‘Something has to give’

So read last week’s grim headlines. Was that a devastating revelation? Not really, for several reasons.

Firstly, it was not a revelation at all. The big, looming black hole in Guernsey’s finances had been forecast several years ago, back in the last Assembly. Secondly, while the situation is certainly very serious, and requiring significant corrective action, I don’t believe it is quite as black as it has been painted.

Of course, I can understand why Guernsey’s future finances have deliberately been portrayed in a pessimistic light. States members need to be jolted out of their complacency and the public need to be softened up for the inevitable tax rises to come. That said, some of the assumptions underlying the financial projections just released are – to speak frankly – rather dodgy.

In particular, the assumption over future net migration. This goes to the heart of why Guernsey faces such huge financial challenges in the first place. It’s not the cost of Covid-19, although obviously the impact of the pandemic has severely aggravated the underlying problem. It’s not Brexit, although that certainly didn’t help. Rather, it is all down to demographics.

Put simply, a shrinking workforce = constraints on the size of Guernsey’s economy = lower government receipts. On the other side of the equation, an ageing population = more needing to be spent on health, pensions and social care.

It’s a very big conundrum, but just how big depends on how much our workforce actually shrinks by. That brings us back to the first dodgy assumption in the ‘baseline forecast’, which threw up that figure of a £50m. annual deficit – although that figure is not a revenue deficit but rather the shortfall after significant capital appropriations.

That forecast of a structural £50m. deficit is predicated on the assumption of a net migration rate of 100 people per year. Such a migration rate, coupled with Guernsey’s current fertility rate of 1.5, would see a significant reduction in the island’s population over the medium term and a massive drop in the longer term. I simply don’t believe we will see that happen.

Guernsey has no official population policy, but I think most deputies can be roughly divided into population hawks and population doves.

The hawks want to see a big rise in Guernsey’s population in order to alleviate our demographic challenges – or at least kick them down the road. By the way, I suspect the pessimistic forecasting isn’t only to soften the public up for tax rises but for population rises too.

The doves, including me, don’t want to see any significant rise in our population because of fears over quality of life, strain on our infrastructure, and over-development.

I don’t know any deputies who actually want to see our population fall significantly and therefore the assumed 100 net migration per year is fanciful – particularly when the actual migration level has been far higher than that over the last couple of years. Although I accept that migration does tend to respond more to job opportunities than to any political policy or States resolution.

While on the subject of demographics, and the projected shrinking workforce, this clearly makes it even more important than ever to facilitate the economic activity of those within our existing population. When it comes to islanders who find the workplace challenging, employers need to focus on what they can contribute rather than on what they can’t.

I could run through all the other assumptions that I regard as slightly dodgy in the financial forecast. For example, when committees were asked for their ‘baseline’ it was just that and they were assured it would not be used for forecasting purposes. Accordingly, it included no initiatives, such as digitisation, aimed at bringing about efficiencies or cost savings, but I am not aware of a single committee which isn’t committed to such developments.

I suppose the danger is that if I pick away too much at the assumptions, people will think I am asking ‘crisis – what crisis?’ I am not. Guernsey faces a huge financial challenge and very difficult choices lie ahead. I just want realism over the size of that challenge.

So how big is it? Certainly big enough that I can’t see any way of avoiding tax rises. Guernsey’s government is almost in a league of its own over how small a percentage of its GDP it takes in government revenues. I simply don’t think that current level is sustainable without inflicting structural damage on public services in the face of our changing demographics.

Deputy Mark Helyar, the treasury lead, said last week that he doesn’t favour tax rises. I have news for him. Neither do I, and neither do 99% of other people – taken in isolation. However, most people (although maybe not a majority of the current Assembly) also oppose big reductions in public services. A classic case of the unstoppable force meeting the immovable object and something has to give.

What it will be, we will find out later this year. As I said before, I think the inconvenient truth is that taxes will have to rise, but in what form? Will Guernsey be forced to lose its mantle of being in a tiny minority of territories without some form of general consumption tax? That will be very controversial.

My position on any GST-type taxes has always been clear and twin-tracked.

Firstly, it has a tendency to be regressive, so I oppose its introduction unless/until we reach the point where it is the only realistic tool to avoid a slash and burn approach to important public services. Have we reached that point? I haven’t decided, but I confess that I am having to give it serious thought.

Secondly, if it is ever brought in then it simply has to be at a high enough level to generate far more revenue than simply what is required to fund any black hole. That means the surplus can be used to fund other measures, aimed at helping those on modest incomes, who would otherwise lose out, thereby removing much of the regressive element. I hate myself for even considering these options but we certainly do live in interesting times.

Blast! I’ve come to the end of my column and I haven’t touched on P&R’s blatant attempt to bring about cabinet government through the back door. That will have to wait until next time.