It’s time to address the elephant in the room

When we were discussing the latest increases in TRP the question posed by some deputies was – ‘if you are not willing to tax property a little bit more, then what are you willing to tax?’ After all, they pointed out, Guernsey levies far lower taxes than just about any other territory and people still expect decent public services, which have to be paid for.

The view from Mr Le Flem in the Canichers was somewhat different. To him this was yet another above-inflation tax increase to go with the higher duties on his petrol and his pint down at the Foresters’. All of this coming on top of having to pay far more to get rid of his rubbish.

This last set of charges is not technically a tax of course, but that’s scant comfort. It is still the States taking just a little bit more out of Mr Le Flem’s pocket.

Old Mrs Savident from the Hubits was even more hacked off. Not only was she facing all the same increases in taxes and charges but, because she is over 65, she saw her income tax allowance frozen (which means reduced in real terms) for yet another year.

So, who is right?

The States members struggling to make the books balance, or the man/woman on the street feeling that every year government is putting yet another straw on their backs?

The answer, oddly, is both. How can that be?

Because some years ago we had to bring in the zero-10 tax regime.

Those deputies who claim our government takes a far lower percentage of our economic activity in taxation than just about any other government in the world are indisputably, statistically right.

We have no general consumption tax, property taxes are still lower than in most other places and the very ideas of capital gains, inheritance or wealth taxes are regarded as dangerous heresies. Indeed the only real significant personal tax in Guernsey (unless you happen to be buying property) is income tax.

So why do we all feel as if the States has been leaning more and more heavily on us and dipping deeper and deeper into our pockets in recent years? Because they have.

It was always known when the States had to give up £100m. in corporation tax some years ago (and they really did have to) a lot of that tax burden would swap across to rest on the backs of individual islanders. That is exactly what has happened, although some of that lost tax has also been clawed back through other taxes on business.

What wasn’t known when the new tax regime was adopted was how sluggish economic growth would be for so long – held back by the world financial downturn. Add to that our ageing demographic and the ever-increasing complexity of life and there was a lot of slack for Mr and Mrs Guernsey to pick up.

Personal taxation in Guernsey may still be low by any international comparison, but it has grown steadily over the last decade. That is naturally unwelcome to the individuals concerned and it also subdues spending as disposable income drops as a result. It comes into the ‘bad, but unavoidable’ category of policies that politicians are so keen to avoid talking about in public in this shallow, populist age.

One public misconception is that the rising personal taxation of the last decade is due to a States’ spending spree. It categorically is not. Of course all of us can point to individual bits of expenditure which we profoundly disagree with and thereby build an anecdotal case for the States imitating drunken sailors. The reality is that global States spending has fallen in real terms. Indeed, outside experts reviewing our fiscal policy have frequently remarked on the extraordinary restraint the States have shown on the spending side of their balance sheet.

Is the relentless rise in personal taxation over? Please don’t shoot the messenger, but I really don’t think so.

On the plus side we have now moved to a balanced budget. In fact the States revenue budget is now about £50m. in surplus, allowing us to invest properly in our infrastructure without resorting to borrowing. Normally that would mean that the fiscal squeeze on the population could ease off, but I see two problems with that. Both probably have their roots in our ageing population.

The first is that I am convinced we are going to have to spend a lot more on health and social care if we want to be proud of these services in 10 years’ time. Frankly, I think there has been a lot of wishful thinking over our future HSC budgets.

The second issue is Social Security. Those listening carefully to the budget debate will have heard that their funds are currently unsustainable. That is code for ‘increases are coming’. Of course social security is not a tax, but (rather like waste charges) it feels pretty much the same to those stumping up the cash.

Then the elephant in the room is ‘universal second pensions’. These have been already agreed in principle. The premise being that the States pension will never be enough to provide for a comfortable retirement and so everybody needs to save more.

That is quite true of course, but how will second pensions be funded? For those already in a qualifying occupational pension scheme there will be little difference. For those who are not, part of the answer will be more cash out of their pay packet. For their benefit of course, but still hard to absorb if you are struggling to make ends meet.

The stark reality is that we are never going back to the level of taxes and charges islanders enjoyed 20 years ago. The world has changed too much.