Tax Reform 

 

I am not in favor of higher taxation, nobody is.  I am also against GST in its pure form, as I was during the last election, because it is regressive.  But  Guernsey has been dragging its economic anchor without generating surpluses ever since zero ten was implemented, more than a decade ago.  We should have implemented it then, when things were easier and there would have been less impact.   We now have a bill of more than £1 billion in capital projects and only £150m to pay for it, leaving us on the brink.  There are many more projects which are not on the list and States members keep irresponsibly adding to them, without any regard for how they can be paid for.  

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At the same time we are generating significant deficits (where our income doesn't match our expenses) - with a predicted loss of £71 million in 2024.  We do not have significant levels of debt but our assets are steadily being worn away and our infrastructure is falling apart.   Our income tax receipts are also falling.   We have all of our eggs in an increasingly fragile 'income tax and social security' basket.  Our economy is almost entirely based on finance, which is also in decline, partly due to a lack of confidence in Guernsey's ability to properly govern itself and tackle these challenging issues.  There is huge pressure for additional spending in health, and our population continues to grow more elderly and require more care and support as we all live longer.  That is not the fault of the elderly, it is the fault of politicians long gone, who were told this would happen but did nothing to ameliorate the cost.  

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I led the tax review in the last term and as well as implementing Pillar II, which is predicted to raise £30m in new taxation, we came up with a structure, now approved, which enables Guernsey to broaden its tax base away from a dangerous focus on income based taxation.  This enabled us to craft a structure which allows income taxation and social security for the lowest paid in our society to be reduced.  Income tax on the first £30k of income would reduce from 20% to 15%.  Social security would be subject to an allowance in the same way as income tax (at present once you earn above the qualifying amount you must pay social security on all income and this disadvantages the lower paid).  GST on all goods and services, which is a very simple tax to calculate and collect, allows these progressive reductions in tax.  ​

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I am not going to go through all of the incorrect tropes about GST+.  It will not cost millions in new staff, it will be paid on online purchases, as in Jersey, the finance sector will pay as well, and many people living in the island and visiting, who are not paying any tax, will contribute as a result.  The wealthy will pay more (as they already do through the removal of allowances) because they consume more.  

 

Although it's not something which I particularly want to see happen,  the bottom line is that the GST+ package must be implemented as soon as possible in the next term.  We no longer have any breathing space to dither without further harming business confidence.  

 

The only other tax capable of generating the amounts required is income tax - but we would have to implement tax on everyone at a rate approaching 30% or more to achieve similar results.  This is not a sustainable option for Guernsey.   Taxing the wealthy at a higher rate simply doesn't work - there are not enough wealthy people to provide the amounts required, without increasing rates to more than 50%.  This has already been extensively researched and investigated, more than once, and we no longer have time to rehash it all.  

 

Any candidate in the election saying otherwise has either failed to examine the facts or is driven by self preservation or ideology, regardless of the likely damaging and permanent effects on our economy, which will make the overall outcome worse and potentially trigger a spiral of decline.   

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In addition to the GST+ package and the Pillar II corporate taxation, which I introduced as treasury lead and which is predicted to raise an additional £30m per year, I believe we should move to a zero-15 corporate system. Under Pillar II, many companies in Guernsey will now be paying 15% in tax, whereas a business next door doing the same thing may be paying 10%.  That doesn't make sense and I believe we should move to a 15% basis which could generate a further £20m per year.  This should preferably be in conjunction with the other crown dependencies.   I am not in favor of moving to a wider territorial tax system, because of the danger of being a first mover in a highly competitive space on the back of an industry which is already weary - this is an area where Guernsey should follow international developments, as we have done with Pillar II.   Territorial tax proposals might appear alluring but, in reality, have failed to garner any more than a handful of supporters amongst experts for more than a decade, are strongly discouraged by industry and do not present "fair tax", in fact the proposals represent a significant risk to our economy, when we have effectively run out of time to invest in 'unicorn' solutions.  ​

In short, we have to put the difficult debates on this issue behind us and implement GST+ as early in the term as possible.  60% of Guernsey families will be better off as a result and we can continue to invest in education, health and infrastructure.  I know it's unpopular but I believe if we do not, the consequences will be far more serious and permanent.  

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You can watch two videos I prepared some time ago now prior to the tax review debate, the problems driving the need for reform and the basis of the progressive proposals haven't changed.