How long can low-tax Guernsey last?

FROM the evidence set out, chief minister Peter Ferbrache told the States this week, it is clear the focus is on how to raise tax ‘rather than whether to raise tax’. In the sense of what’s been released, he’s correct. What islanders haven’t had, however, is an assessment of the scale of any cuts needed to mitigate those increases.

To that extent, the debate on whether to introduce GST and other measures is one-sided. From the evidence set out there is, indeed, only one solution. However, a much wider point is contained in Deputy Ferbrache’s formal update statement to the Assembly.

It was in his statement about Brexit and the efforts Guernsey’s government has to make to meet the changes and challenges posed by it. ‘There may well be significant advantages, but they have yet to manifest themselves.’

In other words, effort and cost has to be expended, very possibly without reward, because of events triggered elsewhere to which the island has no option other than to respond as positively as it can.

It is a microcosm of the cost pressures facing this island simply because it is a tiny speck of barely more than 60,000 people who find themselves, through a twist of history, independent, autonomous and not annexed to a major country or power.

When the island reduced income tax to 20% back in the 1960s it did so because government then didn’t need the money, not to create an offshore financial services sector. The new industry, however, produced surpluses that enabled the island to grow public services without the need for tax increases.

Today, however, that model is under pressure. With the benefit of hindsight, perhaps it was never sustainable over the long term, not least because of an ageing population and a shrinking workforce.

The demands of modern society and external influences dictate that the cost of governing and retaining Guernsey’s autonomy rises inexorably. The forthcoming tax review illustrates that.

As States members debate it, the fundamental issue is for how much longer Guernsey can remain a ‘low tax’ jurisdiction.

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