FINANCES AND TAXATION

Finances and Taxation

The island’s credit rating was downgraded by S&P in 2 consecutive years during the Assembly’s last term; they predicted that a squeeze on our public finances would be caused by a shrinking working age population, in turn threatening tax collection rates and increasing pressure on health and care services. S&P warned of further downgrades if Guernsey failed to implement tax reforms to stabilise its funding needs. S&P is an internationally respected rating agency whose independent appraisal of the island’s finances and economic outlook is a warning we would be foolish to ignore. Things need to change, we must raise more money through taxation.

I have read with interest suggestions that Pillar 2 may generate sufficient income to allow us to forego any further taxation. And I agree that it will increase our tax take from business, but while I do not have access to the figures the proposers base their projections on, I remain unconvinced that it will reach the levels of new income that the island requires.

Similarly, proposals to work with Jersey and the Isle of Man to revisit zero-10 and look to agree a zero-15 corporate taxation regime would go some way toward shoring up the island’s finances and may again result in there being no requirement at all for further taxation. But while this increase to the corporate tax regime would benefit the island greatly, to implement it unilaterally would result in our chasing finance businesses away to our competitors. I’m wary that agreeing an increase to this corporate tax with other jurisdictions may not be so easy… as we have seen with the ferries debacle we certainly cannot rely on this to happen quickly -if at all- and I would caution against doing nothing now in the hope that zero-15 will produce results at some future date.

After closely studying the competing proposals, GST-plus seems to be the fairest way that has been suggested to strengthen the island’s future financial position, providing as it does protections for pensioners and lower earners.

I’m no fan of resorting to raising taxes, but we need to increase the island’s revenue in the short term, and the progressive measures incorporated in the GST-plus proposal designed to protect pensioners and lower earners would shield the less well-off, such as young islanders saving to get onto the housing ladder. These measures include,

• a reduction in income tax to 15p in the pound on earnings up to £32,000 a year, and

• a new personal allowance of £15,000 a year free of social security contributions

• an increase in the States pension [in advance] which will fully compensate for any inflationary impact of GST-plus

A further bonus with GST-plus over a permanent increase on the income tax rate is that those islanders who currently don’t contribute due to living off their wealth -rather than income- will begin to pay towards the running of the island, and it would also mean that visitors to the island and the corporate sector would contribute as well.

At the moment, in an island with a sky-high cost of living, all islanders hear is ‘a new tax on EVERYTHING’, and though this is not the whole story, I can see why it is of course hugely unpopular!

If elected, I will judge any alternative proposal to a goods and services tax on its merits – but I will not allow the decision on increasing taxation to be moth-balled, as I believe that delaying this difficult choice any longer will damage Guernsey’s reputation and lead to tougher actions being needed as we near the end of the decade.

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