Day of reckoning

THERE’S been quite a bit of discussion over the last few days about the 2020 Budget – but what’s not been acknowledged is that it’s largely irrelevant. That’s right. It’s notable only for what’s not in there.

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Don’t get me wrong. Few of us will ever know the effort Policy & Resources and their officers made to get it over the line in a ‘balanced’ fashion or the discussions (AKA arm-twisting) that went on with their Assembly colleagues to avoid a deficit budget.

That, however, has been achieved by making savings, leaving out stuff, and putting less than planned to one side for investment in essential infrastructure projects. In short, the full horror of Guernsey’s financial situation has yet to be revealed to us.

From what I gather, P&R had expenditure requests approaching £40m. more than expected. Expected in the sense that these things are supposed to be choreographed now, through the Medium Term Financial Plan and Future Guernsey, the ‘great today, better tomorrow’ strategy all departments are allegedly signed up to and delivering.

In short, there aren’t supposed to be any financial surprises – far less than £40m. of them – which is why P&R has bundled up all the seriously bad news into a forthcoming document for the new year when it reviews something called the Fiscal Policy Framework.

What’s important here is that this isn’t some sort of economic problem. That’s doing quite nicely, Brexit and other pressures notwithstanding.

Instead, Guernsey is being spent into fiscal meltdown by this and previous Assemblies. Correct. Your favourite deputy has helped to create a situation where you as a taxpayer need to cough up an immediate £1,000 a year extra. And then some.

Two things are at play here. The first is that the cost of delivering existing public services is increasing, largely driven by the island’s ageing population. If the demographic time bomb hasn’t actually exploded, it’s smouldering well.

The second is that States members’ policy aspirations now exceed the current carrying capacity of the economy. While other jurisdictions and governments pursue tax cuts, Guernsey’s has spent itself into needing not just tax increases but entirely new forms of taxation as well.

For instance, adding 1p in the pound to income tax raises around £7m. in revenues. So Guernsey’s 20% basic rate of tax would need to rise to nearly 26% to bring in an extra £40m. a year – not so clever for a low tax jurisdiction and significantly more than the UK’s basic rate, which applies all the way up to earnings of £46,350.

Introducing GST at 5% could bring in more than £40m., but that depends on exemptions, which increase complexity, increase cost of collection and decrease the amount taken. Yet without, you’re taxing baby food, school books, tampons and how OAPs keep warm in winter (other shock examples are available). Plus you’re inviting lively court hearings on whether Guernsey gache is taxable cake or, if buttered, GST-free food.

Much of this would be avoidable if we’re realistic about what the island needs – not wants – and can afford.

For instance, spending £530,000 on one year’s rare cancer treatment to keep me going for an extra few months is great for Richard Digard but less so for this community, yet that’s what the Assembly has voted to do under the Nice provisions – with no idea of future cost.

And there’s more of this to come (and I don’t just mean the globally-progressive-but-unknown-cost disability proposals). As Deputy John Gollop said here the other week, he doesn’t particularly care for ‘…the much more social democratic leftist and socialist society we are moving towards, but I think it absolutely inevitable and our population – including the business community – had better start accepting the new likely reality...’

Not encouraging is it?

It’s only fair to make the point that most of us get a pretty good deal ‘from the States’. On average earnings, you’ll pay less than £6,000 in income tax yet the cost of putting just one of your kids through secondary education is around £8,500 a year.

The shortfall is made up by the fatter cats. Someone on £150,000 a year pays a total (income tax, social security etc) of £40,600 in taxes, an effective rate of 27% compared with your own more modest 22%.

As we know now, government collects around £700m. a year from us, about 21% of GDP, while in the UK it’s 38% and 53% in France – two and a half times more than Guernsey.

Yes, we’re comparatively lowly taxed and get good services and social conditions for that. So paying a few quid more should be fine, shouldn’t it? Perhaps, but the long-promised financial transformation of government has yet to occur and we’re still doing things for which there’s no rational justification.

More importantly, look at Jersey. The total tax take there is much more, at 26% of GDP, in part because of GST at 5% – yet it still can’t balance its books. The shortfall next year is projected to be about £30m. and the States is currently casting around for new ways of taking cash off crapauds.

So, ladies and gentlemen of Guernsey, January’s debate on the Fiscal Policy Framework will be the most important this island has ever had.

The policy aspirations of deputies are boundless, as is their enthusiasm for telling you how to lead your life and then charging you to do so.

So the debate will be between small government, cloth-cutting fiscal conservatism and the already started let-it-rip tax and spend drive to make Guernsey a microcosm of the UK.

So when they arrive to take your home off you to pay for your final years and leaving your car at North Beach costs £1.20 an hour, don’t say you weren’t warned.

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