‘Do we want a fairer society?’

LET me start this column with a question: Would you like to have more disposable income or less? If the answer is more, then, for most of you, you should be calling up your States members and asking them to vote ‘pour’ on the funding package which includes GST this month.

You see, this October, the States is going to debate again a new tax package for Guernsey. This will help us fund the investment in infrastructure and services which we have put off for far too long. Yes, it’s pretty much the same package to the one debated and rejected in February this year already. Yes, I did think it was the right plan then, and the right plan now.

But before I go into why that is the case, let me say one thing, loud and clear:

THIS PACKAGE WILL MEAN LOW INCOME HOUSEHOLDS WILL HAVE MORE MONEY AFTER PAYING THEIR TAXES (INCLUDING A GOODS & SERVICES TAX) THAN THEY DO NOW. THEY WILL HAVE MORE MONEY. NOT LESS. MORE.

Here’s how: We are going to cut other taxes and these cuts will benefit lower and middle income earners more than high earners. Firstly, your income tax will be cut by 5% on all of your income up to £30k. That will apply to everyone, but obviously the benefit will be far greater to lower and middle income earners. In addition, your income tax allowance will also increase, meaning that more of your earnings will be tax free. This will also bring a far greater benefit to lower and middle income earners as allowances are phased out for higher earners.

We’ll also introduce a social security allowance at the same level as income tax. This is a new measure and a significant reform. While it doesn’t get much attention, you actually pay social security contributions on all your earnings right now – as soon as you earn more than £8,500 – and that’s not fair. So we want to change this, and this will also further significantly improve things for lower and middle income earners.

On top of this we will also increase pensions and income support. All this means that, on average, households in the lowest 60% by income will be better off, or at the very least, will be no worse off, i.e. the same as now, even after the cost of goods increases with the introduction of GST.

And yes, this is a plan to raise revenue so that we can sustainably fund the essential public services that the community rely on (such as health care, schools and housing); we need to have a mechanism for doing that.

Despite the reputation that’s built up against GST in Guernsey as being some kind of bogeyman, we believe instead that the most effective and fairest way to raise revenue is through a low level, broadly-applied GST. We’re giving the States two options for that, either a 5% GST on nearly everything (but importantly it will not apply to rent and mortgage payments) or a 6% GST that also excludes food as well.

Now, if so many people will pay less, how does it raise more revenue?

Firstly, those earners on higher incomes will pay more as the tax breaks are designed to support people who need it and not those earning the most. It’s what most of you have asked for when electing your representatives: that those earning the most will pay more, however, this will just not be all through income tax.

Secondly, the measures will spread the burden more widely than income tax as some people who spend money may pay little or no income tax. GST will generate income from those visiting the island when they buy goods during their visit and from those more reliant on savings than incomes. Also, there are many wealthy individuals living in Guernsey who arrange their financial affairs so that they mainly live and spend from their capital savings, rather than from their income. Increasing income tax does not affect them so much. However, they have the resources to buy new cars, renovate their houses and entertain friends and this is where they will in future pay tax – on their spending.

Thirdly, almost half of the money that will be raised from the package will come from businesses rather than individuals as they will be paid by the employer through contributions and through a specific scheme that ensures finance industry firms contribute around £8m. per year.

We have thoroughly looked at all sorts of taxes in the last few years to see how we could solve the problem of making the provision of your public services sustainable long-term – including the options of property taxes, capital gains taxes, corporate taxes, environmental taxes, duties… everything has been considered. And yes, some of these are also part of our plan. Accordingly, corporate taxes will need to raise at least an additional £15m. per year and transport taxes (which may be in the form of a road tax and/or paid parking) will need to raise another £10m.

Cost-cutting is essential too and will need to deliver £10m.-£16m. in reduced costs. All of these help, but let’s not fool ourselves – none of these by themselves can fully close the growing gap.

Therefore, we need to introduce something in the short to medium term that can raise significant amounts. There are really only two contenders – income tax or GST. We have considered all options. And I can say without doubt, the package that we propose, which includes GST, will spread the burden more widely than any income tax increase – and that’s critical and fairer for all.

In fact, to make this clearer, it’s helpful to look at the level of income tax that would be needed to raise the sort of revenue Guernsey needs instead of by introducing GST. 1% of income tax generates around £16m. So sticking a penny, or even two, wouldn’t be anywhere near sufficient to bring in the required funds. You’d need between 3 or 4%. If instead a higher rate tier was introduced, it would need to be around 30% for earnings above £60,000, and that’s a very big hike affecting many who are far from being ‘super-rich’. And in either case we would not raise enough to then reduce the burden on low earners, they would see no benefit.

A GST brings other benefits too.

Firstly, it’s virtually unavoidable, it doesn’t matter where your money comes from or how you arrange your financial affairs, if you buy something, you’ll pay it.

Secondly, it enables us, at long last, to replenish the reserves which our forefathers wisely put aside in the past to help us as a community face unexpected challenges and downturns in the economy.

Now we’ve had some difficult times in recent years, including with the Covid pandemic and now with the cost of living crisis, and we have eaten through over half of those reserves. Some would have us spend what remains of these reserves on capital projects now (despite the fact the reserves would not fully fund these) without suggesting any means of replenishing the funds. That’s not responsible.

Thirdly, it does not diminish our competitive position against our neighbours. In fact it gives us a bit of an edge.

Let me explain this: The UK, Jersey, the Isle of Man, and just about everywhere in the developed world has a consumption tax of some form already, like GST. Being the odd one out may make us feel a bit unique as Sarnians, however, 5% is still well below the UK’s VAT rate of 20% and it is in line with Jersey’s 5%. However, a 23%, 24% or 30% headline income tax rate versus the 20% tax in Jersey would be a real disadvantage – we can argue over just how big or small it is, but it’s a disadvantage that we don’t need or intend to give ourselves.

In fact, this package, by reducing income tax to 15% for your first £30k, will give us a new competitive edge.

We spent a good part of last year taking a ‘Tax Review’ roadshow around the parishes, sending out leaflets, plugging the ourfuture.gg website (which is still an excellent place to find out more about this plan and our public finances more widely) but we know the message did not sink in: this is not just a GST, this a progressive tax package that will mean, on average, low income households are better off than they are now.

I really hope that message gets across this time. Right now, there’s a political fear that being associated with a GST is election suicide. It really shouldn’t be. But I promised to tell it like it is, even if it seemed unpopular. I have three children and three grandchildren living in Guernsey and I firmly believe this is the best package for future generations.

Furthermore, we need to move beyond some of the GST-hysteria that’s taken hold, consider this package as a whole, and ask ourselves, do we want a fairer society? Do we want to see investment in our future and good, sustainable public services? Can those of us in the top 40% of earners afford to pay a little bit more?

If, like me, the answer to all those is yes, then I encourage you to contact your States members and tell them actually, this time don’t reject a GST – instead support it and help to build our future.