‘Tax changes alone won’t resolve our fiscal problems’

In reading page three of your edition of 4 September about the formation of a tax sub-committee, one might be forgiven for concluding that Guernsey is still looking to spend more time talking about raising taxation than in trying to economise on public spending.

Then the following day you reported a favourable reaction from the G8 to the formation of this tax sub-committee, with which one can only agree.

But there was surely a mistake in your introductory sentence which said: ‘Local business leaders have welcomed the States’ new approach to a tax review to finally resolve the government’s fiscal problems’. It seems to me that what you may have intended to mean may be something like ‘... to finally resolve the government’s debate about taxation’. Because there’s no way that we can resolve the States fiscal problems through tax changes alone. Much attention is definitely required to the level of public spending, especially with further demographic changes still to come.

As we should all know, our economy does at this moment need a huge amount of care and attention on the payments side of States expenditure. This is not at all easy, which is no doubt why a good deal of time was taken up in the previous States’ term with debates about how we might extract more taxation from our people, and why this looks set to continue.

But spending money is easy, and however much you have you will find a worthy cause to spend it on. If you get more in tax you will find it easy to spend this ten times over. However much taxation you get in, it will never be enough to do all that you would like to do. And in the meantime you risk disincentivising vital economic activity.

The driver has got to be the level of public spending which we can afford without unduly damaging our economy, and not what we would like to have. This is easy to say of course. It’s immensely difficult to do. The previous States largely turned a blind eye to the very difficult issue of making savings in public spending, because not only is it extremely difficult to do but it will be highly unpopular with those many who do not understand the necessity, and even with those who do but who still wish to sweep the issue under the carpet for as long as possible.

Managing without further tax rises would be the ideal. Can it be done? Maybe so. Maybe not. But let us not believe that further taxes such as GST or corporation tax changes will be a panacea. They won’t be. Would that it could be so easy.

Bob Perkins