Guernsey Press

5% GST is proposed as States seeks to make poorest better off too

A GOODS and services tax of 5% could be brought in as part of a package of measures that includes major changes to social security and income tax in an effort to stop the projected deficit in States finances.

Last updated
Policy & Resources president Deputy Peter Ferbrache. (Picture by Peter Frankland, 31512727)

If approved, the moves announced this morning by the Policy & Resources Committee would bring in an extra £50-60m. for public finances by the end of 2025, to address a projected structural deficit of £70m.

Lower and middle-income earners will see the least impact of the changes, while a handful of those at the very top of the income bracket will be hardest hit.

The introduction of a GST would be mitigated by a new income tax band of 15% on the first £30,000 of income. The States say that someone on median earnings, at about £37,000 a year, would see their tax bill reduced by about £900 a year.

It is also proposed to restructure the Social Security contribution system to reduce the liability of low- and middle-income households, and would see a contribution rate of 8.5% for employees and 8% for employers, which could lead to another £19m. being raised.

This would be accompanied by a new Social Security allowance which would be the same as the personal income tax allowance. This, in turn, is being recommended to increase by £600.

The package would raised about £52m. extra a year from a combination of households at £19m., businesses at £27m. and £6m. from visitors.

'We believe our tax system should be fair, which means wherever possible the greatest burden should be met by those who can afford to pay the most,' the States said.

A presentation to the media at the weekend saw P&R and Employment & Social Security presidents Peter Ferbrache and Peter Roffey agree that they did not like having to bring forward the plans.

'We'd all like it not to be the case and nobody wants to increase taxes in the way that we're recommending, but there's really no option,' said Deputy Ferbrache.

Deputy Roffey added: 'I have become absolutely convinced that if we don't have a real step-change of this sort of magnitude in States revenues over the next year or two, then what we're going to have to do to public services in Guernsey is going to be absolutely shocking.

'I think we're going to get a lot of grief over the next couple of months over this package, but it pales to what would happen in the next few years, and the grief we would get from our community, if we tried to balance the books through slashing public services in order to reduce spending.'

Deputy Roffey's comment reflected one of the proposals which carries a blunt warning of what is likely to happen if the changes are rejected, with States' expenditure on public services set to be cut by 12% in real terms by no later than 2026, with P&R starting to move towards this goal in its next Budget.

If passed, GST would be charged on most things, including food, said Deputy Ferbrache, but small businesses that have a turnover of less than £300,000 would not have to register to collect the tax.

Off-island firms that sell more than £300,000 worth of goods to Guernsey every year would also be expected to collect the tax, and this would apply to online retailers, such as Amazon.

But GST would be offset somewhat for many households, which would end up being slightly better off.

'We don't pretend they're going to be much better off because the idea is to increase taxes, but at least they won't be worse off, which is the best that we can do,' he said.

If the measures are approved when the States debates them in January it is anticipated that GST would be introduced in April 2025, but pensions and benefits payments would increase before then to compensate.