States financial situation is nowhere near as dire as some might say
While I welcome the publication of the more meaningful revised format of the 2022 States annual accounts they, disappointingly, gave rise to some unnecessarily hysterical headlines and doom-laden predictions from senior politicians who seemingly wish to distort the States’ financial results to suit their own agenda, pushing for the introduction of GST.
In reality the financial position of the States is ‘strong and stable’. These words are taken from their annual report. Buried in the notes to the accounts is a wealth of useful information. There are huge reserves of liquid investments, income tax receipts are running above expected budgets, and much annual departmental expenditure, with the exception of health is, as is often the case, underspent.
It is entirely wrong to trumpet the £135m. figure as the annual ‘loss’. It is somehow portrayed as a financial disaster which we need to make up through additional or new taxation. As Dr Andy Sloan wrote in his opinion column in the Guernsey Press on 29 June 2023, the actual operational loss of £3m. is immaterial in the context of gross income of £800m.-plus.
In 2021 the equivalent figure to the £135m. loss was a surplus of £48m. but (rightly) we didn’t hear proposals to immediately cut tax rates. These large movements are caused primarily by movements in valuations of the States investment portfolios. These are all unrealised profits and losses and are simply reflective of the stock market position at the end of 2021 (high) and 2022 (low).
I do accept that we have an ageing population and therefore a lower number of workers will in future need to generate higher income tax receipts. But we should be encouraging higher skilled jobs into the island and looking to relinquish those roles which add little value either for the employee or the Guernsey exchequer. We should also be taxing companies much more equitably with the intermediate 10% rate scrapped and all these companies taxed at 20%. There should be far fewer exemptions of companies charged at 20% rate. These types of measures are far more constructive than loading further taxation on individuals and, in my view, will not lead to a loss of business to other jurisdictions. The costs of moving are just too great nowadays.
The relatively poor performance of the £3.6bn investment fund needs to be highlighted in the accounts. The fund has only returned an average of 2.59% p.a. over the past five years while the chosen benchmark has increased by 9.5% p.a. The 33 appointed managers who have between them produced these dismal returns need to be carefully scrutinised to ensure they are providing the taxpayers with value for money. Some are clearly not doing so and it is costing the population dearly.
Perhaps one constructive way for Guernsey to self-help and fund large capital projects would be for the investment fund itself to lend a small portion of its assets to, for example, Guernsey Electricity to enable it to fund a new cable link or the dairy to fund a new building and equipment. The interest charged on the loans would be received by the investment fund for its own use (e.g. paying pensions) and you achieve all this using local finance to benefit the local community. I have often thought that it is odd that we are prepared to support the UK government by buying their bonds in the investment fund but can’t bring ourselves to provide local funding solutions (except in an emergency such as the purchase of fuel tankers or landing slots at Gatwick). The £330m. Guernsey sterling loan issuance scheme was certainly a start but seemed an expensive way to raise money when we are awash with £3.6bn cash and investments.
The bottom line is that the latest States accounts indicate that the financial situation is nowhere near as dire as some allege. As with the Covid pandemic it is important for the population to realise that fear whipped up by some politicians can be an effective tool to steamroller policies quickly into law. There is enough time and money in the kitty rationally to consider the many alternative sources of revenue and efficiencies available to the States instead of the kneejerk Private Frazer reaction that ‘We’re all doomed’ if we don’t introduce GST immediately.