Bob Murray: Which way now?

This has now become of particular importance, since the Assembly just approved this whole term’s Government Work Plan (prematurely in my opinion) and its first significant priority is addressing our system of taxation. Why? Specifically because the sums don’t add up any more (and haven’t for a long time). There is wide disagreement about why that is – but even more about how to fix it. Furthermore, we will have burnt through all our reserves by 2032 and will have far fewer options to choose from then to address a deeply worsening deficit. The clock therefore is ticking. Loudly.

So let’s briefly return to the psychological head-scratching. We have long accepted that islanders’ identity is affectionately synonymous with that of a donkey. It is perhaps somewhat reflective of the circumstances of life on an island which breeds, out of necessity, independence, the ability to carry a burden and perhaps less flattering, stubbornness. Or shall we term that ‘determination’?

It is probably also true to say that there are varying emphases put on each of those qualities across different generations of islanders. Perhaps that is inevitable given that the challenges and opportunities of living on Guernsey evolve over time. Housing is a very good example. The Boomers of the 1960s certainly had far less money by and large, but house-owning was fairly accessible and affordable. Gen-Z islanders today can hardly afford or find rental properties.

This is an important point in relation to independence. Owning your own home satisfies a very basic need for safety, security and belonging within society. The 1960s is also a relevant comparison to today for three specific reasons: the population was only some 45-48,000; the demographic profile was significantly younger, and (in 1965) Guernsey introduced its old age pension scheme. This latter point has a huge importance today, since it committed future generations to funding the (today) costs of generations of the past. That social contract did not necessarily envisage a surprisingly longer lifespan for successive generations, nor for it to be paid by a decreasing (relative) number of islanders of working age paying in to the system. That metric in particular was camouflaged by increasing numbers of immigrant workers.

But you cannot keep adding more new workers on an island of a fixed size, while retaining a higher proportion of retired workers – especially when births have dropped below replacement rate – without impacting particularly the aforementioned housing market at some point, let alone the capacity of other services such as education and healthcare.

These are, or should be, fairly obvious fundamentals when viewed historically. But this has become exacerbated by changes in the outside world and across other borders where international circumstances have also changed (think Brexit for example) and together they conspire to create a perfect storm that demands focus now. Stubbornness today would be to bury our heads in the sand. Determination, however, could establish a reset for a successful future but it may require us to shoulder more of a burden individually, rather than expecting the States to do so on our collective behalf. Getting that balance right is not going to be remotely easy particularly with trust in government at an all-time low and with an outdated and disparate committee machinery system to accomplish it.

To be clear, there is no silver bullet to put us on the path to an affordable and sustainable future. There is, however, a need for a change in how government functions, politically and operationally, if the widespread and apparent mistrust being expressed across society is to be addressed. I will suggest practical options for doing so in my next column or you can visit my website. It also has to be said that a number of common narratives and tropes that some islanders promulgate and cling to are not necessarily a true reflection of realities.

However, what is true is that government is just as institutionalised in its thinking as much as the groupthink of a number of vociferous islanders and activists are. Our traditional stubbornness here must be turned into a determination to remedy this state of affairs. Personally – and with the benefit of having been involved inside the apparatus of government – I do not subscribe to the widely held political view that the status quo is the only way Guernsey can be governed successfully. The machinery is outdated, broken and it does need to be fixed. By the same token, islanders need to be prepared to recalibrate their expectations of what it is actually possible to receive in the way of services in a small and sub-scale location – unless they are truly prepared to continue to provide the necessary funding.

Nobody should now dispute that Guernsey will contain a much greater proportion of older people going forward. That translates into an increasing need for healthcare services and related facilities in particular. Without any implied criticism whatsoever, this translates into a higher degree of services consumption by a growing proportion of islanders contributing far less in terms of tax revenues – or indeed making no tax contribution at all. This is not to overlook or downplay the contribution that older residents have already made in their working lives. But what it does identify is that a taxation regime that currently relies on providing 67% of government revenues from employment alone will simply not sustain that change in demographic composition.

Something else we do know is that currently 6% of taxpayers generates about 25% of revenue. Put another way, the vast majority of taxpayers (94%) are only having to fund 75% of the actual cost of government services.

Now I intentionally juxtapose these two issues of a future reduction in taxation contributors with this significant reality in the complexion of our tax take. Would it be foolish to ignore any possibility of increasing that 6% (say to 12%), if it maintained that same beneficial ratio in decreasing the remaining cost of 75% of services that most islanders only then have to cover to (say) 50%? Now that may be a somewhat simplistic proposal to a very complex situation – but equally the siren call by some to make that same 6% simply pay more and not expect corresponding and damaging behavioural change is just as simplistic.

So what about GST-plus? Let me give you my take on it. To begin with, let’s remember that the reason any additional taxation (of whatever stripe) is having to be explored is the quantum of the deficit we are running annually. Why are we running such a deficit? Well let me give you an important statistic that resulted from a request I made to Treasury during my time on P&R. The increase in full-time equivalent (FTE) staff employed across all States departments between 2012 and 2022 was given to me as 401. However, the specific increase in FTE staff in nurses and medical consultants was 473. In short, there was a net REDUCTION across other areas of the States of 72 FTEs, but the costs pertaining to the necessary demands of additional staff in healthcare sky-rocketed. But let’s be clear, the current structural deficit of some £100m. is not exclusively healthcare, but it does occupy a substantial and rising contribution.

But let’s get back to GST-plus. What has not been highlighted enough in the very contentious debates about it, is the surprising accomplishment of designing a consumption-based tax which actually enabled a fair proportion of existing taxpayers to benefit from a compensatory reduction in headline income tax (from 20% to 15%). Yes, there are other adjustments, including to the social security system which actually meant that a much smaller minority of taxpayers across the piste would indeed be paying more overall.

Now ideally, if whatever the magic sauce was that enabled the introduction of that 15% income tax rate – could somehow further increase the number of taxpayers who might benefit from it, we may well have something far more palatable to what obviously is an unconvinced public.

What any consumption tax allows (which income tax does not) is more personal control over what we choose to spend our remaining disposable cash on. For example, want that new car or a new phone? Fine, but you will have to find the tax on it as well and that is your choice. When more is taken away from your pay packet via 20% income tax in the first place, you may not have any option at all over the car or the phone. So, along with new income from corporates and tourists, GST-plus clearly has a number of attractions. But I would go further. I now suspect that a larger consumption tax accompanied by greater scope for 15% income tax may well give islanders back more control and choice over their own money, which I think (consciously or unconsciously) is what they want.

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