GST is not the answer

Last time around in the increased taxes debate it was accepted that increasing the tax base just meant generally increasing taxes for the same people who already pay them but in a more opaque way. A GST or VAT just increases retail prices. These are paid by everyone, from the youngest child to the oldest pensioner. One can argue that the two ends of that spectrum will pay less of the increased taxes because they consume less, but that does not mean they pay nothing extra, just not as much as other consumers. However, both those groups tend to be protected from increases, because pensioners would demand, and get, increases in pension to cover the higher cost of living and children will be relieved through increases in child benefit of one sort or another. The taxes thus not paid by these groups will have to be recycled to the rest of the tax-paying population and the tax base will not have gone up. We are then back to square one, but taxes overall have gone up and States expenditure continues to rise with the siren song of paying for the ageing population.

But what about companies? The island’s lifeblood of overseas companies would be exempt from such taxes. A good proportion of companies in the finance sector already pay taxes on their profits so the room for increase there is limited. Social security costs are set to rise and TRP and similar charges have suffered major increases after the decision not to introduce GST last time round when it was stated they would cover the alleged gap in States funding. Owners of higher-TRP-rated and commercial property have suffered hugely disproportionate rises in TRP payable, unfortunately on the apparent basis of ‘soaking the rich’. This is inherently unfair and socially divisive as TRP then becomes a tax on capital, which the island likes to claim it does not have, rather than on income.

Introduction of GST increases retail prices and makes the island less competitive or price-attractive to tourists, residents and prospective residents. And, of course, there is the substantial increase in administration cost for businesses having to account for VAT and, no doubt, additional States expenditure for staff to police the returns from those businesses.

The island gathers its taxes, in the main, from the working population and that is going to be the case regardless of zero-10 and other distractions. We are a relatively closed community and there is no external source that will make up costs and benefits we decide to incur, other than visitors to the island, including visiting businessmen; surely both groups to be encouraged, not discouraged.

Because of the ageing population the proportion, and that is one statistic that cannot be disputed, of the working population to the total population will tend to fall unless something can be done to alter that balance. One step would be to defer the moving of older people to the non-earning, and hence mainly non-tax paying, category. Many people do not want to retire from active work but are given no incentive not to do so. It is, therefore, more than time that people who do not retire and do not draw a pension should be able to receive an enhanced pension when they do finally decide the time has come. That should also apply to RATS where there is still a compulsory age limit of 75.

A further move to rebalance the working/non-working equation is to create a managed increase in the working population by accepting an increase in total population. So part of the debate about increased taxes has to be about an increase in population and the replacement of the failed population management regime.

The other seductive statement advanced about GST is that most other jurisdictions have a GST/VAT regime, so why should Guernsey be different? It is precisely that difference that may tip the balance in favour of the island for some new operation to come to the island. I don’t think there needs to be any discussion about whether the island should introduce capital taxes or inheritance tax, which many other jurisdictions enjoy.

There can be no doubt that a greater proportion of older people will potentially mean greater demands on States services, principally health. That does not mean, however, the cash to pay for those demands has to come from the existing working population and certainly not by means of new and opaque taxes. ‘Increasing the tax base’ through a GST is not a magic bullet that will solve the island’s problems, nor will it produce a whole raft of taxpayers who currently do not pay anything.

RICHARD BATTERSBY

St Jacques House,

St Jacques,

St Peter Port,

GY1 1SP.