Tax and grab stitch-up

HERE’S a riddle for you. When does a root and branch review of Guernsey’s levels of taxation become a thinly-disguised ambush to coerce the island into accepting a hated and damaging goods and services tax? The answer, according to one of the Assembly’s newest members, is when it’s proposed by Policy & Resources.

For Steve Falla, who’s also vice-president of Economic Development, there are two crucial pieces of evidence to support his contention. The first is the claim that the review is simply a green paper to stimulate debate on whether the island needs to raise up to an extra £75m. a year and, if so, the best way to achieve that.

The main function of this green paper, however, is to prevent uppity States members from trying to amend it. So when the review is debated the week after next, it has, by definition, to emerge at the other side unscathed.

But what’s odd about this ‘discussion paper’, as Deputy Falla points out, is that it has propositions. One of which says, ‘To agree that any restructure to meaningfully diversify the tax system requires the introduction of a broad-based Goods and Services Tax…’

Approve that, he says, and the Assembly is locked into a formal resolution – which is binding – that sees the introduction of GST baked into place. Not bad for a disarmingly entitled green paper, which perhaps explains why the Guernsey Party is detecting the odour of rodent all

over it.

The other piece of evidence Deputy Falla is citing emerged after he posed written questions to P&R regarding the States’ property portfolio. This, you may recall, has been subject to review and rationalisation for almost as long as the States has been promising to reform the public sector, and those who were foolish enough to pause breathing pending publication have long since passed away.

What we now know with certainty, because Deputy Peter Ferbrache has told us, is that public property assets – essentially buildings and bits of land – number 2,160 and that the taxpayer gets a pitiful return from them. The real surprise, however, is that no one knows what this property is worth.

Yes, there’s an insurance ‘reinstatement’ value of £1.85bn put on it – a lot, but then the public sector pension deficit stands at more than £1bn. But this isn’t the market value. That, we’re promised, will be known some time next year as government moves glacially towards producing a set of accounts that meet International Public Sector Accounting Standards.

More specifically for Deputy Falla’s purposes, however, he wanted to know what steps had been taken to unlock value from taxpayer-owned assets, perhaps by selling minority stakes by publicly floating Guernsey Electricity, Guernsey Post or Guernsey Water on a stock exchange, as Jersey has done with Jersey Electricity.

This, he reasons, is an obvious and essential part of any tax review worthy of the name. Better, surely, to look at increasing government incomes before targeting taxpayers and taking even more off them? Ah, well, no. Not according to P&R. ‘The committee has not considered this and it is not currently part of the Government Work Plan,’ the chief minister told him.

Since then, Deputy Falla has written to Jersey Treasury and Resources minister Susie Pinel asking for her comments on the success of Jersey Electricity being listed on the London Stock Exchange, although it remains in the majority ownership of the States of Jersey (19m. ordinary unlisted shares and 11.64m. A-class ordinary shares that are listed).

He’s awaiting that response, but Deputy Pinel is likely to be pretty upbeat – revenues of more than £100m., a profit before tax of nearly £15m. and dividends paid of £4.9m., all while selling electricity at a rate that’s cheaper than here, according to its latest figures.

What’s also worth considering is the terms of reference for the tax review steering group tasked with the work that informed the green paper, which actually reads more like a formal Billet d’Etat policy letter than anything else.

Those ToRs include: ‘To present options for restructuring the tax base so that it has the capacity to raise revenues up to the limits of aggregate revenues agreed in the Fiscal Policy Framework.’

So less review and more naked tax raid on islanders?

There are some other oddities in the report, too. The previous rule of thumb, validated by Frossard House treasury elves last year, was that 1% economic growth was worth the equivalent of 1% added to income tax – or £7m. a year. In the review paper itself, that’s been revised without explanation up to £13m. This is a substantial sum.

So maybe growth of 3% and a bit of savings equals no need for GST, but there’s not a line in the report about what the island could do to encourage that growth, rather reinforcing Deputy Falla’s contention that this is a tax and grab stitch-up.

The other aspect I find disturbing is how wasteful a GST would be. Quite apart from needing an extra 15 civil servants or so to administer it, you have to give away a lot of what’s raised to protect the least well off from arbitrarily increasing their food, heat and clothing bills by up to 8%.

How much gets ‘lost’ in this way, I asked P&R treasury lead Mark Helyar the other day. Short answer, about £12m. Depending on how you look at it (let’s say on a per adult consumer basis) that’s £225 taken off you for no benefit other than trying to repair the damage caused by imposing the tax in the first place. In total, the extra cost created by GST per consumer over the age of 15 is around £1,640 a year. And for many folk, £30 a week is a lot to lose.

Well, since education ‘reforms’ that will harm students and taxpayers in equal measure can be punted through in a logic-defying fashion, so too can this tax review, I suppose, and we’ll find out later this month what the outcome is.

In the meantime, you’re left with the nagging feeling that guaranteed voting majorities in the States following island-wide elections don’t necessarily translate into better government.