Tax and spend: now it’s time to pay

HERE’S a pre-election prediction for you – what should be the stand-out doorstep issue (except under island-wide voting there won’t be many candidates on the knocker) is going to be swept under the carpet and placed firmly in the too-difficult drawer.

(Picture by Shutterstock)
(Picture by Shutterstock)

We can say this with some certainty looking at the response there was to Lyndon Trott’s rather jaw-dropping assertion that one of the consequences of the anti-discrimination package just approved by the Assembly will be an annual bill for the taxpayer of £50m.

How could he say such a thing? demanded the hand-wringers. Why has government allowed the gender pay gap to get so out of hand? complained the incredibly well organised and vocal discrimination lobby. Further proof their efforts were so desperately needed, say supporters.

But step back a bit and there are actually two issues here. The first is this Assembly’s tunnel vision on social policy to the exclusion of public finances. The second is a consequence of the discrimination proposals themselves.

These envisage introducing the principle of equal pay for work of equal value, whatever the work and wherever it’s carried out. Specifically, however, the proposals state that where a gap has been established, employers are prevented from reducing pay to remove it.

It can only ever be levelled up and the cost of that has been estimated by independent consultants for the States of Guernsey as an ongoing annual cost of £50m.

Knowing he was at risk of being accused of scaring the proverbial horses, Deputy Trott went out of his way to say he wasn’t opposed to the discrimination proposals and that his weren’t ‘fag packet’ calculations.

As indeed they weren’t. The States was warned last November that its policy ambitions exceeded the ability of the island to pay for them. These included extending the range of Nice-approved drugs (up to £12m.), changes to the primary health care services (already started, cost up to £20m.), and long-term care funding (up to £23m.).

Also in the list presented to the States was one headed ‘public sector terms and conditions’, with the adjustments needed there estimated to be £35-40m. a year extra. So in effect, Deputy Trott’s intervention was simply to say ‘now we’ve had a closer look, those estimates have risen by a further £10m.’.

Sorry about all these figures but they are rather crucial. You see, your elected representatives have semi-committed you to losing £8m. in revenue (secondary pensions) and £71-124m. in additional policy costs – but with no idea of how that’s going to be funded.

Let’s put that into context shall we? Never, since the Germans left and the island embraced representative democracy 75 years ago, has a States been so fiscally irresponsible.

Statesmen (other genders are available) of previous years would not have contemplated putting the island in such a position – and that’s before the effects of the coronavirus pandemic.

Ratings agency Standard and Poor’s provided this overview of the island in its 17 July assessment of the island’s finances: ‘Weakening economic activity due to the Covid-19 outbreak will cause Guernsey’s economy to contract sharply [by 9% this year]. We also expect sizeable fiscal deficits to lead to a significant ramp up in government debt to 18% of GDP by end-2020 from about 10% at end-2019.’

It also noted the island’s previously fiscally responsible position: ‘Guernsey’s government finances have historically been characterised by low deficits and debt, given the general consensus among successive policymakers regarding prudent public finances.’

What a difference a single Assembly makes. Whatever the social policy celebrants tell you, the only issue of significance in the run-up to the 7 October general election is how big the inevitable tax increases are going to be – and on whom they should fall.

Put it this way. A goods and services tax introduced at 5% would cover the equal value work cost pit created by the discrimination package but nothing more. Guernsey would be introducing new charges – and hitting the least well off hardest – simply, fiscally speaking, to stand still.

To help pay for the other initiatives as well implies GST at approaching 10%, income tax rising by 7% or a higher rate of 45% on anyone earning more than £50,000. Oh, or you could increase social security contribution rates by 7%.

Yes, it’s possible to mix and match – jacking up domestic and commercial TRP rates by 350% gets you there too – but the point is ‘low tax’ Guernsey is about to become a distant memory. And it will also be dawning on you why campaigners are so opposed to impact assessments on their proposals – they let in too much sunlight.

So fair play to Deputy Trott for lifting the lid on some of this and pretty much doing so on his own.

Yes, Policy & Resources has had a bit of a kicking of late trying to highlight the cost of the States’ ambitions but now is not the time to stop.

God knows, to quote Dominic Cummings, how many weirdoes and misfits will seek election in the coming weeks but few, if any, will have a clue about public finances. Most of us don’t.

Even after four years in office some still haven’t. Hence one member saying 97% of the economy’s just fine thanks. All of which means you can expect candidates promising you the earth, just as they’ve always done.

Past promises and Covid-19 have shredded the island’s finances but no one wants to talk about that now because ‘…what sort of tax rises would you like this political term?’ aren’t vote-winning questions.

If, under the new island-wide regime, you can’t easily sit candidates down and demand that they tell it like it is, voters need to be especially clued up about economic reality to see through the looming fog of snake oil manifestos.

Yes, the island has substantial fiscal buffers and an economy that is inherently sound, but taxpayers also need to know government has hit the buffers of what the current tax regime can afford – before the cost of Covid.

So, please, with the latest set of initiatives set to cost each taxpayer up to an extra £3,000 a year, let’s have more States members putting their heads above the parapet and placing the election spotlight where it should be – firmly on the economy and already-overstretched public finances.

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