On the eve of the States meeting that will see the Assembly discuss the tax review ‘green paper’, committee president Peter Ferbrache stepped into the debate, saying that raising income tax was the only alternative to a GST, and claiming that it could be more damaging.
Deputy Ferbrache recognised that many States members were reluctant to adopt a GST as part of the solution to maintain ‘reasonable’ public services in the face of growing demands, particularly in health and care needs.
‘That very big underlying funding gap – up to £80m. per year by 2025 – does not go away if members reject a GST. A solution will still need to be found,’ he said.
‘Making savings in public spending is absolutely critical. But given the scale of the numbers that won’t be enough on its own unless there were truly sweeping cuts to frontline services, and some major services stopped altogether.’
Deputy Ferbrache said work done by the committee showed that a GST – supported by some additional revenue from the corporate tax system – as part of a package would be the best solution. It could actually make some of the poorest better off and spread the tax burden.
‘However, if the States do not want a GST then it will need to be a tax on income. While the amounts raised from a health tax will be ring-fenced for health services, it remains a tax on income, and so the effect on households is the same. It means islanders will take home less money on pay day and have less money to spend in local businesses. Taxing in this way places more of the burden on working people than a GST,’ he added.
P&R said it had listened to retailers’ concerns about a GST, promising to work with them to minimise any impact of administration and collection of the tax – if the States backed a GST. It also said Guernsey was unusual in not having a GST or something similar, with retailers managing their application elsewhere. A GST would also be charged on online purchases, said P&R, which noted Jersey had laid proposals to reduce their threshold at which this applies to £60 – something the committee would monitor closely.
Meanwhile, the expected amount raised from a GST from visitors was £10m. per year if charged at 8% or £6m. at 5%. It was also anticipated that a further £6m could be raised from the finance sector by implementing an international services entity scheme similar to Jersey’s.
Others measures to protect lower income households from the ‘regressive effects’ of a GST such as higher allowances for both income tax and social security contributions, were also highlighted by P&R.