At its core, “Too much money chasing too few goods” is the classic description of inflation. Manx families are seeing with their own budgets that the threat of inflation is real. This is an inflation tax on the hard-earned wages of every person on this island, and it’s causing real and severe economic pain that can not be ignored.
Now, more than ever, we must remember that there’s no such thing as government money: only taxpayer money. It is not the Government’s economy, it’s the public’s economy. The Manx Government has a responsibility to do everything possible to ease the inflationary pressures, and to ease the squeeze on the cost of living on our island.
With inflation surging in the Isle of Man, our Government needs to take action to ease the squeeze on the household budget. As it considers its own budget, here are dozen positive proposals to ease the squeeze on the cost of living on the Isle of Man and tame inflation.
1) First, do no tax increases
The ancient Greek doctor, Hippocrates, famously wrote, “First, do no harm” in Of the Epidemics. In that vein, the Government should impose no tax increases on Manx households and avoid putting more pressure on household budgets. It is immoral for the Government to put their hand deeper into the hip pockets of Manx families when the cost of living is rising so quickly.
2) Remove the 10% income tax bracket
Workers in the Isle of Man are currently subject to income tax at the 0%, 10% and 20% levels. Removing the 10% tax bracket would give an instant tax cut to the lowest-paid workers in our community, easing the squeeze on their household finances.
This tax cut could be focused on our lowest-paid workers by reducing the level at which the 20% tax bracket takes effect: this can ensure that such a tax cut accrues entirely to our lowest paid workers, while ensuring that no one pays more tax as a result.
Reducing tax on the lowest-paid workers will increase the fairness of the system by making it more progressive, and encourage more low paid workers to get back into the workforce by making it more financially attractive to work. This may also help to increase the supply of workers on the Isle of Man, easing inflationary pressures on businesses supplying good and services to the people of Mann.
3) Build and re-build more homes
For many people, the high cost of housing is their biggest on-going expense. Whether it be through paying rent, paying a mortgage, or saving for a deposit to buy a home, housing costs are significant for many families on the Isle of Man.
The Isle of Man Government can help to make housing more accessible by allowing the construction of housing on many sites in our towns, such as in the dozens of already-identified unoccupied urban sites in Douglas and Onchan – plus elsewhere throughout the Isle of Man.
Because rental leases may cause shelter costs to lag behind increases in housing costs, recent increases in housing costs are likely to not yet have been incorporated into the consumer price index (CPI). This means that the high and increasing cost of housing is still in the pipeline to increase CPI, and we need to take action to ease the squeeze on the cost of housing.
4) Allow vehicle tax to be paid monthly
Currently, Manx drivers are required to pay for vehicle tax in a lump sum annually. Figuratively every other bill in life can be paid monthly through direct debits: insurance, mortgage, rent, phone, gas, electricity, donations to the Manx TaxPayers’ Alliance, and so on. This is not a complicated technology, and spreading the cost of vehicle tax on a monthly basis will ease the squeeze on the cost of owning a vehicle.
5) Link utility prices to United Kingdom rates
Currently, gas prices in the Isle of Man are famously linked to complicated formulae relating to the profitability of the utility companies. In an ideal world, Manx consumers would benefit from a competitive which forced prices to remain low, but realistically, the relatively small market size of the Isle of Man makes this unlikely in the short-term.
Consequently, instead of complicated formulae, Manx prices should be linked at a fair ratio to prices in the United Kingdom. The UK benefits from an open and competitive market, and Manx consumers should expect Manx utility operators to chase similar efficiency and reliability improvements as consumers in the United Kingdom benefit. Rather than being forced to pay prices linked to profitability, Manx consumers should have the option of paying prices linked to the cost of provision.
6) Fight to avoid a second tax increase on hospitality
At the end of September 2021, the Manx Government meekly acquiesced to a new tax rise on Manx hospitality businesses. Slugging Manx hospitality businesses with a new tax rise heading into winter (a winter which was subsequently harmed further by COVID-19 restrictions relating to the Omicron variant) was the wrong idea at the wrong time.
The next phase of this tax increase is scheduled to come into effect at the end of March. The Manx Government should not be a leaf blowing in the wind, but rather, should fight for the interests of Manx businesses, and fight for the UK to not increase this tax.
7) Duplicate the United Kingdom’s aircraft passenger duty reduction
Given that we live on an island, air travel is an important way to connect our island with neighbouring islands. This is important for businesses across many sectors of our economy (not just tourism: many Manx businesses need to travel to customers off-island) and also important for families.
The Isle of Man Government could ease the squeeze on the cost of travel by having the Isle of Man included in the UK’s recent tax cut for domestic air travel. This would reduce the cost of getting to, and getting off, the island, and reduce travel costs.
8) Cut taxes for low emissions aircraft
Recently, the Isle of Man ship registry cut fees for low emission ships. We can eliminate aircraft passenger duty on environmentally-friendly aircraft. While zero-emission aircraft are only a small part of global air travel currently, the Isle of Man would benefit substantially from such aircraft: flights to and from the Isle of Man are typically short-distance flights, and are typically small aircraft. This will likely have no immediate benefit to the cost of living, but rather, will increase long-term opportunities for aircraft development, research and manufacturing. This would benefit our jobs market with increased high-skilled employment in time.
9) Investigate speculation on Manx housing and property
As leading economist and educator, Thomas Sowell, has explained in the context of housing costs elsewhere, “With supply restricted and demand not restricted, it was inevitable that prices would soar beyond many people’s ability to pay.” This same basic principle applies to the Isle of Man.
Since we live in a jurisdiction where housing supply is artificially restricted to very low levels, there is a reasonable argument to investigate how best to manage global demand for Manx property. Thus, the Isle of Man Government should investigate speculation on Manx housing and property to ease the squeeze on the cost of housing.
10) Operate holiday schooling
Over the last two years, many school students are likely to have suffered from significant learning loss. This learning loss is likely to be most significant amongst low income families, and amongst families where both parents are working. Those families need to work to earn money and serve customers, and many such workers face difficulty in caring for children over school holidays.
We can address both problems by providing holiday schooling: to help students catch up on areas that they might have missed over the last two years of pademic-affected schooling, and to also allow their parents to keep working and earn more money when demand for labour is high.
This policy will help school students recover lost learning, will help families to earn more money and reduce costs, and help Manx businesses serve customers.
11) Stop Government deficit spending
At its core, “Too much money chasing too few goods” is the classic description of inflation. Through the two years of the COVID pandemic, the Manx Government has pumped hundreds of millions of pounds of extra spending into the economy. That was reasonable in the midst of the emergency, but now that the COVID emergency is passing, we need to manage our economy for the future. That means that the Manx Government has to live within its means, and end profligate spending of the money of Manx taxpayers – because spewing so much money into the economy has driven the classic inflation problem: too much money in our economy chasing too few goods.
12) Reduce red tape
We can fight inflation by increasing worker productivity. Currently bureaucratic red tape increases inflation in two directions: firstly, workers are forced to comply with excessive regulations, taking time away from productive work for customers. Secondly, excessive government regulations are enforced by government officials – which then need to be funded from taxes. This double-hit is bad for productivity and consequently bad for inflation.