Guernsey Press

OPINION: ‘It’s all about demographics’

Deputy Peter Roffey continues his look at the state of the States, this time focusing on revenue and spending

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IN THE first of these year-end articles, I considered the state of Guernsey’s capital spending programme. That’s a really important issue. Any community which fails to invest in its infrastructure adequately is doomed to decline and there’s no doubt successive assemblies have fallen well short in this respect.

But while big capital projects tend to attract more public interest, it’s the States’ revenue budget which is the real touchstone for the health of Guernsey’s public finances.

So in this column I am going to look at States revenues and at public spending. Firstly the short-term scenario, but then the crucial longer-term prognosis.

In the short term most of the outcomes have been driven by the impact of Covid-19. Sadly, that might continue for some time. The pandemic partially closed down our economy and forced the States to spend mega-bucks on measures to fight both the virus’s economic and public health impacts.

The recovery from that knock back has been nothing short of stellar. Unemployment has fallen back to pre-Covid levels of circa 1% and States revenues have been strong.

Why such a sharp recovery in States incomes? Partly because some spend which used to go off-island, on holidays, has been kept within the local economy. Partly that there has been a real blip in document duty caused by a combination of higher house prices and a very high number of transactions.

Of course, while a supercharged housing market has been good news for the public purse it’s also spawned misery for many people seeking a home they can afford. More of that in my third and final set of year-end reflections.

Returning to our public finances, I suspect the out-turn for 2021 will be far better than anyone dared to predict early in the year. Not only will there not be the big revenue deficit most people assumed back then, but we might even see a revenue surplus. Of course that’s not quite the same as an overall budget surplus, which needs to factor in capital expenditure, but it will still be an amazing result.

It will also be something of a two-edged sword, though, because it could also breed complacency. No amount of short-term satisfaction with the current budgetary position can disguise the inconvenient truths informing the longer-term prognosis for Guernsey public finances.

While the main driver for our current budgetary position has been how we’ve dealt with Covid, our longer-term prospects are all about how we respond to the demographic challenges we know lie ahead. To that extent we are in the same boat as most developed countries, but how we respond to the biggest political and economic challenge of our age is in our own hands. We have to be clever and we have to be decisive.

Whatever we do to respond to the shift in demographics, I can’t see a way of avoiding a somewhat higher tax base. Unless of course we take an axe to vital public services and benefits.

And it is all about demographics. I’m really sorry if some older people find that accusatory. It’s not meant to be. No one is being blamed personally. It’s just a brutal fact that an older demographic profile tends to produce greater demands on the public purse and lower revenues.

We can mitigate those impacts by evolving our economy and changing our ingrained social expectations of various age groups. More on that in my next column. But however much we succeed, it is unlikely to completely remove the need for higher taxes. On an individual level that is very unwelcome news but at least it’s unlikely to make Guernsey, as a community, less competitive because everywhere else is in pretty much the same boat.

Couldn’t we remove the need for tax increases through spending cuts and doing things more efficiently? Absolutely not – and it is time this harmful myth was laid to rest. Guernsey’s public sector is not replete with layers of fat – quite the opposite. Of course efficiencies can always be found, and should be, but anybody expecting them to be anywhere large enough to close the predicted funding gap is simply away with the fairies.

I know. There must be many tens of millions’ worth of wasteful expenditure going on and just waiting to be cut by any States with the backbone to tackle our profligate civil service. It must be true because people keep saying so, in coffee houses, and public bars, and over the garden fence. After all, there is no smoke without fire.

Well sadly there is very often great plumes of smoke without a single flame to blame. That is the nature of urban myths. People believe them because enough people repeat them. And then they too repeat them because they believe them. It is just human nature, but sadly such urban myths can be a real distraction from the task in hand.

That’s why every few years we see a load of new, fresh-faced deputies determined to deliver on their election promises to strip out all of that wasteful fat, only to be scratching their heads a year or two later when they can’t locate all of that waste and overspending which they had promised faithfully to prune.

But it must exist. After all, didn’t a previous States chief executive say he could reduce the size of the public service by 200 posts? Actually I don’t know if he did or not, but if he did he was extremely foolish. I do genuinely believe there are approaching that sort of order of posts which can be saved through reorganisation, digitisation and efficiencies. Sadly, on the other side of the equation, the growing demand for services, such as health and social care, will more than mop up any such savings.

So unless we want a society stripped of the sort of services most of us regard as essential in a humane and civilised community, then sadly I think the tax burden will need to rise over the medium term.

How that is done is another matter. There are options, but I must fess up – having looked at it in depth I am coming to the view that, so long as its regressive nature is removed through changes to the social security contribution system, probably a general consumption tax is the only logical way forward.

I will now go and do penance for my sins.