Treasury's tax storm is entirely of its own making

ANY attack on the middle class by government is going to be met with a vocal and engaged response.

ANY attack on the middle class by government is going to be met with a vocal and engaged response.

It requires those behind the move to come armed with comprehensive arguments backed up with evidence or the policy change will be dead on arrival.

Treasury, in announcing its intention to phase out mortgage interest relief, has found itself at the centre of a political storm entirely of its own making because it seems so ill-prepared to back up its arguments.

There was barely a whimper in 2006 when the Policy Council capped the relief to mortgages of less than £400,000.

Presumably that was because it was seen as a justifiable move against a perk for the wealthy at a time when Guernsey needed to find a way of balancing its books in the light of zero-10.

But this time around there is a much larger section of society who could lose out.

The department makes mention in this year’s Budget of the role the relief plays in supporting higher house prices.

Property prices, more specifically the difficulty for first-time buyers of getting on the property ladder, is a constant political theme – it may well be a perfectly justifiable reason for acting, and perhaps preferable to a sustained building programme, but the department provides no evidence for what it predicts will happen to property prices in phasing out the relief and why.

It might have pointed to the States Strategic Plan, to which all government policy is meant to fit, as providing some backing for its stance.

This states that a social policy objective is to ‘improve housing availability, quality and affordability.’

But that was the policy of the last States – we still do not know what this one’s priorities are so there is already an awkward disconnect in the timing of the mortgage interest relief announcement.

No doubt those who own property will baulk at the suggestion that their investment will be devalued.

It talks about the relief being a tax subsidy for property ownership at the expense of the general taxpayer.

While culturally the attitude to home ownership is slowly changing as more and more people rent, Guernsey is still very much wrapped up in the conservative ideal of home ownership – the attack on that at a time when people are already struggling as the economy stutters along is a brave move.

This is also a move for increased fairness in the tax system – who would argue with that goal?

So if the department could only come out and say what would happen to the money it might not have set the hares running quite so madly.

It does not and will argue it would have difficulty making any pledges given the review of the taxation system that is now under way.

Those shouting loudest now about what they could lose may be winners in the long run as different reliefs are looked at – then again, they may be massive losers – the public just does not know.

So why, then, make the announcement now?

It already can see the disastrous consequences of releasing half-baked policy decisions – it creates an information vacuum into which the public will insert its own thoughts.

It was a trap the last States fell into at times, publishing wish lists and ideas without fully justifying them.

Perhaps the most crucial example of this was Social Security’s attempts to lift the poorest in society up to the minimum income level experts suggest is needed.

It did not know exactly how much the plan would cost or how it would be paid for, faced criticism from Treasury for that and eventually lost the debate, pushing its plans back for years.

Now Treasury must have

plenty of data that tells it exactly how many people its mortgage relief proposal will impact, by how much and when.

We know this because the Budget states that dropping the limit to  £350,000 in 2014 will raise just £100,000 – so the figures will be there for each year’s £50,000 reduction.

Again, it is information the public should have given Treasury’s stance of it being an unfair subsidy.

Scrapping mortgage interest relief has already happened elsewhere as

government finances tighten.

The UK got rid of it a decade ago when it was described as a middle-class perk.

Jersey has a cap of £300,000, while in Ireland it is being abolished from 31 December.

As part of work to avoid the ‘fiscal cliff’, America too is investigating its future – it saves middle-class homeowners earning up to $250,000 a year between $1,200 and $2,600 annually.

Looking at these jurisdictions opens the eyes to the different options that could be on the table, but are sadly not discussed in the Budget report.

If the real concern from the public is that scrapping the relief will harm first-time buyers then why not, as Ireland initially did, protect this bracket and keep it in place only for them?

Treasury gets more fairness in the tax system, helps bring house prices (now averaging some £450,000) under control, while helping a key demographic that the island needs to keep.

The money saved can be redistributed through income tax limits.

Timing is everything.

The lack of evidence, of information, of data, is politically naive at best.

Worse still is the announcement at a time when so much is reliant on the States delivering over the next two years on the savings that are meant to be delivered through the financial transformation programme.

If the department had come to the public in two years’ time, having banked all the savings it has outlined and with the help of very modest economic growth eliminated the deficit and outlined a fully-realised plan of phasing out the relief and redistributed the tax among the public in other ways, it may have had a more receptive audience.

Instead it has rushed into what is for Guernsey a radical move when it did not need to and may well have lost the argument about fairness in the tax system before it has even begun.