‘What about dealing with what we’re spending before looking at how we pay for it?’
Lord Digby Jones, chairman of the Guernsey Policy and Economics Group, says there should be more emphasis on cutting government spending
‘FREEDOM’ means different things to different people. Many use the word ‘democracy’ when they really mean the freedoms of speech, worship, movement and assembly. Indeed, they often take for granted the exercise in democracy that is voting in a secret ballot. It is a hallmark of a mature democracy that two people with opposing views can in freedom argue their case in public through the channel of a free press.
So in that spirit (and with a thank you to the Guernsey Press for providing the debating chamber) I welcome this opportunity to continue the on-going debate between myself, as chairman of the Guernsey Policy and Economics Group (Gpeg) and the chief minister Peter Ferbrache surrounding the vitally important and pending issue of raising taxes on our island. I thank Peter for his article last week and there is, of course, much common ground between us. But there are still differences to be highlighted and additional points to be made, on both sides I guess.
Moreover, the system of government on Guernsey, with no political parties, no manifestos that carry the ability to get things done if elected, and no whipping the party line, militates against decisive, policy-based executive government. But, thankfully, as Churchill said a century ago: ‘Democracy is the worst form of government… apart from all the others’.
Whether Guernsey raises additional taxation via a goods and services tax or increased taxes on profits and income, the deep-rooted problem is that we spend more then we earn on a systemic and apparently unstoppable basis.
As Horace Camp said in these pages a few days ago, the real issue is that we enjoy and want to continue enjoying UK quantum and type of benefits but without having the ability to pay for them, in the final analysis, by printing money.
Some deputies may wish to live blindly and ostrich-like in what Mr Camp called a ‘socialist Utopia’ but most law makers thankfully do live in the real world and understand that the competitive pressures ‘out there’ do matter, and that those who pay tax also vote and have choices about the many ways in which they go about earning and spending money.
If we do not change (and change quickly) what we do, what we provide and how we pay for it, Mr Micawber’s misery will be here to stay.
Since my previous article on the possible introduction of GST was published here in the Guernsey Press, I have been pleasantly surprised by just how many people have got in touch or stopped me in the street (at the Co-op actually) to say they are vehemently against GST’s introduction.
One small businesswoman warned that a thriving black market would grow and develop with all the damaging effects on our society, fiscal and social, that that would visit upon us. A public sector employee warned of the high cost to the taxpayer of administering the new tax, and several said 5% would be 8% before we knew it and the prevailing VAT rate in the UK of 20% would sit there as an ambition, not a warning to many in Treasury. Many have come from similar jobs in the UK, but Guernsey ain’t Surrey or Tower Hamlets.
Once the floodgates of GST (or indeed a new business tax or increased income tax) are opened, the chances of addressing the real problem will disappear for a long time to come. How irresponsible will it be to leave our kids (and probably their kids) to try to clean up the mess?
Because every time we’re running out of money a politician will just tweak the rates amid dire warnings of closing a school or hospital ward if we don’t.
Even the new ‘bribe ‘em with their own cash’ 15% rate of income tax will be slowly increased, probably by taking low wage-earners out of applicable bands. Don’t blame the politicians – they’ll just be following the line of least resistance. A choice – put up with a bit of bleating for a few weeks, or risk serious voter dischuffment by tackling the serious fault-line in our finances. What about dealing with what we’re spending before looking at how we pay for it?
Two Gpeg papers dealt with this issue in detail: A Guide To Spending And Tax Planning and Guernsey Taxation: The Way Forward (you’ll find them by following the links on https://www.gpeg.org.gg/publications).
At Gpeg, we filed a Freedom of Information request, we got hold of what we needed and we think you should all be told this astonishing fact:
More than 80% of households in Guernsey receive one form or another of social benefit from the taxpayer via the Guernsey government.
Over eight out of 10 households are basically living off (which is different to ‘dependent on’) the State to a greater or lesser extent. The figure in the UK is 52%. Guernsey has 3,000 households receiving more than £30,000 every year from the Guernsey taxpayer. The UK’s comparable figure is capped at £23,000. Now what politician, with an eye to electoral success (let alone the few of a certain political persuasion who see nothing wrong with that amazing statistic) is going to rock that particular boat?
Surely, in an environment of full employment with virtually every employer crying out for labour, it should not be possible for individuals to refuse to work more than 20 hours a week because it harms the benefits they receive from the States.
Also, if means-testing means that the better-off do not receive their States pension for some years (notwithstanding they paid into the States over the years), yes it’s unfair but they can actually afford it and it would only be a form of indirectly increasing taxes… and I know it’s unpopular to say this, but life isn’t fair, especially when it’s a question of implementing priorities.
Benefits. Means-testing. Why are these thorny issues brushed over by politicians of different persuasions? In the ‘too difficult box’ are they? It’s presumably so much better just to turn up the tax screw and ignore the cause.
The other cost base in desperate need of reform is that of public sector pension provision, in two areas:
When comparisons are made between public sector and private sector pay, very little reference is made to pension provision. In the UK more than 80% of public sector employees are still members of defined benefits schemes which are eye-wateringly expensive for the employer, and massively beneficial for the employee. The comparative figure in the private sector is less than 30%. Every year the States pays another 18% of salary into the average employee’s pension pot; the figure in the private sector is 6%. I am always frustrated as to why this issue isn’t talked about more, although I can see why the unions don’t want it recognised.
And every time inflation increases in rate and duration, and every time salary rises over the years have increased public sector pay, up goes the Guernsey public sector pensions bill for the States... er, the taxpayer... yep, you and I are paying for that. Think of that if you soon have to pay 5% extra for everything over the counter. We will have to find an extra 40m. quid just to fund the inflationary effect of GST on public sector pension provision.
So no matter how you cut the cake, no matter what you call it or how you raise it, more spending means more taxes – for every single person in Guernsey in the medium-term.
I beg the deputies, when they debate the revenue-raising options later this month, to delay passing any revenue-raising rules into law until they first consider the central issue – there needs to be less spending.
No matter how sad it is, not everyone can have prizes – and certainly not those who frankly shouldn’t be having them in all strata of the income scale, from top to bottom.
Let the politicians get away with it (again), and future generations will be condemned to maxing out the island’s credit card again and again. The real issue, the central problem, will be ignored – because it’s painful to realise we simply cannot afford what we want, as opposed to what we need. It is a real shame that, I fear, the desperate need for reform of the public sector and social provision will be shoved under the governmental carpet once again as they argue about ‘how’ they are going to take our money off us (and for some actually then ‘give’ a cashback of their own money) rather than ‘why’ they need the money in the first place.