‘Usable reserves’ mean no need for tax hikes

From my work with charities, I know that GST is a very poor choice to raise States income but I am not going explain further because, from information publicly available, there is clearly no need to increase States income at all.

The States Treasury has a long history of poor short-term forecasting; every year when a budget is produced there are dire warnings of doom and gloom, which as less than 12 months passes turn into substantial surpluses. So the idea that they can be so sure we will see a large forecast deficit many years into the future should be questioned with considerable scepticism.

1. The £85m. deficit is not real

We know that around 3,000 (10%) of the current workforce will retire over the next 15 or so years. A fundamental assumption by the GST review is that the public sector workforce is both required and able to support increased demand for public services from a larger retired population.

It is not made explicit, but this assumption can only hold true if the public sector workforce is not only exempt from the overall 10% decline, but in fact increases in line with that demand.

Really? Quite obviously that will result in a substantial deficit, if true, perhaps that was the point. But it is a wholly unrealistic assumption.

More likely, in a zero-population-growth model, is that the public sector workforce will find it hard to compete with private sector pay and benefits, and the States will not be able to find all the staff to provide the services the public demands, and so their headcount, and therefore costs, will go down, however hard they try to support that demand.

Of course, much more important to us, and which should be receiving much more attention, will be the dire non-financial consequences of a zero-population-growth model to our community wellbeing. Dealing with a proposal to introduce GST ahead of understanding and managing the true impact to our community of a properly considered policy towards this real, and rapidly approaching, problem is well and truly putting the cart before the horse. And it cannot possibly give any reliable financial forecasts.

2. The financial position of the States is much better than we think.

For years the States Treasury has been accumulating reserves because over many years income has far exceeded costs, this despite the cost of Covid. Leaving aside the issue of whether the States’ financial accounts can be relied upon, the 2020 financial accounts (page 21) show ‘total usable reserves’ of £693m., likely to increase when the 2021 accounts are published. The accounts do not specify any restrictions on these reserves, but even if there were restrictions it is within the power of the States to remove them.

But the position is in fact much better than this.

The States Treasury has the absurd accounting policy of treating assets like States houses as if they were worthless. One estimate is that there are up to 2,000 residential properties missing from the books. Even if they are worth half what the average Guernsey residential property sells for nowadays, these publicly-owned homes are probably worth over £500m. and could theoretically be financed through the capital markets should the need arise.

Taken together, we probably have ‘total usable reserves’ exceeding £1.2bn.

So even if we are to believe an unreal deficit figure of £85m. per annum, we could carry on without tax increases for 14 years. That is plenty of time to work out what is happening in the real world, and not be rushed into making hasty decisions that we will probably regret, that are against the clear wishes of the electorate, and not in their obvious interests, because they are based on unrealistic assumptions.

PETER ROSE

Les Anguillieres

Route de la Rocque

St Peter’s

GY7 9LS