Future of tax base needs ‘major review’
AN ANTICIPATED battle over the size of Guernsey’s government has been described as the ‘seminal debate of the current electoral term’ as the cost of public services in the island gets closer to £2m. per day.
Financial experts are confronting the ageing demographic alongside a desire to remain a low-tax jurisdiction and questions are being asked about the value of public services.
Currently, taxes and contributions raised are equal to 21% of GDP, below Jersey where the government raises 26% of GDP. In the UK that figure is 38%, and in France it is 53%.
In announcing the 2020 Budget, the Policy & Resources Committee called for ‘major review’ of the future tax base, and it listed possible future options including a sales tax and a health tax.
A policy letter is due to go before the States in January next year which will formally kick-off that review for restructuring the tax system and raising additional revenues.
The main driver is the ageing demographic and the subsequent increase in demand for public services.
Funding elderly residential care tops £20m. each year, and changes to allow all the drugs approved by the NHS watchdog NICE available under prescription in Guernsey would cost an extra £12m. a year when fully implemented.
Another financial challenge ahead is the cost of the new secondary pension scheme.
Policy & Resources vice president Deputy Lyndon Trott said a mature conversation was needed about public services.
‘The debate around the fiscal framework is crucial, I would rather our tax base remains as it is and I’m not making a pitch for higher taxes, but I live in the real world and in the real world the current 21% of GDP is unsustainable, so the community has to make a decision about how big we want the public sector and how we fund it.’
In 2018, if the States had hit a 24% of GDP limit it would have taken in another £60m. in taxes and contributions.
‘January’s debate will be key, it will have far-reaching consequences, it will be then that the penny will finally drop about how fundamental the impact of an ageing population is, and we need innovation and clever solutions to handle it.’
Deputy Trott stressed that the island has an ‘extraordinarily’ low tax base when compared to our near neighbours and that taxes from the average tax payer do not go very far.
‘The facts are very clearly in support of the view that we are low tax jurisdiction. To help put it in perspective, many people will be surprised to learn for example, that the revenue costs alone of educating one student in the States secondary system, exceeds the annual taxes paid by the average islander.
‘A person needs to earn around £50,000 per annum before they cover the cost of a single pupil.’
‘The cost of residential care on the public purse is nearly £24,000 per resident per year, the cost of a prisoner is close to a £1,000 per prisoner per week, the nursing care subsidy is nearly £900 per week per person.’
A lively debate is expected in January and the Policy & Finance committee is hoping to find a future balance between maintaining a bedrock of public services that protect the poorest and most vulnerable members of society, without squeezing the working population and threatening economic viability.