‘Old normal’ fiscal response is misguided

That alone underscores the seriousness of the debate on the tax review and need to raise additional revenues. What’s lacking, however, to paraphrase think tank director Jon Moulton, is any real sense of perspective.

To get out of this fiscal hole implies a number of responses. These are raising tax, particularly on the better off, and hope they, their businesses and tax revenues remain here; borrow and/or sell States’ assets and thus ‘kick the debt can down the road’; maintain a low-tax economy, the bedrock of Guernsey’s prosperity to date, and restructure the size of government to what’s affordable; or grow the economy fast enough to sort out public finances.

That level of growth can’t happen and the scale and speed of shrinking the cost of government is too severe to be electorally acceptable – plus significant cuts have never been achieved in the past.

So will P&R’s proposed £75m. raid on islanders’ earnings or their shopping (depending on the tax review option selected) be an end to the current shortage of cash? Yes – but only until the next financial crisis which, whatever it is, remains inevitable.

While businesses and other governments responded to the credit crunch of 2008 with structural changes, Guernsey did not. Its approach to Covid is to take on debt, increase taxes and plan for yet bigger government. That is ultimately a politicians’ response. There is little evidence that islanders agree with it – or that they believe it is ultimately sustainable.

If, as many think, the size and cost of government is now artificially high and based on ‘old normal’ and therefore unrepeatable levels of revenue, there is only one question left.

What next level of crisis will it take to force the States to live within its means?