Gavin St Pier: ‘Guernsey needs a plan, not political slogans’

‘Stop the boats.’ ‘Get Brexit done.’ ‘Take back control.’

It seems that recent political campaigns are compelled to be conducted in slogan. There may be a number of candidates and some voters who would like Guernsey’s general election to be rendered down to four words: ‘GST – yes or no?’

There are no political problems that are so simple they can be reduced to three or four words, and Guernsey’s public finances are no different. Our financial challenges have been building since 2008. That was the year that the corporate tax regime, zero-10, was adopted in direct response to pressure from the EU’s Code of Conduct Group. It was also the year when the global financial crisis hit, since which, like many other jurisdictions, our growth and productivity have never quite recovered.

In the intervening years, in an attempt to balance the budget, the States has tinkered. The zero-10 regime has been stretched from taxing just banking profits to taxing the corporate profits of all financial services businesses – and a few others, too. Property taxation, through TRP, has been hiked and the burden of personal taxation has increased as tax allowances have been withdrawn. On the spending side, the contentious Financial Transformation Programme was moderately successful, reducing government spending by £29m. a year, but this has long since been overtaken by spending increases elsewhere.

In 2015, the Personal Tax, Pensions and Benefits Review proposed keeping GST as an option, but the States rejected this by a large majority. The bogeyman went away until it was resurrected in 2022. After three debates in which GST was rejected, during the Budget debate last November, by amendment, the States approved ‘GST-plus’. The ‘plus’ amounts to a bit more tinkering, by reducing income tax for some, along with changes in the social security system.

If good politics is about winning hearts and minds rather than bludgeoning the population into submission, it is reasonable to say that the community has not been carried on the journey. In other words, many people remain unconvinced by the experts and the island’s political elite that either a new tax, such as GST, or additional taxes are needed. They see waste and inefficiency in the public sector. They watch as capital projects stall or stop after vast sums of taxpayers’ money have been squandered. These include ‘pause and review’ on the secondary schools, grandiose but obviously undeliverable designs for Alderney’s airport and runway, and multiple re-examinations of options for inert waste. Meanwhile, every taxpayer is experiencing the frustration of a new multimillion-pound tax administration system getting further and further behind in processing tax returns, leaving taxpayers unconvinced that all tax that is due is actually being collected. And finally, they see a tax system which fundamentally does not feel fair.

However, the indisputable fact remains that last year the States did approve a partially unfunded Budget, meaning the books no longer balance and spending will need to be paid for out of our reserves. This deficit is structural, not a one-off, and so is unsustainable. It is government’s responsibility to ensure there is long-term fiscal sustainability and it does need to be addressed early in the new States term.

All of this requires more than a slogan. It requires a plan. Fortunately, the candidates standing for Forward Guernsey have one that is designed not only to return our public finances to long-term sustainability, but also to do so with the confidence of the community.

Firstly, we must increase our economic growth and productivity. What is planned to achieve that could be the subject of another entire article for another day. However, putting the need for a strong economy at the heart of a fiscal recovery plan is a vital first step in securing business confidence to invest, which will deliver the growth needed.

Secondly, we must drive efficiency in the public sector and reduce spending. We propose that each annual Budget should include a 1% real terms reduction in committees’ baseline operating expenditure. Cumulatively, this would produce savings of at least £25m. a year by 2029. We would use an independent Performance & Reform Council, where those members of the community with proven track records could help advise on how to make savings.

Thirdly, while we all know that we need to invest more in infrastructure with our capital projects, these need to be properly prioritised so that the cash flow, funding and timetable can be properly managed. And rather than taxing more or borrowing to pay for this, we should be investing some of our £3bn of reserves in those capital projects that have an income stream or increase our economic capacity. It makes no sense that we are willing to invest in an infrastructure fund which is building airports and harbours in, say, Mauritius, while we struggle to scrape funds together to resurface a runway in Alderney.

Fourthly, we need to fix our tax administration. This requires clear political leadership to reset the Revenue Service’s risk parameters. For example, rather than trying to process an individual assessment for every return one-by-one, in order to clear the backlog of returns we now need simply to accept what has been submitted, safe in the knowledge that these assessments can be re-opened if errors or fraud come to light at a later date.

Fifthly, we need to improve the fairness of corporate taxation before increasing further the burden on individuals. With the international norm for corporate tax moving to 15% and with Jersey’s exchequer also needing more revenue, we should rapidly be able to move together to a zero-15 regime. We also need to ensure that personal investment holding companies are properly taxed. High-net-worth individuals moving to the island are routinely advised to use these legally to minimise their income tax bill, even though they regard the principal advantage of Guernsey’s tax system being the absence of inheritance and capital gains taxes.

Finally, having actioned all the previous steps, we should proceed with wholesale tax reform. Our tax system is no longer fit for purpose. The tax base is too narrow, putting increasing burdens on individuals. As the population ages, the public expenditure needs of the non-working age will increase, particularly for health and care. This cannot continue to be funded from a shrinking pool of those of working age. This is both unsustainable and unfair on younger generations. Taxing the high spending of the wealthy who have more to spend, particularly if they are funding their lifestyles out of capital rather than income, may have a valid role in a remodelled tax system. But if a consumption tax, such as GST, is to be part of the tax mix, it requires significant changes to the tax, social security and benefits systems to protect low- and middle-income households.

For example, to help and encourage all islanders, working with local banks, we would introduce a new tax-efficient Guernsey Property Savings Account (GPSA), modelled on the UK’s Lifetime Individual Savings Account (LISA). The GPSA would allow up to £60,000 to be saved with interest being tax free, conditional on withdrawals being used either for a rental deposit or the purchase of a first home.

We know we need to encourage and enable more economically active young people to be able to afford to remain, return or establish in the island. This is important for the future of our economy and community. Whether they are living at home or renting, we would introduce a new lifetime tax-free allowance for all those over 16 years old on the first £100,000 of their taxable earnings before the age of 30. This would benefit every young person equally, whether a school leaver, graduate or apprentice. The tax saved would be creditable either to an eligible pension scheme or the GPSA, allowing tax-free savings of up to £20,000 (at 20% income tax) towards a rental deposit or purchase of a first home.

If given the opportunity to question candidates in the election, the electorate would be well advised to ask a three-word question of their own – ‘What’s your plan?’