The debate I have seemed to provoke in Jersey with regard to its now impending financial crisis appears to be rumbling on. Jersey's former finance minister, Senator Philip Ozouf, has apparently felt it necessary to defend himself and the whole fiscal strategy he and his predecessors have put in place despite criticism from me. The Jersey Evening Post has reported that he said, when talking to the paper with regard to a blog a wrote a week ago, that:
‘Without zero-ten, we would have lost our finance industry. It was the only decision for Jersey. Without it we wouldn't have the money we want to spend on the Health Service. Zero-ten made the Island competitive. I would do it all again.
‘Jersey is now an undisputed, global leader in terms of the transparency of the business we do.
‘Mr Murphy's whole premise is incorrect. There is no deficit today. It's about a future deficit, for which the States need to find money.
‘He is an opportunistic attacker of Jersey because he doesn't like our finance industry. That's fine, but do not let his views be taken seriously.'
The difficulty for Mr Ozouf, for whom I have no personal animosity, is that after a decade of ad hominem attacks on me from a succession of Jersey finance and chief minsters the fact is that I forecast Jersey would have a financial crisis as a result of its zero-ten tax policy (which exempts large parts of Jersey's non-local owned business sector from tax and charges many of the rest at low rates whilst penalising Jersey owned business) as long ago as 2005 and now it is facing it. I agree that this is later than I forecast: the GST (Jersey's version of VAT) has been increased more than I expected and more sell offs of state assets have occurred than I thought might happen when I made my predictions, but, again, the fact is that at the core of my forecast was a simple claim, which was that Jersey could not both meet the requirements of EU law and balance its books if that meant it chose not to tax a very large part of business activity taking place in the island, and that now seems to be right.
Continuing ad hominem attacks do not change the fact that I offered sound reasoning based precisely on the data Jersey made available that was quite untainted by my view of Jersey's financial services sector: I simply observed that the chosen policy could not work in the long term. Whether or not Jersey's business sector is transparent or not is irrelevant to that debate, and so I ignore the point here: the reality is that when the aim of not taxing much of the activity recorded in the island was at the heart of Jersey's strategy it was always going to be nigh on impossible for it to raise the money it needed. That was the point I made, successively, and still do, and which Mr Ozouf is not answering. I said that this was poor fiscal policy, and that has proved to be the case.
I note that the Jersey Evening Post is beginning to hear the message. They said, commenting on what Mr Ozouf had to say, that:
NOW that ministers have come clean about the size of Jersey's black hole, decisions about how we tax and spend are more pressing than ever.
Meanwhile, tax justice campaigner Richard Murphy says that he has been right all along after warning in 2005 that the zero/ten corporate tax regime would leave Jersey facing a £100m-plus black hole.
We do not know what the economic consequence would have been had zero/ten not been introduced. The question is whether senior ministers buried their heads in the sand and refused to listen to what now appears to have been a prescient voice.
And the continued:
As Jersey moves forward, it must learn the lessons of the past. Shouting down those who disagreed with zero/ten and forecasted that it would lead to an ever-increasing burden on middle and lower tax earners was a mistake because it meant Jersey failed to prepare properly for the current deficit.
I admit that the day when the Jersey Evening Post might say that of me was one I had not expected.
I would agree with their conclusion that:
Jersey's tax regime should be reviewed as part of the debate about ensuring future prosperity, but heaping an even greater burden on middle Jersey is not the answer.
I would also agree that:
Efficiencies and savings must come first.
They should start by asking why it is that the ordinary people of Jersey have to pour millions into Jersey Finance, the state funded body that promotes the Jersey financial services sector which, if the free market worked as it claimed, should surely be capable of funding itself. I would also agree with the JEP that Jersey looks horribly over-burdened with well paid civil servants.
But, whilst such reviews may provide a little relief they do not solve the problem. That problem is that Jersey is seeking to operate in a dying market where new regulation will make it ever harder for Jersey to find customers for what it has to offer because the secrecy, which was the single critical factor that let the users of tax havens make use of the services they provided with impunity, is being stripped away from the island.
I accept responsibility for that. In 2009 I wrote a paper for the Tax Justice Network in which I argued that we had to change the language of offshore and drop the focus on tax and instead talk about the secrecy that facilitated tax abuse and all the other regulatory arbitrage that Jersey has exploited and sold. That paper changed the focus from tax havens to secrecy jurisdictions: since then we have been winning the argument on the issue of offshore abuse and continue to do so. That will not stop now.
Jersey has, however, not woken to this new reality as yet. I warned it of what was on the way in 2010 and offered an alternative. It did not listen then. Maybe it should now. Because this is not a moment for Jersey to be re-arranging the deck chairs, Its inaction over the last few years means that Jersey now faces a profound existentialist crisis. In the late 1990s John Christensen told Jersey that if it continued down the path of making finance its sole source of income its economy would one day collapse. That is the reality it may now face.
Jersey does not just need to sort out its civil service. It needs to work out what it might do in the future, how it might do it, for whom, and to what net benefit for the island. That requires big thinking by big thinkers.
I hope Mr Ozouf is up to the challenge. What I can say with certainty is that another sales trip to Dubai will not solve the problem. This time the answers have to be a lot closer to home and might be a little more uncomfortable than the jet-setting lifestyle of finance that has cushioned the Jersey elite for some time. But unless they're really willing to ask the difficult questions, and listen to those who might disagree with them when they offer alternative opinion Jersey is in very deep trouble.
And, for the record can I make three things clear? The first is that I wish this was not the case. The second is that there will be viable, if difficult, alternatives. And the third is that I truly wish Jersey well, but in saying that I do mean the whole of Jersey both now and in the future. Mr Ozouf has to realise that this is something much bigger than the finance industry and I am not sure as yet that he can successfully differentiate the two. And that, in a nutshell, is the definition of the problem.
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This is a very well written piece by a well-respected analyst. it is unfortunate that he has attached himself the left wingers in order to attack the finance industry. This is the biggest turnoff for me. He is clearly an intelligent person so why are our ministers not employing him to advise them – better the devil you know and all that. Sadly he is right but I thought this was another black hole and not the first. Didn’t we have a black hole immediately after zero/ten was introduced which is why we introduced GST? This is yet another one surely. Which black hole did Richard Murphy actually forecast? Nevertheless our ministers need to get real and sort out the mess. The first place to start is to put an immediate embargo on immigration – our economy cannot continue to support more and more people, and to twist the screw on tax evasion and avoidance. Beef up and get rid of zero/ten. Can you imagine the French allowing people to make money and not pay tax! I don’t think so.
I think it is fair to say I am left wing
Well that’s fine to admit it but I’m afraid Jersey people in general are not supporters of left-wing politics and you will struggle to get support for your views whether they are right or wrong. I attended a meeting of the Reform Party at which you spoke some years ago and it is true to say that you forecast trouble ahead as a result of zero/ten. However that issue was resolved as I said above but it is this new deficit that is particularly worrying as I think we were reassured fairly recently the economy was buoyant once again.
Did I really speak for the Reform Party?
I don’t recall it
Are you sure you’re not thinking someone else?
A good, well balanced column, Richard.
Why don’t you approach JEP Editor Andy Sibcy, offering to write a monthly column? It is high time JEP readers were provided with a regular alternative view of the world. This is particularly important for elderly voters like my mother who doesn’t own a computer or have internet access, yet she reads the JEP every day. Since Andy Sibcy came along, he has refreshed some of the columnists. Why not a Richard Murphy column? He can only say no. Point him in the direction of this comment.
Much of this coverage is down to him, I am sure
I am nit sure I have something to say monthly to Jersey
The role of the Jersey Evening Post is not a progressive one. The commentator who suggests that Richard write a column is deluding themselves. Historically this newspaper has been nothing other than the mouthpiece for the elite – hence its nickname “Pravda” – the central organ of the Jersey Bourgeoisie. It is part of the problem and has no part to play in any solutions that might save the island and its real breathing residents from a looming disaster. Finance will up and move leaving a Chernobyl like devastation when it goes into meltdown.
There was hope and expectation that a new editor, with evident education, would bring more sane thinking to the process of opinion formation. Alas, that has not happened as the forces of dark reaction continue to prevail. Journalists of little calibre harp the party line of yesteryear unable to adapt to changed circumstances. This may be in part due to the fact it is shackled to a constituency that is incapable of accepting change, not to speak of declining sales and revenue.
Islanders desperately need fresh objective analysis and news. None of the media on the island offer this, beholden as they are to corporate interests. That is why Richard’s blog is vital.
Remarkably one of your commentators has written in their own name, presumably certain in the knowledge they are safe from retribution. That others do not is indicative of the terror that prevails in these islands of even those that defend the status quo, let alone prefer democratic alternatives. To admit to reading this blog, let alone conceding it might be correct, is a heresy amongst the elite and its supporters. Read it they certainly do, not that they would admit it publically.
The times are however really changing and when the money runs out the fight begins in earnest.
I am aware Nick that you are one who has stood up to be counted
Hello Richard, thanks for a good clear article, as usual you make those like Ozouf squirm in their boots. Unfortunately, he lacks brain cells and is/has only looked to benefiting the rich and powerful and the thousands of ordinary Jersey people are picking up the tab, and that is not only a Jersey problem it is global. But, I find it somewhat encouraging that people are starting to wake up and smell the coffee thanks to the people like yourself and John Christensen.
Thanks for your hard work, wish you well in the path that fate has taken you.
Regards, Mel Mignot
Fate it may have been
I did not choose it
But I am not complaining
I wonder who’s waking up to this in Jersey.
We hear a great deal from the well-heeled and well-funded supporters of the status quo; finding other views and credible political alternatives appears to be a hopeless task.
Meanwhile, this point is worth expanding: Jersey looks horribly over-burdened with well paid civil servants.
Jersey’s economy and government are owned by a narrow oligarchy of landowners and financiers. They make effective use of patronage, and you have pointed to a problem with deeper roots and deeper implications than the fiscal impact of the public sector payroll.
Incidentally, 0-10 is not zero ten if there is a twenty in there somewhere. The Isle of Man has followed suit by also introducing a 20% company tax rate. This from Isle of Man Treasury Minister Eddie Teare’s 2015 Budget Speech:
“I am therefore increasing the rate on income from local land and property for companies to 20%. Jersey and Guernsey already do this. This will raise approximately £3m per annum.”
Source: http://www.iomtoday.co.im/news/business/eddie-teare-s-budget-speech-in-full-1-7111168