Guernsey Press

A get-out-of-jail card for the tax and spenders?

Wade through the tax review document looking to resolve the States’ budget issues, says Richard Digard, and you’ll find it’s more revealing for what it doesn’t say or what the end-game is

(Picture by Shutterstock)

JUST the one question thanks, I said to Policy & Resources president Peter Ferbrache last week, after he and tax review co-presentee Peter Roffey were kind enough to ask me along to a GST briefing they were giving to the editor of this newspaper to explain why the package of revenue-raising measures they are proposing is proportionate and inevitable.

Deputy Ferbrache who, I think it is fair to say from some of his remarks, has been irritated in the past by some of my obviously inaccurate and opinionated pieces here, waited. Simply this, then – what level will GST be at in five years’ time?

Before we get to the answer, you’ll recall that when zero-10 was introduced, the assumption was the £100m. or so shortfall created by scrapping tax on business profits would be made up by you and I and it took a concerted campaign, largely led by this newspaper, to get government to take a share of the pain.

That process, for a number of reasons, wasn’t entirely successful and in 2014 or thereabouts (the document isn’t dated), then Treasury and Resources minister Gavin St Pier had this to say: ‘Unless major changes are made to the way in which Guernsey and Alderney raise taxes and fund old age pensions and social insurance, universal and welfare benefits, the time is fast approaching when the States will be unable to fulfil its commitments to provide a wide range of public services, to invest in essential island infrastructure, and to support those in greatest need.’

Here we are, nearly 10 years down the track and Deputies Ferbrache and Roffey are issuing, pretty much word for word, the same warning and proposing the same remedy – a tax on consumption.

For them, it couldn’t be clearer. The island is running out of money, the savings we rely on for investment income and funding infrastructure is depleted and not being replaced, and the consequences of islanders ageing means costs are going through the roof. Something has to be done.

After all, as Deloitte says in an appendix to the tax review, ‘approximately 63% of the States’ expenditure is on health and community services, old age pensions and social welfare benefits’. That is a frightening figure and says much about what we’ve done in the 80 years since the Occupation. At best, you sense a certain lack of vitality in that statistic.

So the something proposed is the complex blend of GST and mitigation measures that are currently in the headlines under which, we’re told, 73% of the poorest third of households will be financially better off. Look at that the other way round (acknowledgements to former States member Shane Langlois for this), and that probably means in plain English that 75% of households overall will be worse off, to varying degrees, but the poorest 25% will be better off.

Read the tax review policy letter, and, like me, you’ll have two problems with it. Firstly, there’s no independent scrutiny of the claims and assumptions. We don’t have an equivalent to the UK’s Office of Budget Responsibility so Policy & Resources in modelling the mitigations has effectively marked its own homework. Put more kindly, the illustrations used simply support its contention that there is no alternative to GST.

The second brings us back to my initial question, where will we be in five years’ time? Unsurprisingly, I didn’t get an answer, because in fairness no one could reply with any certainty.

The point, however, is obvious. Spending more than the island raises has got us here. Savings – the package put up by Deputy St Pier, Paul Whitfield and Co was, apparently, massively overcooked and simply undeliverable – are hard to come by while growth offers some respite but is unquantifiable.

So my concerns with the review are fairly basic. As presented, the package looks to raise more than £1m. a week in new money pretty much as a stop-gap. As States treasurer Bethan Haines told us, raising the full amount of the projected shortfall would put the States in breach of its fiscal framework rules of raising no more than 24% of GDP.

Elsewhere in the report it says that: ‘The balance of the shortfall will need to be met by changes in corporate and other taxes, improved economic growth and productivity and spending restraint over a longer time horizon.’

But this is restraint that has so far eluded government, we don’t measure or manage productivity – especially within government – and the committee charged with encouraging growth appears more obsessed with stopping a few folk from making money by selling ormers than expanding the economy.

Look at the shroud-waving triggered by asking committees how they’d save serious sums. But far from being appalled as they intended, you wonder why it hasn’t been done already. We have too many primary schools, paid parking is long overdue and the self-professed ‘exceptionally lean’ Home Affairs is a serial savings-dodger. And don’t get me started on Education’s ruinously expensive schools model or the delays in implementing the growth-producing runway extension.

So the problem with the tax review is what it doesn’t say – how the package is a once and for all, where the ‘spending restraint’ it refers to will come from or how the island will grow the cake with a shrinking workforce, an expanding public sector competing for staff and an acute imbalance of housing supply and cost.

Put simply, what’s proposed is short-term, merely resolves the budget problems government has created for itself, does nothing for the underlying issues facing the island, but makes it much easier for P&R to hit you up again when – surprise, surprise – there’s an imbalance in revenues and what committees spend the year after next.

In short, it’s not a review. Instead, it’s an elaborate get-out-of-jail card for the tax and spenders.