The debate needs to be wider than 'yes' or 'no' to GST
THE letter from deputies St Pier and Langlois, dated 18 June, makes GST sound very beguiling – a little bit of GST and, 'hey presto', we can introduce a higher income tax personal allowance. Everything will be lovely and you will not feel a thing.
The reality, of course, is very different.
GST is one of the most expensive forms of taxation to collect and is iniquitous in that it always starts out modestly and, by degrees, is pushed up by successive governments to untenable levels (currently 20% in the UK, 23% in Portugal). Not only is the state taxing income at 20% before you receive it, it is taking another chunk out of your pocket every time you want to spend it. It impinges directly on the lower paid section of society, who then have to be compensated by an increase in social assistance in one form or another, intensifying their dependency on the state. It increases business costs as businesses have to become, again, unpaid tax collectors and there will be yet more civil servants to administer the scheme. Then there is also the small matter of the jump in inflation as the price of practically everything rises.
There is talk of widening the tax base but what does this actually mean? The zero-10 regime ensures that over 80% of all tax gathered on the island is now paid by the people who live here, mostly in the form of income tax but also Social Security charges, TRP, fuel duty and other similar taxes, not to mention charges for 'services' rendered by States.
GST is the start of a new tax aimed at islanders' expenditure, rather than their income. Accordingly, pensioners and the lower paid would all have to pay more tax. Certainly the introduction of GST would hit some visitors but the amount raised from them would be relatively small and would probably not be compensated for by the loss of relative competitiveness that the island would suffer by the rise in prices. This is a thoroughly bad idea and should be strongly resisted.
The alternative view is that, since 80% of the tax collected is paid by 20% of the population (in round numbers), the States have concern that the high taxpayers will leave the island and there will be a sudden drop in States' income. High taxpayers are also high spenders, although not necessarily on goods and service supplied in the island.
Much is made of the predicted reduction in the numbers of the working population through demographic change, with the associated drop in income tax take, as the justification for taxing pensioners and the unemployed. The problem with that argument is that the reduction in the number of people in work means that the island's economy will be contracting as the number of economically active people decreases and that States expenditure, unless it, too, falls in line with the reduction in the size of the economy, will take an ever bigger slice of that diminishing revenue. This is the high tax, high government expenditure model propounded so disastrously by the Labour administration in the UK up to 2007.
Guernsey has always flourished by having a low tax/low government expenditure regime, which is light on its feet and highly competitive in the outside world. That has to continue if Guernsey is to carry on succeeding.
We are a small jurisdiction that many would like to see fail as they envy our business and efficient management. The simplest way for Guernsey to fail is for us to become too expensive.
Residents in work will rightly seek to compensate for a reduction in their living standards or disposable income from excessive tax demands, whether directly through income tax or indirectly through a GST and increases in TRP, by demanding higher salaries. Further increases in business costs and rising prices are inevitable. An unhealthy spiral.
One only has to consider the way prices have risen over the past 10 years to see this spiral is already starting.
It should be accepted that there is a finite limit to the amount of tax that island residents are able and prepared to pay before the island loses its attractiveness and the milch cows move on to greener and cheaper pastures.
When zero-10 was introduced, it was clearly stated that the loss of tax revenue from companies would be made up by increased payments from employers and employees through social security charges, increases in TRP, very substantial in the case of businesses, and a reduction in States expenditure. The first two have happened; the reduction in States expenditure has not, as savings that have been made have largely been squandered on increases elsewhere. There is talk about further substantial increases in TRP for individuals as the amounts currently paid are modest in comparison with similar taxes in the UK.
A quick look at the fall in open market property sales in recent years demonstrates that there are already more attractive jurisdictions for wealthy people to move their money to than Guernsey. Furthermore, rates in the UK covers items such as policing, which are States' costs in Guernsey.
One has to look at the total picture of taxes raised and not cherry-pick individual items.
The issue is not what individual taxes should go up but how much the island population wishes to contribute to the state.
The States have played with FTP and, although they have moderated the rise in their expenditure, they have failed to achieve the basic reforms that are needed and were, indeed, promised. Civil service pensions is but one item on a long list.
It is clear that too many deputies see a GST or similar as an easy option. One has to sympathise with their position. Their motive is to get re-elected and taking measures that will undoubtedly be unpopular will guarantee a fairly short term of office; nothing a politician dislikes more.
However, government is there to govern and there needs to be a serious debate about the direction the island wishes to go.
Because almost all States revenue is, as a result of zero-10, now coming from the pockets of resident islanders, the only way government expenditure can rise is either from a reduction in the living standards of those same islanders or from a growth of the island economy to enable islanders to maintain or improve living standards without becoming price uncompetitive with other parts of the world.
If one accepts that the number of people on the island in work will fall because of demographic changes, then that fall in numbers of income-tax payers has to be reversed through increases in immigration, which inevitably leads to all sorts of other social questions that cause equal public disquiet, such as more housing, pressure on land use, traffic volumes and so forth. The choices are stark but need to be addressed.
These are not easy questions but to start the debate from the angle of introducing insidious, expensive and uncompetitive additional taxation has to be wrong. We need to discuss these issues much more widely.
RICHARD BATTERSBY,
Confederation of Guernsey Industry,
St Jacques House,
St Jacques,
St Peter Port,
GY1 1SP.
