old arguments rehashed which have been rejected twice before. I am afraid to say that if - as I hope - we reject them again, I am not certain we will have seen the end of it because when the Regulations come out no doubt we might see another attempt yet again. But for States Members who have not been here before to debate the issue, I believe it is important they consider the evidence and do not let emotion rule logic, but the other way around. I believe it is everybody's duty in this House to consider what is in the best interest of the Island as a whole, not just what vociferous lobby groups championing the case of one particular exemption want, but what is best for the Island and all the people of the Island overall. It is always the duty of States Members to

consider the best interests of the Island as a whole, not to vote for what is most popular. Not to vote because it makes us feel better because we feel emotionally it is wrong to put any tax on these things; not that easy option. Not to vote to satisfy a particular political creed, but to vote for what is best for the Island and all Islanders as a whole and on all the evidence presented to us. So, I believe if States Members do that, then the only conclusion of what is best for the Island and all Islanders as a whole is to stick with a low, flat rate on everything and reject the confused and complex exemption amendments. I would describe the exemptions as pick-and-mix, except I am not sure if they would qualify for an exemption or not. Let us be clear that by proposing these exemptions it is not that Senator Syvret wants to tax everybody less. He does not. The Senator wants to tax everybody more. He has admitted that. He just wants to do it in a different way. He is on record as believing Jersey is under-taxed and should be taxed more. Interestingly, as an alternative to what we would have to do - which is raise the general rate of G.S.T. (Goods and Services Tax) if these exemptions were allowed - the Senator suggested other ways of doing it, even raising income tax to 21 pence. It is interesting because the Senator insists that G.S.T. will inevitably rise. I just wonder if we went for raising income tax instead, would it not also be inevitable, once we had broken that 20 per cent rule that has served us so well for half a century, that that would continue to rise as well? How soon before the Senator will obviously be wanting that to rise to 22p, 25p, 30p? No. This amendment of the Senator's is a proposal not to reduce taxes but just to tax people differently,

and all the many other ways that have been previously suggested by Senator Syvret and Deputy Southern have been overwhelmingly rejected by this House because they were not in the best interest of the Island. If we agree any of these proposed exemptions, either another tax will have to be found or we will have to raise G.S.T. on the non-exempted items, which is self-defeating because this simply hits the less well-off in another way. The very people Senator Syvret says he wants to help will just be paying in G.S.T. on other items. I think one of the most unbelievable aspects of this debate has been that the U.K. model of V.A.T. (Value Added Tax) has almost been held up as an example for us to follow. The exemptions proposed are closely modelled on the U.K. system. We are told it would be easy to follow the U.K. system because everything has been worked out. Well, we heard from Deputy Le Fondré yesterday the complexities of it. Has everything been so well worked out that the U.K. V.A.T. system is generally regarded as the worst sales-tax system in the world? Everything so well worked out that the U.K. government has to spend billions of pounds every year on enforcement and anti-avoidance measures? So well worked out it is accepted V.A.T. fraud costs the U.K. government billions of pounds in lost revenue each year? That is a system it is proposed we follow? I was surprised to hear Senator Syvret say: "Do not compare with New Zealand." Why not? I think the answer is because they have introduced a flat- rate system there that works well, and that does not suit the Senator's argument. I did not hear any evidence produced as to why a similar low, flat-rate system would not work as well here, no evidence at all. It is evidence I would urge Members to pay heed to. Not to emotive populist slogans such as making people pay tax on their bandages. For evidence, we not only have all the information supplied by the Treasury, we are also indebted to the Corporate Affairs Scrutiny Panel for their report, and it has been used by those arguing for the exemptions, if very selectively. I believe the report, overall, very clearly demonstrates the advantages of a low, flat-rate system over a system involving a plethora of different exemptions. The Panel asks States Members to make up their own minds, but the evidence is clear for those who have an open mind and are prepared to accept it. Finally, I wish to address briefly the assumption of the inevitability - if one listens to those in favour of exemptions - that G.S.T. is going to rise and rise. I do not believe it is inevitable, and it does not say much for those who do believe it is inevitable for their faith in their fellow States Members because it is this Assembly that would have to sanction any further rises in G.S.T. But one thing I do believe for sure and that is if we agree all the exemptions proposed, then it will be much easier for the rate of G.S.T. to be raised in future. What will there be to stop it? The argument will be G.S.T. is not on all these so-called essential items, so there is no reason not to hike it up. In fact, Sir, I would not be at all surprised if those proposing these exemptions and those who believe we are under-taxed and need to raise more tax are not the first in the queue to propose a rise, if these exemptions are agreed. No, Sir, I believe to try to ensure the rate of G.S.T. stays as low as possible, and that it remains as hard to raise as possible, it is vital there are as few exemptions as possible. Others have gone through some of the proposed exemptions. I have no intention of getting involved in arguments about whether gingerbread men have got a smiley face or not, but unfortunately that is the sort of argument that will have to be had if we agree these exemptions, particularly over locally produced products in future because they will not have been decided beforehand. I believe, Sir, it is right and expected that I, as Education, Sport and Culture Minister, should address the education and related issues. G.S.T. on school fees has been raised. I believe the Scrutiny Panel's report shows that if an exemption was allowed on this it would be the most regressive of all exemptions. It would help the really well-off at the expense of the not so well-off and do nothing at all for the least well-off. Individual fee-paying schools differ vastly in the affluence of the parents who send their children there, but the exemptions would apply to all in the same way. I accept and know a number of parents do struggle and work hard to send their children to fee-paying schools, and they should be supported. Education, Sport and Culture has a track record of working with and helping the fee-paying schools as and when help is required, and I believe that is how the situation should continue. There should not be a blanket exemption on all school fees for all parents. Instead, help should be provided where it is needed. My offer to meet

schools is reported in the Scrutiny Panel's report. I am quite willing to discuss the impact of G.S.T. and how we can ensure the continued financial viability and quality of provision of the school stance. Schools and parents are already helped in a targeted way, and this should continue and should be the way in which any adverse effects of G.S.T. on school fees should be met. I also noted the Treasury and Resources Minister's response to the Scrutiny Panel, quoted on page 45 of their report and if I could find page 45, I would just mention that quote because I will be holding the Treasury and Resources Minister to it in further discussions we are going to have on the issue. This is the Treasury and Resources Minister's quote: "If you are trying to solve a problem of funding particular education establishments, is that better done through an educational route by changing the grant structure to those institutions or by messing about with the tax system?" He goes on to say: "I am saying I want to keep this tax system simple. If it means, for example, you would lose - let us say - £500,000 worth of G.S.T. revenue from the school but equally give them a £500,000 grant to recompense that, well, why go around in circles and make things more complicated? I think there is a danger if we try to solve problems by making the tax systems more complicated without making the rest of the operation any simpler." The Sub-Panel's comment is: "The Sub- Panel welcome the suggestion and believes the Minister should give a firm commitment to the schools to this effect, in order to relieve the concerns of many parents." I am already in discussion with the Treasury Minister about these issues. As I said, we have helped the fee-paying schools in the past, particularly with millions of pounds provided for capital projects, and we will help them out again in the future, if needed. One of the fee-paying primary schools had great difficulties. We raised the percentage of the age-weighted pupil unit we provide them with so they could continue operating. Childcare costs is another area where there is a proposed exemption. Again, I believe there are far better ways of helping with childcare costs than a blanket exemption. We are currently working on a review of provision for 0 to 5 year olds and that review's terms of reference include consideration of appropriate arrangements for financial support, including tax benefits and allowances. That review will be reported back before the end of the year, and I want it to target help where it is most needed, not just give it out to all and sundry, whether they can well afford it or not. I believe, Sir, at the very heart of this debate is do you target benefits so as to give as much help as possible to those who really need it, or do you use the blunt instrument of exemptions and have less, in effect, to give to those really in need because you have given it out to everybody? This Assembly has agreed the way forward to help those in need is an income-support system, but the pro-exempters cry: "We do not know the level that will be at. We do not know how much money will be made available." No, at this stage we do not, but we do know the Treasury Minister has given an undertaking that as much money as is needed to protect the less well-off from the effects of G.S.T. will be provided. Who has the final say on how much will be made available to protect the less well-off from the impact of GST? This Assembly: us. It is in Members' own hands to ensure the protection is adequate. So, those protests about we do not know exactly how much will be available ring very hollow and, again, demonstrate very little faith in this Assembly. The key to this debate, and I believe everyone on all sides should be able to agree with this, is how best to help the least well-off with the introduction of G.S.T. Is it to exempt whole categories of items for everyone, regardless of wealth, and to have a higher rate of GST on everything else? Or is it better to have a low, flat tax rate and target more help to those who need it? Sir, I believe we all want to achieve what is best for the Island overall, and in this particular case ensure the least well-off are protected as much as possible from any adverse effects of this new G.S.T. tax. It is a question of how best to achieve this. Sir, I urge all Members to look at the evidence and, on that evidence, to

accept targeting help is the way to achieve this and reject all the exemptions proposed.

Deputy C.J. Scott Warr en of St. Saviour :

If I could just say, Senator Vibert yesterday said he had not heard any evidence against the New Zealand model when in my speech, towards the end, I did point out the cost of living is considerably lower, I believe, in those Antipodean areas.

Senator M.E. Vibert :

I did not regard that as evidence because if the cost of living is lower then so is the cost of wages.

2. Connétable S.A. Yates of St. Martin :

This proposition has implications concerning the well-being of my parishioners, and I feel I ought to make a contribution, albeit it will be brief. I am one of the new Members, Sir, and I am seeing the whole saga through fresh eyes. I found the speech of the Health Minister extremely persuasive. How could we be thinking of taxing basic foodstuffs, the sick, childcare, fuel and energy? Are these not the very fundamentals of life? The presentation was statesmanlike and most convincing, and it was a great pity it was slightly spoiled by a couple of derogatory references to gin palaces and houses in the countryside. However, it was a good speech, and I felt it worthy of support. I listened with interest to Members speak in favour and others speak against. I was somewhat reassured by the speech of the Minister for Social Security and his explanation of the effects on medical and prescription charges and the way the new income support system will protect people in need from the unaffordable bills of basic living costs. Then came the speech of the Treasury Minister, where he described the complications that exemptions would cause and that the basic rate of 3 per cent G.S.T. would definitely have to be increased drastically. His explanation of the 4-component package of measures of G.S.T., I.T.I.S. (Income Tax Instalment System), income support and Zero/10' was totally convincing, and for me, I suppose, the penny finally dropped. It took all day, but it got there in the end. The needy will be protected by the income support system. As Connétable , I have a legal duty to care for the aged, the very young, the poor, the disabled and the people who cannot look after their own affairs in my Parish. This is a continuing obligation. I am an enthusiastic supporter of the concept of income support. If it fails to deliver, I will be its severest critic. Sir, I will be voting against the proposition.

3. Deputy J. Gallichan of St. Mary :

I have to say this projet has presented me with more of a dilemma than any other I have so far debated. It has made me compare and contrast my instincts - what comes from my heart, if you like - with what my head is telling me. Just about one year ago, I was voicing my concerns that the introduction of G.S.T. would hit those on fixed incomes very hard indeed; that the effect of mid- income families with a mortgage and perhaps children at university would be punitive. I was especially concerned the apparent panacea of income support, then quite a vague concept, and even now lacking any kind of fine detail, would be used to counter worries of the poorest families being unable to cope. Then, as now, I was concerned G.S.T. would in fact push more families into income support and surely this cannot be the intention of a socially responsible government. I called then for a debate on the possibility of exempting items such as food and medical expenses, and today I have the opportunity for that debate. For that, I thank Senator Syvret. Since then, however, I have learned a great deal more about G.S.T. I have looked for evidence. I still have to say that as far as I am concerned this is the wrong debate. Personally, I do not believe G.S.T. necessarily offers the best or simplest method of obtaining additional revenue. I believe our fiscal strategy would have been enhanced and strengthened had it been debated now, with the input of the full and refined Scrutiny process which has now been established. But, of course, that issue is no longer on the table. As so many other Members are fond of saying, we are where we are. The question today is confined to whether or not we have 6 exemptions, and the arguments on both sides are formidable. In the end, in my mind, it comes down to simplicity of operation and transparency of administration. The Treasury and Resources Minister has suggested that to include exemptions would increase the cost of collection of this tax by a staggering 100 per cent and that the administration would rise from 10 staff to 20 staff. I believe these figures are too high, but I also believe, based on past examples of bureaucracy and complexity of regulation that the true cost of collection without exemptions may well prove to have been understated. If I am right - and I hope I am not - but if the cost of implementing G.S.T. rises, I do not want this rise to be hidden under the excuse of being due to exemptions. Treasury and Resources have provided their costs for a simple, flat rate tax, and I for one intend to hold them accountable to those costs. I advise the Minister now

I will not accept any weak excuses for the costs of collection increasing beyond those predicated, and I expect him to keep the States' administration of G.S.T. simple and efficient for that reason. Likewise, I expect him to make it simple and cheap for businesses, large and small, to implement and collect. Furthermore, I have been persuaded by evidence that the benefit of exemptions on those in the bottom quintile of the income distribution, while significant to those households, will be relatively small and that the section of the population I am most concerned with here - those people who fall just above the income support level - will benefit even less. This, coupled with the possibility, even likelihood, that the tax rate will be increased as a result will mean these very people I am concerned about will effectively pay more G.S.T. on all the non-exempt items and so will end up worse off overall. Deputy Scott Warr en, for one, suggested it was justified to charge more for luxury items in order to still raise the required £45 million, i.e. to raise the basic rate after allowing exemptions. Luxury items are one thing. I merely point out there are many, many items not on that list of exemptions which are clearly not luxuries. I will give you here just 2 examples: tickets for the school bus (£5 per child at the moment), tanker charges for emptying your septic tank. There are many things which are essential, unavoidable, but which will probably attract G.S.T. at a greater rate than 3 per cent in order to fund the exemptions under discussion now. The dilemma surely is if we introduce exemptions where is the fairest place to stop? Well, in fact, like many other Members, I might, for various reasons, have been persuaded to consider an exemption for medical services as opposed to products, but the proposition as drafted does not allow for this. I would also like to have clarification, if the rules of debate allow, that what was referred to in the Education Minister's speech is there an actual commitment from the Treasury and Resources Minister to deal with the question of G.S.T. on school fees by a mechanism of increased grant aid? Like other Members, I have received much correspondence from the smallest specialist traders who are concerned they will lose out sales to Internet stores which have lower unit costs and so can offer seemingly better deals, especially when the value of exempt imports has yet to be determined. They have very real worries about their future viability. If we allow the opportunity for increasing basic rate G.S.T. at the outset, that viability is further jeopardised. I am also convinced it would not have only been simpler, from the shopkeepers' point of view, to apply G.S.T. as a flat percentage of the total value of all goods purchased but that also the consumer would prefer to have it shown in this way, to indicate precisely the amount of G.S.T. they are paying for each transaction rather than having it hidden in the cost of each item. This also deals neatly with the question of rounding up the G.S.T. on various items, which over the course of the year in the average shopping basket will run into tens of pounds. In this scenario, there would only be one rounding up per transaction, at the till. Senator Syvret, in moving his projet, made several references to the proposal to zero-rate property maintenance costs, and I strongly agree with the findings of the Corporate Services Scrutiny Panel that this would be inconsistent with the Treasury's stance on other exemptions, and I hope the Minister will consider carefully the findings and reasoning of the Panel in this respect. I see this matter, however, as a minus point to the G.S.T. proposals rather than a plus point to the current projet, and the House will have the chance to debate this at the appropriate time. In the end, as has been highlighted by other speakers, G.S.T. is only one spoke in the wheel of the fiscal strategy and

must be viewed in that context. My concerns - that the poor are being unfairly targeted by G.S.T. - must be weighed in the scales against the progressive measures of 20 means 20', which will proportionally increase the direct tax burden on the higher earners. My desire - in fact my commitment - is to make sure all sections of the population are treated fairly, and that means I must consider the impact of G.S.T. on those in the second and third quintiles, as well as the first. It is up to this House in future to make sure the income support system takes adequate care of those who qualify, but it is up to us now to make sure we do not allow the overall burden to be increased on those who fall just outside the limit by effectively offering the Treasury and Resources Minister an invitation to increase the basic rate across the vast majority of items. For these reasons, and after a great deal of reflection and research, I am unable to support Senator Syvret's proposals. I will, however, be abstaining on the issue of the health exemptions. I do not do this lightly. I believe this will be the first time I have abstained, but I do it as the only means open to me in this debate to send a strong message to the Treasury and Resources Minister to consider a sympathetic treatment of medical services - doctors, dentists and opticians - in his G.S.T. proposals. I would encourage other like-minded Members of the House to do the same. [Approbation]

4. Connétable A.S. Crowcroft of St. Helier :

It is going to be a hard act to follow, but I will do my best. Although I have been in the House for nearly 10 years, I find myself this morning in a similar position to many of the new Members, in relation to the Fiscal Strategy. That is because the grounds of my support for the Fiscal Strategy have effectively been pulled away from underneath my feet. Before the strategy was debated, I had a considerable amount of representation about the harmful effects of G.S.T. from my constituents. Even the small businesses or those likely to come below the threshold were concerned about the loss of our tax-free shopping status and the appeal that has to our visitors. "Only 3 per cent" I assured them. "But for how long?" was their answer. "Everyone else has a sales tax" I told them. "Why not keep Jersey special?" was their answer. However, I was persuaded because in one particular meeting in the members' room of the Société Jersiaise, I was extremely impressed by the plans that were revealed to cut public spending and to make the States more efficient and effectively to make sure we do our part to mitigate the effects of declining income taxation in the future. It was on those grounds I supported the Fiscal Strategy. Members can appreciate, I hope, how duped - deceived - I felt when, as soon as they took office, the Council of Ministers announced that money was going to be reinvested in services. I believe a lot of members of the public feel the same way. The States said: "G.S.T. is necessary, but we are going to cut our costs." Lo and behold, the Ministerial government come in and that money is, in a truly Orwellian piece of English, reinvested. Of course, Senator Syvret's Committee is one of the main recipients of that reinvestment. So, I find myself almost in almost a position of facing the Fiscal Strategy all over again, and I wonder what to say now about G.S.T. My instinct is to go with the amendments proposed by Senator Syvret. Why should I follow, effectively, an unpopular line, which I did last time around, now that the public savings we were promised appear to have been reinvested? Then I was thinking: "What that means is I will be going back to my constituents to say: "Well, the 3 per cent is going to go up. It is going to be more like 4 per cent or 5 per cent." One thing has struck me in the recent run-up to this debate. We have had a spate of emails in the past few days in particular, and we have had them further back, particularly about education, about exemptions, asking us to support exemptions. But the ongoing complaint I have had since last year is not about exemptions; it is about G.S.T. That is what I believe people are concerned about, and if there were to be a campaign against G.S.T., even now, even though we are where we are, I would support it. No to G.S.T., I believe, is worth looking at. There are other ways to raise £45 million. We could start by unpicking that decision to reinvest the money we said we were going to save. As things stand, that is not happening. There is no campaign. There is probably no realistic possibility of removing G.S.T.. At least I can say to those who lobbied me against G.S.T. there is a firm promise of 3 per cent for 3 years. I believe that is what I need to take away from this debate because however unpopular it may be to vote against a tax on bandages, or whatever, and not to support the proposition, it seems to me that what the public require - particularly those concerned about the G.S.T. - is the need to be some certainty, something they can really depend on. As soon as this shifts, we will be giving, as another speaker said, the Council of Ministers carte blanche to raise the level of G.S.T. to cover the expense. So, that is why I am, at the moment, and I have to say, like the previous speaker - my colleague from St. Martin - I was impressed by the speech from the Treasury Minister, when he said rather than as Deputy Southern counselled us, let us take as a starting point to vote through these exemptions, the Treasury Minister was saying let us as a starting point stick to what we have in G.S.T. and see how it beds in. I believe him when he says if there is hardship that will be tackled as he frames the Orders. Equally I was impressed by the Social Security Minister, who has clearly got off his sick bed to come into the House, and my hat off to him for doing that. I was pleased when he gave us assurance there will be permanent protection from G.S.T., in terms of doctors' fees, prescriptions and essential medical services. We have commitments there from the 2 Ministers who are particularly concerned with this that is going to happen. Maybe that is naïve to believe promises. After all, we had a promise the money would be saved, and it was reinvested. But I am going to hold on to that, like that previous speaker, and I am going to hold the Ministers to account to keep G.S.T. low. That is to say, if there is no campaign to demolish it and eliminate it altogether. So, I will not be supporting the amendments.

5. Deputy R.G. Le Hérissier of St. Saviour :

Yes, as the Connétable of St. Helier said, very hard up, and I would like to praise people like the Connétable of St. Martin and Deputy Gallichan. I am now totally confused, having started relatively unconfused. I think it has been very useful, but I would like to approach it from another angle because we have had a fairly major rehearsal of sort of fairly traditional arguments, it has to be said, 3 times around for some of us. The angle I would like to make, Sir, why 3 per cent is very important, I think the Finance Minister and the Social Security Minister - both of them - made a very important point, that the people we are looking at, as the Deputy of Trinity with her example, they are people who are just outside the low income support net. They are people who are trying to live a very honest and struggling kind of life, and they are people I often meet in the street who tell me: "Well, I did not spend all my time in the pub, and I have saved up all my money, and look what is happening to it." This is the kind of remark, and people then tell me: "Why then do I have to compete, so to speak, with people who allegedly have spent all their time in the pub?" So this is the issue which I do not think Senator Syvret has addressed. When you do make concessions to people, you of course draw in all sorts of people who are seen, rightly or wrongly, as not deserving and who are, in their own right, very rich. I would like him to draw much more attention on how you deal with this with the kind of blunt instrument he is dealing with. The other point I would like to make, Sir, which affects these people is as people approach old age and this is becoming very apparent on the Overdale Inquiry, which while it is ostensibly about the steps that led to the movement of people from Overdale, it has a very major subtext to it. It is all about the fear of old age and the fear of the financial consequences of old age. There is a real fear from people, which some articulate and others hint at, that while the management of the Overdale move may prove to be excellently managed and every step, we were told, has indeed been taken. The real fear is, Sir, oddly enough, that the costs are escalating out of control and that, either accidentally or otherwise, we are structuring the old age residential and nursing market in such a way that some dominant players will come in, and that they will eventually dictate to us the terms of that market, and the public sector will not be playing a driving role, despite all the good intentions and so forth. That is

the fear people have, Sir. They have this fear that once this dominance is established, they are going to end up paying enormous sums of money which will make 3 per cent look like kindergarten stuff, and they will see all their personal, hard-earned savings from not being at the pub or wherever, they will see all those hard-earned savings dissipate and going at £1,000, £1,500 a week to what they see as heartless corporations. That is the fear people have, and that is the context in which we should look at this 3 per cent. That is what worries me, Sir, and I would implore the Health Minister and the Assistant Minister to really put on their roller skates and come up with plans to give people assurances they can move in an assured way to their old age without this kind of fear. It is not the odd prescription or, to be quite fair, the kind of massive prescriptions the Deputy of Trinity cited, which is a very important issue, but it is the fear of these kind of figures. That is why I think, in a way, there is a certain unreal aspect to this debate, and I would ask them to move ahead on these issues. Again, Sir, I was very surprised that Senator Syvret has ended up with his doctors as his political supporters. Presumably some of them do own gin palaces and so forth. I am quite surprised he should end up with this particular class of supporters. A lot of them maybe they are all fighters for social justice, and I had not quite realised that. But what I wanted to see in their letter, of course, is what are they going to do about people who are not attracting H.I.E. (Health Insurance Exception) and who have to make numerous visits? What is the Health Ministry doing about the fact that, for reasons I have never quite got to grips with, the visits to G.P.s (general practitioners) run at twice the rate of visits to G.P.s in the U.K? What is the Health Ministry doing about the fact - I know they have talked about it for years - that primary care system needs developing and moving away from a G.P. focus and an even greater focus on family nursing? Very good intentions have been spoken of, but the costs this system is adding to people, people who are fearful as they approach old age about the constant visits they have to have from the doctors. In that context, Sir, while 3 per cent is very important to people who are every day counting the pennies, and who do not qualify for H.I.E., there are other people who have struggled, who have put a little nest egg together to try and deal with - as the Deputy from Trinity said - the one thing in life we cannot predict. In other words, dealing with ill health. That is why, Sir, I wanted to take the debate away from 3 per cent, and I wanted to put it in a broader policy context. I wanted to see what is happening in that area to bring people some reassurance because quite frankly, Sir, when the demographic explosion really hits us - in the residential, the nursing care and the whole medical sector - we ain't seen nothing yet, quite frankly, in terms of the cost. It will not be 3 per cent. It will be 30 per cent if we have to meet it by general taxation. That is why I would like to see things like residential care insurance. I would like to see a greater strengthening of family nursing. I would like to see the primary care sector sorted out so that we could start not reducing costs because I do not think we are ever going to do that, but we could start at least coming up with a different structure. I really want to see a revolution in those areas, a true revolution and not fiddling around at the margins. This 3 per cent is important, but in a sense, Sir, it is fiddling around at the margins.

6. Deputy G.C.L. Baudains of St. Clement :

I have always had the highest regard for Senator Le Sueur , Sir, but I must admit I was somewhat depressed by his speech yesterday. There does seem to be an air of desperation behind some of the Ministers' speeches, Sir. To pick some highlights from that speech yesterday, as I understand them, the main thrust was we do not want a bad law like the United Kingdom have got. We want a simple law. I really cannot remember how many times he repeated that. Then there was the message that G.S.T. was part of a package. Well, I think we all appreciate that, and I am not sure anybody has been advocating it was not. We are, in fact, debating possible exemptions. Towards the end of his speech, Sir, he referred to the fact the G.S.T. would not rise above 3 per cent. Of course, this is the mainstay for the argument against exemptions, but, Sir, I believe it was unfortunate he undermined his own argument towards the end by admitting it would rise if Ministers did not keep a tight rein on their expenditure. Sir, to me, this goes to the heart of the matter because anyone who does not believe that a tax which is easy to impose, mainly relies on others to collect it and will be even easier to raise as the years go by must be living in some fantasy. Indeed, Sir, it is one of my arguments against G.S.T. itself; the fact it removes the incentive for Ministers to keep down costs. Politicians, we know, Sir, are renowned for short-termism and taking the easy option, and this Assembly is no different. So, it is as sure as night follows day, if the G.S.T. is introduced, I have absolutely no doubt it will quite rapidly rise in future years, which will, in turn, mean several things, Sir. First, of course, we will price ourselves out of business as an Island even further than we already are. Tax take will fall as a result, and it seems to me this then becomes a vicious circle. The divide between the haves and have-nots will widen and, at a time of falling tax revenue, income support will need more and more cash. It really is unsustainable. While the poor will presumably be taken care of, providing that income support does not become unaffordable, those in the margins just above - as other speakers have referred to - those buying the homes, bringing up a family, in fact usually those who are the engine room of our economy, are the ones who will be affected the most. Here is the main issue in relation to the proposition: as G.S.T. does rise, as it will in the future, it will be necessary to introduce relief for some essential goods and services, the same as other countries do. So, the idea that we have this wonderful, very simple tax, one people will hardly notice, while the U.K. have this nasty, complicated tax with all the drawbacks, is frankly unsustainable. In the end result, as the tax rises, we will need to introduce those exemptions in the future. It seems to me the obvious thing to do is introduce them now rather than bring in a tax that then has to be altered several times in the future. Start as we mean to carry on, not change it halfway through. Senator Syvret, in my opinion, was right to draw our attention to the fact, also,

that few in this Assembly have known extreme hardship. If some Ministers have no qualms - indeed other Members too, I have to say - about putting a tax on sickness, I do. The older one gets, generally speaking, the more medicines and medical care a person needs. I have witnessed old ladies rummaging in their purses at the pharmacy to find perhaps £15 for medication, and sometimes it can be a lot more because not all medicines are on the prescribed list. But apparently we have no qualms about adding 45 pence to that lady's misery. It might be over £2 in a few years' time. That lady is probably a pensioner just outside the income support system. Old people feel the cold more than younger ones do. They are often living on a pension and least able to afford heating bills, yet we are quite happy to increase the heating bills by 3 per cent and more, in years to come. A dentist's bill can easily be £500, so we will add £15 to that. People will not notice. Sir, to have missed the real concerns expressed by professional people I think is unwise. A tax on sickness will hurt those who can least afford it, and also, for those of us who have read those comments, will deter others from seeking proper medical attention, which will, of course, mean higher costs for them and the Island in the future. As Deputy Le Hérissier alluded to just a few moments ago, Sir, what about nursing homes and old people's homes? There are many people struggling to pay for a relative's care. People are having to sell their homes to pay those charges; £400 a week is not unusual at all, maybe more, for an elderly person's home. I see sometimes £1,000 a week for a nursing home, and more. So, that will incur tax of at least £12, maybe £25 a week or more. Do we really think that is satisfactory? Because I think it is outrageous. Frankly, I do not know how some of us Members sleep at night. Those that do oppose this proposition, they might be wise not to. I am afraid the argument, Sir, those on low incomes will not be affected because low-income support will assist them, while others are so wealthy they will not be affected, is disingenuous because, as I have said, those people who will be hurt - those who usually are in this type of case - are those just above the threshold of assistance. Apart from the fact, as Senator Syvret so eloquently explained

yesterday, it is somewhat bizarre to tax people in the knowledge you have to redistribute quite a proportion of that tax back to them. It is an exercise in bureaucracy we can do without. Sir, it reminds me of that argument put forward about boat owners being rich, so they can afford to pay more tax. Well, that is not true either. Some are undoubtedly wealthy, but many are ordinary folk who go without the luxuries other people do in order to enjoy a hobby. But, of course, health is slightly different. A boat owner could give up his hobby if the costs escalated, but I am not sure if anybody can heal themselves when they find their medical bills too expensive. Likewise, the other items Senator Syvret has identified in this proposition: putting up the price of food, which is already very expensive, will not affect the wealthy. Presumably, Sir, if beluga is on your menu, price is not too much for consideration. However, a tax will have a much more pronounced effect on the less well-off, already struggling with a tax on school fees - which, in any case, saves the States a small fortune - a tax on clothing, a tax on food. Surely this will cause parents to look for cheaper, less nutritious alternatives. It will cause them to delay taking their child to a doctor. That could be fatal in a case such as meningitis. Sir, these exemptions really are, in my mind, a no- brainer. If Senator Le Sueur really does want a progressive tax - as he pretends this Goods and Services Tax is, when to my mind it patently is not - then I would look forward to him supporting this proposition. I do not support Goods and Services Tax on principle, but this is not the time into the whys and wherefores of progressive taxes, but at least the exemptions proposed by Senator Syvret, to my mind, make a bad tax slightly better and I shall be supporting the proposition.

7. Deputy J.B. Fox of St. Helier :

From day one I never liked this proposed tax and for the obvious reason: it is an emotive type of tax to make decisions on, it is too easy to put up and it is a too easy way to resolve any financial difficulties that we have without having to make some serious decisions. On the other hand, we have spent months, and it seems like years, going to various workshops and other meetings to try and find alternatives to the black hole' that is coming to us in 2011 and 2012 and onwards where it is really going to affect us. Regardless of what stance you have in this world, no one has found anything that is going to produce this kind of income. Yes, whatever we do is going to affect every one of us within this Island and probably people outside the Island as well, but the problem with having exemptions is that it is easier to put up the non-exempt items than it is to have one level playing field across. We can learn from experience from elsewhere in the U.K. and, indeed, if you look at the papers that come from the National Audit Office, one of their press releases brings home that it is not all an easy way of making money - there is a cost factor as well - and I do not perceive that this is an area that too many of us have thought about. But it is an area that we have to think about, and that is fraud and what fraud costs us. H.M. Customs and Excise have increased their effects to tackle losses from fraud and error on V.A.T. in the U.K. in the years 2002 and 2003, which they estimate to be £11.9 million. The concern here, which we also must recognise, is that we have a heavily committed financial crimes unit because of the very nature of this Island. It deals principally with finances as its biggest earner, but it also has the dangers of fraud. Therefore to make our reputation to be at the top of the states when it comes to finance-islands such as this, it needs to have proper checks and safeguards. The Serious Fraud Office in the U.K. probably would not have to take so much effort and resources into it if it was a straight V.A.T. across the board, and I would suggest to you that when you bring in exemptions there will be a myriad of cases of fraud that will emulate from trying to save on the V.A.T. in one form or other. I am not going to go over all the other arguments. They have already been well said: the Deputy of St. Mary, the Minister for Treasury and Resources and, indeed, Senator Stuart Syvret in his proposition, and this Scrutiny Panel. But this is an area that has not been brought out and it is an area that we have got to consider. I do not like having to vote for keeping a rate for 3 years at 3 per cent, but I think that is the only option that we can consider at this time until we have set up the tax and see how it works. We can always come back to the States here if it needs to be adjusted, but it is essential that we protect our citizens and we also protect our integrity, and to achieve that I think that we need to keep it simple at this time.

8. Deputy I.J. Gorst of St. Clement :

Members may be aware of the catchy, although dated, song which is all about the number 3. In fact it includes the line: "3 is a magical number." I shall spare Members a rendition today. However, I raise the point not because I believe that 3 is a magical number but because I firmly believe that G.S.T. must be introduced at a rate of 3 per cent. If Members today vote for all the exemptions proposed they will be voting for a rate of 3 per cent or more. Yesterday much was said about the G.S.T. rate rising in the future. But it seems to me that some Members are not satisfied with waiting for the future. They want the rate to rise now. Let us remember that it will be Members of this House who will vote for any future rise in the rate. As Senator Le Sueur reminded us yesterday, this tax measure is being introduced to fill a specific gap in our tax revenues caused by the changes to our corporation tax regime. It is beholden upon Members in this Chamber to control public spending, thus ensuring that the rate does not increase. It is time that we accepted the consequences of our actions and fully recognised the direct correlation between government spending and tax take. So what of the exemptions? Will they make the tax more complicated to administer and provide more opportunity for avoidance? I believe they will. Let us look at food. Deputy Southern yesterday was rather uncomplimentary about Deputy Le Fondré's comments regarding the complexity of the U.K. system for exempting foodstuffs. He said that because there were so many pages of nuances and descriptions this showed that the system was well-worked and settled, that the debate had already taken place. Somehow he forgot to mention Deputy Le Fondré's other comments that he, like me, occasionally saw reports in the financial press about continuing adjudications on these matters. Deputy Southern also went on to say that exemptions are the simplest approach. Even the Scrutiny Panel did not quite go that far. What are basic foodstuffs? I suspect that if we were to each make a list or to ask members of the public what they considered to be basic foodstuffs we would end up with a lengthy list of different items. In fact, I read an article in Monday's Times about a prominent lady who was discussing her family's eating habits and I quote: "We eat very simply. Last month we ate grouse several times a week." I turn now to my own

eating habits. [Laughter] I enjoy nothing more than a cheese sandwich for my lunch, which on the surface surely must be considered to be a basic foodstuff. However, if I look at the list given to Members yesterday I see that the full-fat cheese in my sandwich would be subject to G.S.T. because, I read, it will make me obese.  [Laughter] I am unsure whether this proposition is advocating exempting or, indeed, zero-rating basic foodstuffs or healthy foodstuffs. It seems to me that the confusion has already started. It is also worth reminding Members of what the Scrutiny report says on the issue and I quote: "Therefore, looking at the poorest possible family with children, the impact of zero-rating basic food only will be negligible; a saving of £5 per year." That is not to dismiss the £5 but to note that this will be alleviated by the income support system. On the other hand, the loss in total revenue will be in the order of £3 million. G.S.T. exemptions are not the tool for encouraging a healthy lifestyle or for encouraging healthy eating. I will touch briefly on the income support system and again I quote from the Scrutiny report: "Mr. Le Gresley calculated that the income support scheme would be of greater financial benefit to claimants than zero-rating." It is also worth noting that of the £1.75 million set aside to buffer those on low incomes 90 per cent would still be required if all the exemptions were approved. I move now to medical goods and services and education fees, and here I find myself in a similar position to Senator Cohen. I firmly believe that medical services should not be taxed. Unfortunately this proposition, as it stands, does not give me the option to exempt only medical services. Therefore, I may abstain on part (b) of this proposition and support Senator Cohen in his discussions with the Treasury Minister. In fact, I thank the Treasury Minister for agreeing to look at the possibility of exempting medical services only. I also remain concerned about G.S.T. on education fees as this will hit middle-income families the most at a time when they will already be facing increased tax bills due to '20 per cent means 20 per cent.' I therefore join with the Deputy of St. Mary in requesting the Education Minister for clarification regarding the undertaking he gave in his speech. I return to my starting point. Today we have the opportunity to ensure that the G.S.T. rate is only 3 per cent and to ensure

that it is a simple broad-based tax. I hope that all Members will make the most of this opportunity.

9. Deputy P.N. Troy of St. Brelade :

Months ago I felt the 3 per cent flat rate was the most acceptable route to take. However, I have been slightly influenced by some of the arguments for exemptions. The aim is to raise £45 million and both the Treasury Minister's and Senator Syvret's suggestions can achieve that. It is like an apple and a pear, both different but each will prevent hunger except that the cost of eating the pear is slightly more expensive.  What has particularly affected  my view is that many doctors and consultants have expressed concern at the imposition of G.S.T. on medical costs. The medical professional also seems to oppose the use of the Health Fund as the method of protecting those on low incomes, claiming that there will still be many in need who miss out, and as a result I have been wavering slightly on this issue. We have an aging population and the elderly may become affected far out into the future. Also, if we were ever in the position that long waiting lists occurred for operations and people had to switch to private operations they would be charged a G.S.T. on those services. So, I do feel that there is a case for the Treasury Minister to review his position on medical services. Even if we do use the Health Fund to assist those on lower  incomes I do acknowledge, as some Members have pointed out, that the Health Fund does not cover all medical provision. As Assistant Minister at Social Security I feel that it is right to use the Health Fund to protect those on lower incomes. But, as I said, I am concerned that the Treasury Minister needs to look at the other issues surrounding that whole point and I would really ask him to reflect on the whole issue of medical provision in addition to the use of the Health Fund. I would also like to look at education costs. Particularly I would like to mention a letter that Mr. John Sankey, Chair of Governors at De La Salle College, sent to all Members. He suggested that parents of pupils at fee- paying schools should not be liable to G.S.T. on the total of school fees. Of course, there is an obligation that the Education Minister contributes to provide a basic level of education for all students Island-wide . Mr. Sankey explains in his letter that there is an agreed basis for calculating the basic cost of education, a formula which creates a subsidy to private schools. Mr. Sankey quite soundly suggests that G.S.T. should only be levied on the surplus fee over and above the basic cost,

and I would like to quote from his letter to States' Members. He wrote: "Each of the fee-paying schools has an index figure for basic educational cost. Currently the fees charged are always in excess of this figure. They [he means parents] are therefore paying for what they perceive to be extra services. Let the tax then be imposed on the difference between basic education costs and the fees charged. In this way no parent in the Island would be paying tax on the basic cost of a human right. They would be paying tax on the extra services which they think that their fees provide." Of course I think that he is making the point that the large majority of children across the Island are not paying for their education, it is provided by the State, and basically the private schools would just charge on the additional cost; that is the main point. I think that investing in the future is paramount and young people are our future and I think that I would support the Treasury Minister looking at the fees issues for the private schools on the basis suggested by Mr. Sankey. We do have to ensure that the best education possible is given to our students and G.S.T. on school fees might act as another hurdle for parents to overcome. But even the suggestion that Mr. Sankey gives is an improvement over charging G.S.T. on the total fee at one of the private schools. I would ask the Treasury Minister to review that and reflect on it, perhaps in consultation with the Education Minister, and I see Senator Vibert nodding and I am grateful for his assistance on that issue. So I will close on that, Sir.

10. Deputy G.W.J. de Faye of St. Helier :

I am always somewhat puzzled at the approach to tax taken by some of my colleagues and today, again, I am slightly confused by the approach of Deputy Le Hérissier who for some reason best known to himself appeared to take a sideswipe at someone called "the man in the pub". I am not entirely sure who the Deputy is referring to [Laughter] but I can assure the Deputy - if he would care to get out more - that a public hostelry is a place of social communication, interaction, enjoyment and, most important, an opportunity to communicate with the common and ordinary man. Before we knock the man in the pub as though he is somehow inferior to the gentleman who stays at home and saves up for his convalescence, [Laughter] may I remind Members that the gentleman in the pub who enjoys a pint, a fag and reading the newspaper is paying tax on the beer (or the gin and tonic), is paying a substantial tax on his cigarettes and soon will probably pay 3 per cent on his newspaper. So let us not knock people who pay substantial amounts of tax into the Exchequer. Now, I have spent a number of extended periods [Interruption] living in the United Kingdom, where they have pubs as well. But I will not dwell on that particular issue other than to say I have lived through Value Added Tax. It is loathed and despised on the mainland for a whole variety of reasons. I am aware, for example, and have experienced a reasonably close connection of small businesses struggling with their V.A.T. returns particularly when they get them wrong because a visit from the V.A.T. Inspector in the United Kingdom is one of the most feared hazards that can befall anybody. These people make Income Tax Inspectors look like teddies at a teddy bear's picnic. They are vested with dramatic policing powers and strike fear into people when they turn up. V.A.T. was also despised because generally it came in at a certain rate and the public soon had the experience of realising they were going to suffer increasing rates of tax. Worst of all, because under E.U. directives once you put the tax up you cannot bring it down again to certain levels; therefore, everybody disliked V.A.T., and most particularly because it caught out everybody. Everyone paid V.A.T. So when I entered into Island politics the last thing I wished to bring to Jersey was Value Added Tax - a variation of sales tax. So Members may imagine, and some may recall, my embarrassment when having said in my manifesto to all and sundry that I would see V.A.T. introduced into Jersey over my dead body [Interruption] that I suddenly found myself struck by a shining light on the road to First Tower and realised that G.S.T. was something rather different and rather interesting: simple, low rate and potentially quite palatable. Now, why is that? I think it is useful to briefly examine the taxation process and how it works because

essentially it works in nets of who you can gather in. Members will be familiar with the concept of payroll tax. The problem, of course, is that it only affects people who are on a payroll - essentially the workforce - and it is manifested here through the payments of insurance contributions. We will

have an argument about what level the caps on that should be - because there is a level of debate about whether that is, in fact, favouring people who earn large salaries - but that is an insurance issue and it is an insurance fund the money is paid into; it is not taxation. We are all pretty familiar with income tax; in theory it should catch out most people who earn an income. But we all know that if you are very wealthy you can probably employ a sharp accountant and temper your commitment. Then there is sales tax, and this one throws the biggest mess of all, which is why I think it has proved itself as the way forward for many Members. It is, in effect, all encompassing. Even if you are well-off and your sharp accountant has done a good job in avoiding income tax for you, you nevertheless have to go out and spend money on all the luxury goods you wish to buy. That will be caught by the tax. If you are a visitor to the Island you can be caught by sales tax. Children are brought into sales tax. So finally I can look at that youth; the spoiled youth of the well- off rich parents riding the cutting edge trail bike with iPod, top of the range mobile, sucking on a lolly, and know that he or she will have paid 3 per cent on all that new gear. Drug dealers will pay sales tax as well. The people who ponce off the State, hide their true earnings dealing cash only but still spend money in shops, they will be caught. This is a tax that catches everybody from the cheats to the ordinary citizen. That is why sales tax is a very good way of raising tax revenue. But where this debate is straying off course is because to try and use a tax-raising concept as also a distribution is going to walk into trouble. It is much better to have, as has been described, a simple, efficient, as we understand, low-rated tax than it is to start making it more complex. It is surprising that the idea of all these benefits stems from Senator Syvret because here is a man who, of any us, has the Robin Hood image of robbing the rich to pay the poor. Surely it is one of the accolades that one would award quite happily to the Senator on the basis of his own long reputation. So it puzzles me that we have this list of exemptions because within each category of exemption you let off the well-off from paying tax. Just for one example, and I am disappointed, I have to say, with the response that we get from local medics. Why is that? Why are all the worthy people, defenders of the Hippocratic Oath, making me feel that there is a certain whiff of hypocrisy about their stance on moral grounds? It is for this reason: when we impose our various taxes - particularly on local industries such as pubs, for example - we often say of course: "Should not worry too much about the new rate that is being imposed because it will be absorbed within the industry's profit margins." Why am I disappointed? Because I really have not heard anything emanating from the medical side to say: "Oh, well look, our practice will attempt to absorb this within our profit margins." It seems to be in one area that, despite having all this moral indignation, that seems to have been overlooked. Now you may debate on what the profit margin in a G.P. surgery constitutes but I just leave that point for Members to consider. But as we go through each one of these categories it is obvious that they apply across the board: to the poor, to the middle-incomes, to the well-off. I say why? Why is it right that if there are so many people in the Island who work probably in the financial services industry on pay packages that include the free inclusion of medical health insurance, so they do not have to worry too much about medical fees anyway. What is wrong with taking 3 per cent off a medical insurance fund? And using it - because do not forget we are talking about a package of

measures here - using the income support to ensure that the people who are ill and cannot afford the treatments get that money, because this is what taxation is about. It is raising revenue and once the revenue has been raised it is about targeting funds at the people who need them. The same applies to all the other categories. There will be well-off people who could easily afford to pay for whatever it is - the fuel, the childcare - to whom we are saying: "Do not worry, it is exempt so no 3 per cent on that." To take this approach is missing the point of what we are trying to achieve. This measure, G.S.T., will raise the cash. I think we are misdirecting ourselves by trying to add in these exemptions because quite clearly they have a scatter-gun effect. We are letting people off who can easily afford to pay the 3 per cent tax. What for? Because the whole point of what we are trying to do is to target funds at the people who are going to have difficulty with paying whatever the payment is, whether it is for fuel or whether it is for a prescription or whether it is for childcare. That is why I think this projet is fundamentally flawed because the Robin Hood approach has disappeared. Here is an opportunity to put a 3 per cent tax on the well-off that does affect across the board but we then re-target those funds to the people who need it. One more thought to leave Members with about concerns of whether a tax like this will rise. It may do but we do have the promise, the clear indications from the Treasury Minister, that 3 per cent will stay 3 per cent for at least 3 years. But conditions in the economy around the world may change and I think many Members will already realise that Jersey's 20 per cent income tax status is already beaten downwards in a number of other countries. So we may have to revisit our taxation issues over the next few years, and one of the issues we may have to look at is whether we would want to reduce our income tax measures in order to stay competitive within the global finance market. I was pleased to talk to the gentleman who helped compile the Scrutiny report on this issue and he told me a very interesting fact. It would be possible with a G.S.T. level of 12 per cent to have no income tax in Jersey at all. So there is, I think, a requirement among colleagues to realise that G.S.T. is a tool of tax-raising and income support is a tool of appropriate distribution, and what Senator Syvret's proposition is trying to do is confuse the 2 and try and offer us a tool of tax-raising and distribution and, as I hope I have demonstrated, I believe that that is a fundamentally flawed approach.

11. Deputy P.J.D. Ryan of St. Helier :

Well, it appears that our Scrutiny report holds something for everybody because we have had both sides of the political divide quoting from it in several instances. I feel a little bit like Sir Cecil Clothier when he said: "For goodness sake do not cherry-pick my report" and I think some Members certainly are guilty of taking the bits that they like and conveniently forgetting about the bits that they do not like. I suppose that is always the problem when you do produce a report which focuses on providing the evidence as far as is possible and accepts that there is a large degree of political judgment involved on finally coming to any conclusions, and that is probably why - and I hope Members will appreciate the fact - that we decided not to make too many recommendations in the report, rather to try and inform Members of all of the evidence on both sides so that they could form their own judgment. However, having said that, I am sure Members will be aware that I have some of my own personal views and they are not always necessarily, shall I say, reflected totally in the report. It is, therefore, as an individual Member that I stand up to speak to you, but in the full knowledge of perhaps everything that is in the report. I would like to talk first of all about low income families. We had to work on the basis that the yield to be obtained from the G.S.T. was to be held steady at £45 million. Now, that is on the basis that that is existing States policy and I am sure that we will all appreciate that as a Scrutiny Panel we have to work from existing States policy. That is why the sub-panel were obliged to make the assumption that the G.S.T. yield had to remain steady at £45 million. Therefore, all the calculations and all the graphs in the report are based on a corresponding rise in the G.S.T. rate to counter any zero-ratings. However, Members would be entitled to believe that alternative taxes, or even an alternative G.S.T. design - maybe with lower thresholds or whatever - could be used to make up any shortfall. If that were to be the case then the graphs that are contained in the report would look somewhat different. However, again, the graphs on pages 60 to 70 of the report, that I hope people have looked at, are useful because they do indicate which of the quintiles win or lose from each of the proposed zero-ratings. But please,

Members, take care. There are big differences within each of the quintiles, within the circumstances of families within each of the quintiles. We are only looking at averages here. But I think there is even one - perhaps more - misleading problem with looking at quintiles in general. Unfortunately, the household expenditure survey and the splitting-up of the Island's community into quintiles masks certain fundamental facts. One of them - and I think probably one of the most relevant - is that, to give an example, quintile one has on average 1.5 people in it whereas quintile 5 has on average 3.4 people living in it, but I will come back to that in a minute if I may. I would also like to point out that our research shows that the first quintile is dominated by single pensioners that are probably not on income support. It is difficult to prove because there is a lack of hard data available here, but the indications are - and I think Senator Routier referred to it yesterday - that at least as much income support lies in quintile 2 as quintile 1 due to the different family structures, and

some - he confirmed - lie in quintile 3 as well. So, overall, what is the result? Low income support will be needed without any question. For anybody who felt that zero-ratings might be an alternative to low income support - I think everybody right across the board is in agreement- low income support is absolutely going to be necessary, regardless of what we do with exemptions. Exemptions and zero-ratings will not be anywhere near enough to offset the overall effects of G.S.T. However, low income support will not help other less well-off people in the first and second quintile that are not on the low income support, and there will be large numbers of them, and that does only leave zero-ratings as a means of relieving some of the impact on those people. Now let us talk about complexity and the likely future increases in the G.S.T. rate of 3 per cent. Page 8 in the report summarises it quite well - I will turn to it myself. But before I start talking about complexity and likely changes, I would like to make a point generally that if we are worried about complexity in our tax system we should be worried much more about Zero/10' than we should about G.S.T. complexity. Up to now our income tax rates between businesses and personal tax have been the same at 20 per cent. But by introducing different business rates of zero or 10 as opposed to the 20 per cent for personal tax, we introduce a whole new range of incentives for tax avoidance. My Panel is alarmed - through the Zero/10' research - at the extra tax statutory powers being mooted for the Comptroller of Income Tax in order to combat this extra complexity and, of course, with extra powers comes extra admin overhead to apply those powers. This phenomenon with direct taxation is well known and understood by tax technicians as well, and is one of the main drivers - as Deputy de Faye referred to - for the diversification of the tax base and a better balance between direct and indirect taxation with indirect taxation with its overall much-easier-to-police design because you only have to police a relatively small number of tax collectors, i.e. the registered businesses. But how does this cross-reference to the likelihood of a future G.S.T. rate increase? Well, I would refer Members to the fiscal strategy debate when we were talking about the desirability of having a G.S.T. at all. They referred to the balance between our direct and indirect taxation systems which at that point - or up until the G.S.T. proposals - were through impôts only. I think everybody agrees that the ratio between our income tax and our indirect taxation through impôts or G.S.T. is very, very low compared to other jurisdictions. Even with 3 per cent G.S.T. it will still be very low. It will still be very low and I think therefore not only is it likely that we will need to raise our G.S.T. rates to cover possibly things like (and it is on page 8) the possible need to cover future shortfalls in revenue following the move to Zero/10', we are still showing a structural deficit in years from 2013, perhaps onwards. Even our Treasury and Resources Minister referred to that at a States briefing a few days ago. We are still looking as if we may have a problem. It is still not quite clear but the indications are that there may still be a problem. So I would say to Members, not only is a rise to the G.S.T. rate likely to be needed but it is also going to be desirable. I would suggest it will not be possible or it will be difficult politically to raise rates without zero-ratings on at least some of the items. So my message to the tax purists is that they may well find themselves having to change their tune in the future if they want to further adjust the balance between indirect and direct taxation. They may well have to be doing u-turns at some time. Now why 3 per cent, £300,000 threshold in 3 years? Nice sound bite. Might easily have been 2, 3, 4 - 4 per cent, £300,000 threshold guaranteed for 2 years - but 3 sounds nicer. I would suggest that it is simply to get over the initial public resistance to getting G.S.T. in, in the first place. The public, however, are not stupid. They are quite capable of grasping the concepts. G.S.T. in general terms is in all of our interests - has become in all of our interests - once we decided to go for Zero/10.' The various references to: "We do not like G.S.T. really at all but, okay, we are grudgingly accepting it", even those people would say that once we have gone for Zero/10' there really has not been much alternative. Indeed, many Caribbean countries have already realised this, some have scrapped income tax all together and gone for the 100 per cent G.S.T. route. Just to sum up, I believe that some zero-ratings, or some reduced rates, are going to be politically inevitable at some stage in the future if we want to better balance our tax system. Just one little further point on that. If we have reduced rates at some stage in the future, they are likely to be just as complex as zero-ratings and quite possibly more so. I would just like to refer to some of the comments sometimes in the press;

sometimes made outside of the press. There was a quote in the JEP (Jersey Evening Post) and the reason I am doing this is that one of the main reasons for trying to get all of the evidence out in our report was in order that Members could make decisions without being influenced by the smokescreens, without being influenced by too much overplaying of arguments on either side. So when I read in the JEP this quote from I think it might have been Senator Le Sueur : "Horrendous extra level of complexity to book-keeping" - this is to do with businesses, smaller businesses - well, I am afraid I have to say that the evidence in the report simply does not support that view, even for something as complex as food. I refer Members to the U.K. National Audit Office where they concluded, and again it is in the report, that there was no great difference overall in compliance costs in countries that do not zero-rate food as opposed to those that do. They also noted incidentally that the overall compliance costs in New Zealand were higher than in the U.K. The Australian Senate Select Committee went further; they use words like: "The extra compliance costs of zero-rating food are grossly overstated." We sought evidence from the local computer world, and that evidence from experts there said that the extra costs of zero-rating in a computer system for small to medium size businesses are negligible as most systems already cater for them on the U.K. model of V.A.T. and most Jersey businesses with sales of £300,000 already use computers with U.K.-designed software. Evidence from larger retailers. The Co-op has been quoted: "Indicates that the initial set-up costs are where most of the pain will be felt by businesses. Once that is complete zero-ratings will not be a huge burden." What about costs to government with extra civil servants? Again, evidence does not support this to anywhere near the levels projected by the Treasury. Yes, there will be some extra compliance costs. But will it be to the level that is being talked about? Our evidence says that it will not. I will give you some examples. Food. Our research indicates that there will be a total of 45 contact points that retail food in total in the Island and 4 of those are responsible for 90 per cent of all food retail. If we follow the U.K. rules maybe we will require

well, I will leave it to Members to decide for themselves. One extra officer to deal with a total of 45 contact points, with 4 of them covering 90 per cent of the market? There will be some extra costs but will it be as horrendous as we are being led to believe? My own view is, no, it will not. Legal battles. The references that the 2 worthy Assistant Minister Deputies have referred to; this website with legal battles. I would ask those 2 Deputies, who I am afraid are a little guilty of selective quoting from our Scrutiny report on this one, to turn to page 76, which I will do. There is a heading "6.2.5 - Potential Legal Challenges, where we researched exactly what was going on in the legal world over legal battles on G.S.T. Please, Members, read it for yourselves. That section there is not long; it is at the second half of page 76. But I would like to just - while you are reading that - make a couple of points. What is the size, what is the total size of the Jersey market? It is minute. What is the cost of legal fees in Jersey? They are gigantic. How likely are we going to get people to spend hundreds of thousands of pounds taking the Government to court over a market our size with a G.S.T. rate of 3 per cent? I do not think so, and I am afraid that view has been confirmed by the Co- op and other major retailers. Legal battles as well are driven by the manufacturers - by the producers of food - they are not driven by the retailers. I would think that the most likely scenario, if there any arguments over the margins over what is zero-rated and what is not zero-rated, is that surely the Government is going to be saying to the retailers: "Look, just wait until it is sorted out if there is one going on in either the E.U. or the English court. We will standard-rate it now and then if it becomes a zero-rated item then, if we are following the U.K. system, then we will wait until the decision is made." I do not think that it is a likely scenario that someone will be starting to involve the Royal Court in some kind of legal battle. I really do not think that will happen. So I think Members can totally disregard the problem of legal battle in the Jersey courts. I would just say that once again the tax purists' viewpoint on this is grossly exaggerated and a perspective is rooted in the past. Another quote from Senator Le Sueur in the press: "Stuart's system helps the poor but probably helps the rich 2 or 3 times more." That is a quote directly from the Evening Post; I am assuming it is an accurate one. But let us just examine the statement for food zero-rating, and I would ask Members now to turn to page 73 of the report. Household expenditure on food in Jersey; what this tries to show - and I referred to it earlier - is when you look at quintiles you mask the fact that on average quintile 1 has about one and a half people in it whereas quintile 5 has about 3 and a half people. When you look at the total spend for those households, it looks as if - if you zero-rate food - you are going to give a lot more money to the rich than you are to the poor. But when you dial into those numbers - and that is what this section deals with - when you dial into that, the fact that there are different numbers of people in those households, you get a completely different picture. What it shows is that the poor person in quintile 1 spends about £24-£25 a week on food and a rich person in quintile 5 maybe spends about £29 per week on food. So there is about a 15 or 20 per cent difference. What you are roughly seeing is that when you tax food - and I think there was a gentleman called Professor Quiggin in Australia who made a presentation to the Australian Senate Select Committee - when you tax food through GST it is as close as you get to a poll tax, the most regretted of all taxation business, because people in quintile 1 basically spend roughly the same amount on food as a person in quintile 5. That is what you do. Now it is up to you - up to Members - the evidence is there, you must decide how you want to vote. The inconsistency argument let me just talk about very quickly. New Zealand and Singapore are offered as models of non zero-rating virtue by comparison to the U.K. system. So let us do some comparing with Jersey of the U.K., Jersey, New Zealand and Singapore. First of all, food prices. Food prices in the U.K. are 22 per cent cheaper than Jersey yet they are still zero-rated. Even though their food is cheaper they still zero-rate food. Singapore and New Zealand are about 45 per cent cheaper than Jersey - getting on for about half of the price of Jersey for food - yet they are not zero-rated. One wonders what might have happened politically in Singapore and New Zealand had those places had food prices similar to Jersey. Incidentally, one of the most recent G.S.T. starter countries, also an Island state by the way, and also probably - I do not know this for sure - but also probably with relatively