Bringing in GST would make pensioners poorer says deputy

INTRODUCING a goods and services tax now would trigger a level of pensioner poverty that the island has never seen, according to a Vale deputy.

INTRODUCING a goods and services tax now would trigger a level of pensioner poverty that the island has never seen, according to a Vale deputy.

Deputy Andrew Le Lievre, pictured, was speaking at the parish deputies’ surgery on Saturday after being asked a question about his views on GST as a form of taxation.

The question was posed during a discussion about the island’s deficit, capital projects and Treasury and Resources’ proposals to phase out mortgage interest relief.

One parishioner said she thought GST would be a good idea because it would target wealthy people who spent more. But Deputy Le Lievre said if it was introduced it would be those on lower incomes, including pensioners, who would be most affected.

Comments for: "Bringing in GST would make pensioners poorer says deputy"

Backchat

Not just pensioners everyone but the rich

Rustylink

The effect of GST would probable hit the poor less than the rich. Proportionally GST woulld generate more tax revenue from wealthy big-spenders who are presently able to avoid local taxation

PLP

The difference though is that the poor would notice is more than the rich. Every penny counts when you're struggling financially.

Besides, surely GST would cost the public as it would require legislation and resources to implement a means of collection. Many businesses would have to amend their systems to incorporate a sales tax - this would cost money that particularly small businesses can ill afford to spend.

Nick Le P

Small business would just need to open on a Sunday to increase their revenue and make up for it!

AD Locke

If you want to put a final nail in the coffin for local retailers the this is it.

It has caused havoc in Jersey with small business leading to many shutting up shop.

And of course the finance industry is exempt from this tax.

Guernsey has a great advantage in not having this tax, it is a tax and spend tax and has no place in Guernsey.

Mark

"And of course the finance industry is exempt from this tax."

I'm not sure how you come to that conclusion? It is a Goods and Services Tax - the key word being "Services" which would mean any services invoiced by financial service companies would be subject to GST.

Yes, FS companies are then able to deduct GST paid on any inputs so just act as a collection agent for the balance that's left over.

Anyway, in my personal opinion, GST is not right for this island. It is a cumbersome system to administer, not just for businesses but also for government and to be 'fair' needs to have a number of carve outs (e.g. food, school books, clothes etc.) to protect the less well off. If you want an idea of how complicated this can become just look to the UK and how they're managing VAT.

I would prefer to see a tweak to the income tax system to achieve the same revenue earning aims, even if it meant losing my personal allowance. Keep things simple, keep the cost of administering them low, don't waste money on a new scheme just for the sake of it!

GM

Mark

It depends on whether or not a GST system exempts services provided to non-residents. It's easy enough to do that!

Mark

Indeed. But even if services to non residents are exempt there are plenty of services provided between FS companies on the Island that would be subject to GST. For example, the admin firms provide services to locally registered entities, professional service firms such as accountants and lawyers also provide services to these Guernsey registered companies/LPs etc.

That's slightly different to saying the whole FS industry would be exempt.

Sensible

The whole FS in Jersey is excempt from GST, so could well happen in Guernsey

AD Locke

Yes that's correct the whole of FS in Jersey is exempt and do you really think that our treasury would seek to put our FS at a disadvantage over Jerseys?

Mind you you never bloney know what daft idea someone might come up with next!

Andrew Sharp

Living is very expensive already for the poor of Guernsey (and yes there are poor people living here) To introduce GST would further impoverish the needy trying to afford the basics.

Income tax would be a better way to tax the wealthy.

Davey West

A few weeks back the Guernsey Press published the fact that ex Chief Minister of Jersey Terry Le Suer was to visit Guernsey to offer his experience and advice to Guernsey politicians.

This is the man who when served with a petition of 19,000 Jersey islanders against GST said, it will make no difference.

This is the man who was in my opinion, an out of touch nuclear disaster for Jersey's economy.

Then suddenly GST appears in your newspaper.

Stay well clear of GST, then the tourists will still come, and rein in unnecessary spending, unlike Jersey still paying out over £325,000,000 million per annum in public sector wages plus extra millions for consultants.

This continues the trend agreed and supported by Terry Le Suer when he was Treasury Minister.

Davey.

Walrus

Agreed, keep this man off of our soil, he has no business whatsoever here and should not be meddling where he does not belong. BE GONE!

sammy

Here we go ! "Grab, Snatch and Take ' Tax Why not up the upper earnings tax bracket instead of robbing the poor.

Is this a scam to recoup the $26 million they lost ?

Grab , Grab ,Grab.

DA

Tax the very high earners(£100K+)more before even thinking of GST, and extend zero10 more than it has been.

If the States want to kill off whats left of small local businesses in the island this would do it.

Do not follow the lead or advice from Jersey, as others have said their economy is in a bigger mess than ours.

Guernseytom

Before GST is even considered a serious look needs to be taken at the incredible costs of the Civil Service for a population of 60 odd thousand. With most companies, finance included, stripping personnel down to the bare minimum, pay rises on hold, bonuses cut etc. they need to take a good hard look at themselves before contemplating extra taxes.

Benedict

Totally correct. What I find irritating about many sections of the Civil Service is that the States pay high salaries to attract high calibre personnel. They arrive and then, whenever there is a new proposal, they want to engage English consultants on a fat fee.

Why don't the States employ conscientious secretaries who can commission consultants; OR engage highly paid people who take decisions themselves?

Eric

It is true, GST would be the nail in the coffin for some local businesses. I have run a small company on the UK before and the VAT side of the business is a colossal pain that eats into time that should be spent earning revenues.

Many small businesses can only survive on-island due to the relatively low administrative burden allowing them time to generate income sufficient to cover the extra labor costs compared to the mainland. Introduce more administration and that balance gets tipped in the wrong direction and the company ceases to trade profitably. Not the case for all small businesses but definitely for some.

As has already been noted there is also the government cottage industry in GST collection to consider, the huge implementation overhead for all businesses, and the negative impact on tourism.

I hope that the powers-that-be aren't even considering it, Jersey has comprehensively proven what a flawed concept it is for everyone bar central government.

Scarlett

'Deputy Le Lievre said if it was introduced it would be those on lower incomes, including pensioners, who would be most affected'...

soooo, let me see if I've got this complex theory right...if the Government take more money from people, that means the people will have......errr, less.

Is that right?

Thank god for the geniuses running this island, I couldn't have worked that out for myself, I mean, it's not like he's stating the bl**ding obvious, or anything.

How much are we paying this lot again.....?!

concerned

Low tax is about the only thing this place has got going for it. Take that away and you'll have a mass exodus PB Falla stylee.

Paul

Guernsetom... Not only the numbers of employees need to be questioned but also how they have been able to match salaries to UK government salaries where the responsibilities are for millions of people not just 60,000 odd.

Shane Langlois

That “… those on lower incomes … would be most affected” is not a valid argument against introducing a GST because any percentage of the £45m raised from a Jersey style GST could be used to improve the lot of those on lower incomes. A GST, in conjunction with other measures, could be progressive not regressive. The arguments against a GST are that it adds to businesses’ administrative burden and that rebalancing our income tax system would be a more equitable and efficient. Income tax reform could target high incomes not middle incomes. Increasing the income tax rate to 25% would generate about the same as a GST. It would be easy to forgo some of that revenue by increasing personal allowances so income of, say, £50k pa or less was not affected. At the other end of the spectrum one could even lower the tax cap if it was thought we might lose some high net worth individuals who are more of an asset to than a burden on the island.

GM

Shane

You are absolutely spot on there.

If a GST is ever introduced in Guernsey, and I think it should be, but in a much cleverer way than Jersey, then it could be applied in such a way that it not only eliminates the naturally regressive nature of it, but that it also passes direct benefit to lower earners.

It would make sense to do it an economically worthwhile level, say 10%, to make the cost of collection and implementation viable. I believe I am correct in saying that this would raise around £100m annually.

Mortgage interest relief could be maintained at £400k.

All earners of say £25k and below, including retirees, could not only be exempt from income tax altogether, but could receive maybe £100 per month directly back via the GST system to effectively reimburse them for all GST suffered.

We could then look at income tax rates of just 10% up to £50,000, 15% between £50,000 and £100,000, and 20% over £100,000.

A much fairer overall tax system for everyone, with GST being used positively. Maybe £100m raised (gross) from GST would end up raising a net extra £50m or £60m, but lower and middle income earners would get a much better deal, while higher income earners who spend more would end up paying more via their spending/consumption,

Oh, and levy GST on imported goods to prevent avoidance via Internet shopping.

No need to materially change the corporate tax system either, so that side is taken care of.

Couple it with ongoing tight budgeting of government, and deal with the States pension scheme and we'd be in an infinitely better and fairer tax system all round.

Gilthead

GM - I normally agree with most of what you post on here.

However, on this, I totally disagree.

GST/VAT is always regressive. As you know the original purpose of VAT (apart from the obvious revenue raising) was to either put a brake (raise the rate) on spending in a time of inflation or used as a stimulous (reduce the rate) when an economy was sluggish.

The UK and many European govs increased VAT/GST during a recession and one can plainly see the effects - which are negative.

Your vision makes sense only if your consumption argument is correct in that top earners spend more than anyone else. I would challenge that.

I'd suggest that the aspirational middle would suffer most initially then retailers and then the "working class". I'll give you an example (its not real world but you'll get the idea).

Family has just bought a house and want to modernise it - builder quotes 220k for extension etc. 20k is GST. Family can't afford that so either don't do it or reduce the spend. Builder gets this a lot so has to reduce his workforce with the obvious negatives for all concerned. The States then have to start reversing all the good ideas you had regarding tax allowances for the lower paid but still keep GST at the same level because of an increased welfare bill and lower overall revenues.

If the UK reduced VAT to 10% tomorrow within six months the economy would be recovering - the Treasury would suffer initially but increased employment and therefore revenues would make any deficit up over a longer period. Obviously the UK economy is more complex than that but I hope you see what I'm getting at.

GM

Gilthead

Those are valid points, but I challenge your comment that GST is always regressive. That is only the case if NOT coupled with the sort of redistribution strategy which I proposed.

A simple question though. Can you name me one single jurisdiction in the western world which does not have either a VATor GST? Every other country has come to terms with the nature of such a tax, including their builders as per your example.

Gilthead

GM - if your well thought out plan was followed to the letter I can't argue against it!

However, as we've seen with fuel duty, the idea was excellent but the spirit of the tax has been meddled with and we now have just another tax.

I would affirm my earlier point that, once in place and however well intentioned, the temptation would be to reduce the distribution and/or increase GST.

Introducing any new tax IS ultimately regressive for the reasons given above. The temptation to fiddle is too great - it's easier to raise a tax than address excess.

You're right that most Western economies have a form of GST/VAT. But, and this is a big but, the orginal purpose of the tax as a fiscal brake/accelerator has been lost.

I'd suggest that GST should be the weapon of last resort.

The first thing T&R should do is grab the public sector by the hairy plums and reduce as much waste as possible. Which as most people would agree is considerable.

Secondly address the Civil Service pension - replace it with a defined contributions scheme. Which is pretty much what everyone else is doing.

Finally - if the above doesn't fill the fiscal hole then, as you've suggested before, raise the income tax rate to 25p for those earning over 100k.

GM

Gilthead

I don't disagree with your summary there. Whilst introducing GST would be the easy option, I'd hate to see it come in before the culling of wastage in the public sector was first addressed. I agree that GST should be the last resort, but I strongly suspect that we will need it at some point within the next 5 years.

A local

Interesting discussion. I have no expertise in this area, but it has always occured to me that it would be likely that the benefits of GST if they could be justified in theory / on paper would almost certainly turn out to be costly for businesses / the tax authority to compy with / run. But that is just a hunch.

And I only understand UK VAT a bit - never looked into Jersey GST.

To take a for example, it sounds good on paper to "...levy GST on imported goods to prevent avoidance via Internet shopping."

But how do you do this in practice? I am thinking when one checks out on Amazon or John Lewis etc etc, how does the GST on that sale end up with a GSY tax authority? Is it realistic, how much would it cost, would it add delay etc etc?

Genuine question - but for an idea to work it has to be deliverable right down to the minute detail I think. No point failing at the last hurdle.

There must be other anomalies - e.g. how to deal with exports? Or more to the point, is the admin / hassle worth it?

Unless the tax was a high percentage I can envisage the overheads not being worth it. And I can see considerable econmic harm ensuing from a number of aspects.

We are an island the size of a small UK town - again my instinct, but it may be that we should operate the fewest number of taxes possible and just work with income tax, document duty, TRP and the benefits system (including social security) plus some reform of corporation tax (and whatever other taxes we already have that I have overlooked!).

And as others have said, we should not rush to increase taxation, perphaps save to the extent necessary to put us back in the position of more or less not having given 0% corporation tax to so many corporates. They might not suffer if we increased their tax to say 10% because if they are multinational and we have a Double Taxation Treaty with the relevant country (e.g UK) they might not be prejudiced, but our public purse could gain a bit (a fair slice).

Anyhow, unlike you I suspect, I am no expert on any of this and so my thoughts could all be off the mark.

No idea.

Eric

GM - The cost of administration of what you're suggesting would be utterly unnacceptable. You might raise £100m but you'd spend most of it funding a huge new empire in T&R (and a reasonable size one in customs) while hamstringing virtually every business on the island. The whole package is about as politically acceptable as shutting the PEH.

I pay more than the rich

Or maybe even do something incredibly radical and remove the upper limit for social security contributions, how much would that bring in?

Social security is a tax on income (the notion that it's some kind of insurance fund is nonsense) and should be collected in exactly the same way as income tax, on unearned as well as earned income. Make the rate 25% in total deductions (tax + s.s) for the employee, 5% for the employer, with no upper limit. Another bonus is that the number of staff required to collect the money would also drop considerably.

At the moment I pay more deductions in % terms than someone who earns £1million a year, surely that isn't fair?

russm

But the person earning £1m pays 20-25 times more tax/ins than you for the same benefits - is that fair? If you want to look at %tages then the effective tax rate of the £1m earner is greater than your tax rate - is that fair?

I pay more than the rich

Yes it's fair, otherwise we'd all be paying a fixed amount, an amount that would be more than some people earn.

It's the overall direct taxation rate that is relevant, and that should include social security, so back to my original point that the £1m earner pays less as a % of their earnings.

Shane Langlois

There are strong arguments for retaining insurance based social security contributions and equally strong arguments for merging them with income tax as you suggest (though the overall rate would have to be 32% rather than your 30%). What there is no justification for is our current ss system, a clumsy, inequitable stealth tax brought in to offset the losses incurred when the ‘zero-10’ regime was introduced.

Better still than your idea would be to merge income tax and social security contributions into a single income tax on earned and unearned income but keep contributions to the States pension separate. The States pension was never a good fit with other social security benefits and few mind paying the contributions.

Rees Bryant

Why is the talk always of increasing taxes, and so rarely about cutting costs?

Obviously easier to soak the public, but where does it stop?

T+R should look very hard at all budgets and reduce them by 5%, say, and see what, if anything, really suffers. I suspect not much.

I am sure your readers could provide lots of helpful suggestions.

Sara Thompson

Thank goodness Shane Langlois is no longer in the States.

What a misguided view

GM

MarkB

You obviously don't realise that all regulated finance companies (whether owned locally or not) are going to be paying 10% from now on!

For those which are locally owned it makes little difference other than timing, as local shareholders eventually pay20% tax on those profits anyway, so it just means that half that tax is collected annually, whether distributed or not.

The big difference is that those regulated finance companies which are owned by non-local shareholders will now be paying 10% rather than 0%, so that is extra tax revenue.

It's not possible to tax client companies (owned by non-residents) of those regulated businesses without putting the entire industry at risk (there are many competing jurisdictions who charge zero and who would grab that business from us overnight).

markB

Point taken... But what about A.J’s idea could that not work?.

Anyone that thinks GST isn’t going to hit everyone in the pocket, rich or poor, must be mad.

markB

why not just leave well alone, Stop hitting the little man, and find another form of tax......like 1% tax on all locally owned finance companies.

duh

Wow I'm glad he's a deputy where would we be without such high level reasoning!

A.J.

The best ideas are the simple ones. As soon as things become complicated most of the advantages seem to be gobbled up by the disadvantages. The 'The Income Tax' system,(probably the simplest way of raising public funds,) could be 'tweaked 'to increase tax on ALL annual earnings in excess of £100,000 to 25%".Simple, but effective.

Ray

That gets my vote

russm

But how much would it raise?

A.J.

RUSSM lots!Why do you ask these questions?

russm

I ask becuase I'm interested in the actual amount that can be raised rather than simply suggesting it as a popular way of the rich paying more.

Backchat

If the prices go up anymore then I will have to consider moving away, everything you buy on this Island is at least 50% more expensive than the UK/Europe already!

DELLQUAY

Introducing a goods and services tax would cripple small Guernsey Businesses and indeed would tip many families over the edge into poverty? Yes poverty is here alive and well in Guernsey. Hard to imagine when you look around you. On a recent trip to the UK I could buy things that were cheaper than here even with the VAT added on. Why is that? Oh the freight charges..... that's is boll---- Introducing any form of sales tax coupled with the already very high prices (that probably sneakily include VAT on UK goods etc)would be a disaster for Guernsey that we would never recover from. People would stop buying the way they do now and I would not blame them. Raise the upper earnings limited and higher taxes for those earning over 100K.