It is forecast to boost the public coffers by just under £60m. a year and help to fill the black hole in Guernsey’s public finances.
A goods and services tax will still be introduced, but at 3% rather than 5%.
Although most of the P&R committee members had been against GST in the previous States term, its president, Deputy Lindsay de Sausmarez, said these proposals were different in a number of key respects.
'We were never going to pull the previous option off the table without there being an alternative we were prepared to propose,' she said.
'That would not have been a responsible way to proceed. Actually this package is a blend of different measures. There are a lot more elements to it than the one agreed in 2024.'
As well as GST, which would be implemented in 2028, the new proposals include a new 15% income tax band, but only on income up to £28,000. Under the previous GST-plus plan, the lower tax rate would have extended to well above £30,000.
There will be a new social security contribution allowance, but it will be limited to £11,122. Under GST-plus it would have been tied to the income tax allowance, which currently stands at £15,200.
The package will also see a new motor tax introduced at an average cost of £132 per vehicle.
On the other side of the coin a reduction in fuel duties of about 23p a litre is estimated to save the average motorist a very similar amount. So those who drive more than the average should be better off, while those who use their cars less often will be worse off.
It also means that drivers of electric vehicles will be paying motoring taxes for the first time.
There will also be a new 'luxury tax' added to the first registration duty on any private vehicles worth more than £50,000. This new tax will start at £2,500.
Social security contribution rates for employees will rise from the current 7.5% to 8.5% by 2028. Those for self-employed islanders will go up from 12.4% to 14.5%, while the rate that pensioners pay will go from 3.8% to 4%. By contrast the rate for non-employed islanders under pension age will drop from 11.8% to 8.5%.
Plans to levy contributions on employed people’s incomes, rather than just their earnings, have been dropped. This means only non-employed islanders, the majority of whom are pensioners, will pay on their entire income.
As well as changes to taxation and social security contributions, the package involves savings in States spending of £20m. a year, something which the president of the Health & Social Care Committee has already said may well lead to additional changes.
It is estimated that the proposed GST will raise about £55m. a year, with £7m. coming from motoring taxes, £6m. from corporate tax reforms and £2m. from the changes in social security. Taken together that means additional revenues of £70m. Together with the proposed £20m. in savings, that will benefit the exchequer to the tune of £90m.
However, the new 15% tax band will cost the States £28m. a year. There will also be other mitigations, such as increases to the States Pension and to Income Support benefits to compensate for the rise in the cost of living caused by GST.
Policy & Resources says there is no alternative but to take some action, otherwise the island’s reserves will be completely exhausted in just a few years. But the committee president, Deputy Lindsay de Sausmarez, insists they have listened carefully to the community and acted accordingly.
‘We have been acutely aware of how much some people are struggling. Finding a way to raise more revenue for essential services, while also protecting those who are financially vulnerable, has been a challenge, but the 2026 Tax Reform Package meets both aims in a measured and manageable way.’
P&R warns that there may be a need for further fiscal measures in the next States Assembly but it says the better than expected financial outcome in 2025 has allowed them to phase in any changes more gradually.
You need to be logged in to comment.