Our economy will be affected by UK’s actions
THE recent debate by the deputies concerning tax rises has led me to examine the various proposals. Firstly, it must be acknowledged that our economy will be affected by the actions of the UK government as the Guernsey pound and the GB pound are on parity and almost all our goods originate in the United Kingdom. Therefore any actions we take will be affected by actions taken in the United Kingdom.
At the moment inflation is running at approximately 5% but most economists believe the effect of tax hikes will increase inflation levels to at least 7% and possibly more.
Therefore any tax increase must take into consideration what effect that will have on inflation and what effect the combined inflation levels and tax increases will have on the economy and whether such actions will cause an inflationary spiral, an effect seen in the 1920s.
If we consider the proposals being put forward – and I take first a goods and services tax would be the preferred choice by deputies as the level of tax intake can easily be adjusted. But there is significant cost in administration both by the States and the companies involved; extra staff extra hardware in both instances. And this tax affects both the rich and poorer of our society, and despite a suggestion that the poorer members of the community could be protected by adjusting social security payments I personally do not believe this to be possible economically.
The other suggestion is an increase in income tax, an existing system is in place for the collection of income tax. Whether this increase would be on personal taxations or corporate taxation is debatable. After zero-10, corporations in Guernsey were placed in a very favourable tax position and maybe now it is time to redress that situation. Maybe without affecting the base rate of 20%, subsidiary tax could be introduced for a period of time adjusting both the personal and corporate taxes. Remember, this would need no more staff for administration.
Another alternative would be borrowing. Guernsey would have no problems with sufficient funds. I know that many would think you’re passing the debt on to the next generation but if borrowing over a long period of time, say 30 years, inflation is constantly reducing the debt. One only has to look around the industrialised world to see that other jurisdictions are borrowing for just this purpose and this is possible, after 30 years, to simply roll over the debt. Remember, at this moment interest rates are low.
And lastly I would look at savings. I read in the Guernsey Press that the States were considering spending over £100,000 on changing the way deputies vote. This was to enable them to press a button rather than open their mouth and speak. The justification for this was it was easier to record for future States which deputy voted for which resolution. What an incredible waste of money. Our money. Not their money. I just wonder if one looked at the whole administration, both the political and civil administrations, at how much waste there is and to what extent we could streamline our government.
DON STEWART
Le Manoir de la Tortue
La Grande Rue
St Saviour’s
GY7 9PP