|
|
|
Business Review 2006 from
|
|
Government and growth
Paul Marett
vice-chairman, Institute of Directors
ECONOMIC growth is an integral part of our government's response to the impending 'black hole', the gap between States income and expenditure.
There are a number of politicians and business people who believe that government is integral to economic growth. Equally there are those that believe that government should stick to collecting taxes and managing social policies.
Where there should be little room for debate is over the need for a strong economy to allow us to afford the social services that we all demand. Surely the question is how to achieve a diverse, stable, growing economy - is it the role of government, business or both working together in partnership?
The governments of both Jersey and Guernsey have similar 'black holes' or funding gaps to close but have different plans to make the books balance. Jersey, for example, is committed to GST starting in 2008 whereas Guernsey is keeping any form of sales tax as a last resort should other measures fail. As regards economic growth, a key future in both islands' plans, Jersey has set a target of two per cent per annum, Guernsey five per cent. Is Jersey being pragmatic or pessimistic? Is Guernsey's target over ambitious?
As we know, Jersey's economy is dominated by the financial services sector. How much further and faster can this grow? The local marketplace seems bullish at present with numerous statistics produced to show that businesses are doing well. But the level of funds under management or the size of clients' bank balances do not necessarily have an equally positive effect on service fees. New areas of business are growing, hedge funds being a popular example.
The marketing activity in the Middle East has ramped up as we attempt to gain added value business from one of the world's fastest growing regions for financial services. In a global economy it is vital that we are a player and yet we will inevitably be competing and co-operating at the same time.
Over the years, aspects of our industry have declined whil others have grown. A continuing cycle of entering and exiting of niche markets. The crucial question is whether the end result for Jersey will be net growth in taxes paid by our most productive business sector?
Boost
All sectors of our economy are worthy of attention. The Economic Development Department is focusing skills and financial resources to boost the tourism sector, with some signs of success. Has the corner of declining bed numbers been turned? If we are seeing the green shoots of recovery is this because of determined entrepreneurs re-investing in the sector or purely government initiatives showing confidence with strategic plans, such as encouraging new developments whether it be new golf courses or holiday complexes?
It is argued that agriculture will never be a net contributor to the tax coffers. Yet the beauty of the island that attracts visitors and provides a quality of life to residents is largely in the hands of farmers. What happens to land that is no longer viable for growing could have a major impact on our economy.
Government says that it recognises the value of smaller businesses and the need for diversity. However, the fastest growing new business sector in the past five years, fulfilment, has hardly had an easy time of it at the hands of government. In fact the recently imposed licensing rules, seemingly brought in under pressure from the UK Treasury, are seen as further evidence of government intervention and bureaucracy. 'Let entrepreneurs get on with it, employ local staff, make a profit and pay taxes' they cry. Equally, red tape can strangle new businesses before they can mature and the local Chamber of Commerce are again calling for the disbandment of the Regulation of Undertakings. Why does government really need this outdated legislation?
There are two sides to balancing the government books. Economic strength, and indeed growth, rightly has a place. However, some will argue that an island the size of Jersey has real limits to growth that cannot, or should not, be overcome. Whether we like it or not we are part of the global economy and subject to its trends and pressures. In general terms, those economies with lower overall taxes are performing better and continuing to grow. Taken together, this can be interpreted to mean that we cannot expect tax receipts to grow much higher. If this is true then we have some serious decisions to make about State spending; we are living longer, with expensive health care and higher expectations of what government should provide, not least including State run pension schemes.
Harder
If economic growth in Jersey is truly limited in what additional tax receipts it can provide then closing the gap with services may be harder than we all think.
lEconomic Growth - Does Government Have a Role? is the subject of the annual IoD Debate on Wednesday June 28 and will provide a forum for robust discussion and highlight the breadth of opinions surrounding this vital issue. (For tickets please contact the branch officer .)
|
|
|
|
