Raise revenue by increasing social security contributions

Of course, no increases in taxes are popular but it is generally accepted that Guernsey does need to raise additional revenue to fund increasing expenditure (although I have my doubts on this and believe that significant reductions in expenditure could be achieved).

It is clear why a goods and sales tax is unpopular – it is regressive, inflationary and administratively expensive to collect.

Whilst increasing income tax may be seen to be fairer and easier to administer (as would an income-related health tax, which is effectively an increase in income tax), I am fundamentally opposed to any change (increase or decrease) in the rate of income tax in Guernsey as I believe that it is the foundation of our stability which has attracted many individuals and businesses to Guernsey over the past few decades. Our financial services industry is fundamental to securing the ongoing prosperity of Guernsey and although it is under threat from many quarters, I believe that a change in the rate of income tax would only give rise to further uncertainty and would be fundamentally wrong. It would also put us out of step with our main competitors, Jersey and the Isle of Man.

I would instead suggest that serious consideration be given to increasing the rate of social security contributions in Guernsey. I do not believe that this is nearly as sensitive as the rate of income tax in attracting business and individuals to Guernsey. At present our rates are broadly similar (slightly higher) to those in Jersey but much lower than those in the UK and the Isle of Man, which in turn have much lower rates than most of western Europe. Incidentally, it was proposed in last month’s UK budget that the rates be increased by 1.25%, a sign of the times?

Such a change would be very easy to administer as the system is already set up, as indeed are anti-avoidance provisions.

The upper and lower thresholds could be adjusted in order to place less burden on the lower earners and more on the higher earners if it is felt that this would be appropriate in the interests of fairness.

An increase in social security contributions is logical in that many of our increased costs are as a result of increasing health care costs and pension payments, which is what social security is meant to fund.

We would be increasing the relevant tax to fund the underlying expenditure.

Of course, there are disadvantages with this course of action, as indeed there are with any tax increases. Yes, it would be a tax on employment but at present we have virtually full employment and I don’t think a change of a few percent would have a great impact on people deciding whether to set up business in Guernsey. Of course, it would be possible to increase only the employees’ rate and leave the employers’ rate relatively unchanged.

It would not be as inflationary as a goods and sales tax and certainly not as regressive; indeed, it could be designed to be progressive.

I hope that the parties considering tax increases, our elected deputies, will take into account these thoughts when considering what increases in taxes are appropriate in Guernsey.

MARTIN PRIEST