Message's meaning was clear
A WARNING by the chief minister this week that Guernsey risks becoming a high-tax jurisdiction if it cannot curb its public sector expenditure is a reminder of why this newspaper has taken such a strong line over the years on States spending.
A WARNING by the chief minister this week that Guernsey risks becoming a high-tax jurisdiction if it cannot curb its public sector expenditure is a reminder of why this newspaper has taken such a strong line over the years on States spending.
In the chief minister's case, he was highlighting the hidden – and uncontrolled – cost of social security. While attention is focused on government's day-to-day expenditure, its fiscal policy does not embrace all areas.
An independent review has now drawn attention to the previously unreported effect of social security on public finances. While the cost of the island's bureaucracy went up by 6% in real terms over the last five years – confirming it is not under control – the actual increase was more than double when social security is taken into account.
The point this newspaper has tried to make is that Guernsey has limited options over the long term to pay for these things if it wants to retain the basic 20p in the £ income tax rate that underpins the financial services sector.
The island's economy generated £1.9bn in wages, profits and other income in 2009, which equates to a gross domestic product per head of population of £30,533.
Of that, however, approaching half, 41%, was generated by financial services alone while the next biggest contributor was public administration – the island's bureaucracy including health and education.
In other words, the money generated by finance helps to pay the civil servants whose own wages boost the island's tax take. That might be regarded as a virtuous circle but it also highlights the dependency of the island on a dominant sector.
And since that sector depends on a competitive tax structure, the issue is how to pay for a government machine that over the last five years has seen its costs rise by substantially more than inflation.
What the chief minister's message really meant was this.
Pushing the economy line isn't States-bashing and isn't being unkind to civil servants. It is an essential ingredient of preserving an island way of life.
