Tax rises are inevitable, says fiscal policy panel
Tax rises are inevitable for Guernsey, or the lack of money available for investment into public infrastructure will hit the island’s economy.
Public revenues must rise, or extra costs will be borne by businesses and their employees, who underperform because the infrastructure supporting the island’s business activities is not delivering, the island’s fiscal policy panel has warned.
‘This is serious. There is no way to avoid or sidestep these costs running a modern economy,’ said Professor Matthew Agarwala, chairman of the panel.
‘If it’s not the taxpayers or businesses and their employees, then it’s going to be on future taxpayers. They’ll have to pay back debt on an economy that is not growing fast enough to service the interest payments on that debt. There’s no escape, you have to pay these costs. You just have to decide who pays them and when.’
The panel was asked by the Policy & Resources Committee to consider the island’s investment in infrastructure and what level might be appropriate, given Guernsey’s scale and circumstances, and on achieving fiscal sustainability. The panel presented the findings of its report to States members this week.
Dr Agarwala said that he had taken some insightful questions, but there should have been no big surprises for deputies in the answers.
‘The big takeaway is that this economy needs to balance taxes, spending capital, infrastructure and maintenance of the reserves, doing that delivers a permanent fiscal balance and a sustainable position for the economy,’ he said.
‘Infrastructure investment is absolutely critical for economic growth, and failing to invest in infrastructure is an increasingly binding constraint on growth, business performance, the delivery of public services and quality of life.’
The panel noted that the States had a history of under-investing in infrastructure, and said that measures tentatively improved to raise taxes and introduce a goods and services tax would still fall short of the infrastructure spending target of 3% which it was recommending, based on internationally comparable data from other jurisdictions.
Dr Agarwala said it was not in his panel’s remit of the panel to dictate which specific taxes should be pursued. That was a matter for deputies.
‘What is clear is that the portfolio of tax reforms, which include things like GST, but also increased contributions are absolutely necessary, but are perhaps not fully sufficient for delivering a sustainable fiscal position,’ he said.
