Deputy Gavin St Pier asked in the Guernsey Press the other day what the recent tax review report actually tells us. Strip away the technical language and the answer is fairly simple. Tweak zero-10 so a few more companies pay the full 10% rate, then move ahead with GST-plus, meaning 5% on almost everything – including food – softened with allowances, benefits and compensation payments to make the medicine easier to swallow.
To be fair to the Tax Review sub-committee, it did a decent job within the limits it was given. The trouble is that the public are only being shown part of the picture. The whole review was meant to contain four workstreams, one on GST itself, one on corporate tax alternatives, one on reducing the cost of government and another on transport taxes. Yet almost all the political noise and media coverage heading towards the July debate is about raising more tax. The bit about controlling spending has almost vanished from sight.
The corporate tax experts were actually quite blunt. Large changes to zero-10 would risk damaging the economy and still would not raise enough money to solve the problem. Their best option was to extend the 10% rate into a few more sectors such as retail, construction, accountants and lawyers. Useful perhaps, but nowhere near enough to close the gap, so attention quickly swung straight back to GST.
But here is the part that never seems to be said clearly enough.
GST is not some magic new source of wealth that suddenly fixes Guernsey’s finances. It is really just a slower and more politically acceptable way of running down the reserves we already have.
The structural deficit in this year’s budget is around £77m. and once you include the capital spending we genuinely need for infrastructure and long-term projects, the true gap is probably closer to £100m. GST-plus is expected to leave roughly £50m. net after all the progressive handouts, allowances and compensation measures have been paid for. In other words, even after GST arrives, there is still another £50m. hole sitting there every year. We still dip into reserves, only slightly more slowly than before.
And that raises a very uncomfortable question.
Is this really an income problem or is it fundamentally a spending problem?
I spent some time looking back at how government spending has grown over the last five years and then asked a very simple question. What if States spending had merely risen in line with inflation over that period, just as many ordinary households have had to try to do?
The answer is striking.
If spending had simply tracked inflation from the base budget five years ago, today’s budget would be tens of millions lower than it actually is. In fact, the difference is now getting remarkably close to the amount GST-plus itself is expected to raise.
That changes the entire tone of the debate.
Because suddenly GST no longer looks like an unavoidable response to demographics and economic reality. It starts looking like taxpayers being asked to permanently fund spending growth that has outstripped inflation for years.
And that is the point many islanders instinctively understand in their own daily lives.
If somebody’s wages rose by 25% over five years but their household spending rose by 45%, most people would not say they had an income problem. They would say they had a spending problem. Families all across Guernsey have had to make difficult choices over the last few years, absorbing inflation without endlessly increasing what they spend. Yet government appears to operate on the assumption that every spending increase eventually has to be matched by another tax rise.
That matters because the minute people start believing there is ‘extra money’ flowing into government, the pressure to spend it begins almost immediately. The public sector already has a pay bill north of £360m. and staff will quite reasonably expect wage increases to offset the inflation GST itself creates. Then comes pressure for more programmes, more staff and more initiatives. We have seen this cycle before and it rarely ends with government becoming smaller or cheaper.
This is why GST does not really solve the underlying problem. It simply buys time.
And unless the rate eventually climbs to 10 or even 15%, which is what tends to happen with these taxes elsewhere, the gap opens up all over again because government spending continues to grow faster than the economy supporting it. Every year there seems to be another initiative, another strategy, another area where the State inserts itself a little further into everyday life, while the bill quietly lands on the taxpayer’s doorstep.
What irritates me most is that the independent experts involved in the review were never seriously asked to examine the other side of the equation. Workstream 3, the bit dealing with reducing the cost of government, has no equivalent heavyweight independent panel, no major public report and very little scrutiny. Instead, it appears to consist mainly of internal discussions between Policy & Resources and the spending committees themselves. The target is about £17m. of efficiencies by 2029, which sounds impressive until you compare it with deficits approaching £100m.
Even senior politicians have effectively admitted that genuinely serious savings would mean touching services committees do not want touched. So the experts were essentially told to assume that tax rises were unavoidable and then recommend the least painful way of collecting them. That is not really a neutral review. It is a tax increase searching for justification.
The bigger question they largely sidestepped is what government should actually be doing in the first place and where personal responsibility ought to begin. Modern government increasingly behaves as though the answer is ‘almost everything’. We now seem to have a system that often trusts bureaucracies more than ordinary people, more than parents and more than communities themselves. Even some early years policies carry the unmistakable feeling that government knows better than families how children should be shaped into the ‘right’ sort of citizens.
And all of that costs a lot of your money.
Guernsey absolutely faces genuine pressures and nobody sensible denies it. We have an ageing population, rising health and care costs and infrastructure that needs investment. Gavin St Pier is right when he talks about the demographic time bomb and the financial pressures building beneath the surface. Zero-10 brought prosperity and employment for many years, but the financial crisis, the pandemic and years of expanding government spending have left the island exposed.
But islanders deserve a more honest debate than this one-sided exercise where GST is presented as the inevitable answer while the harder conversation about the size and scope of government is quietly pushed into the background.
Before the policy letter lands in June and before deputies vote in July, we need the full picture. We need proper independent analysis of what meaningful spending restraint could actually achieve and a straight comparison between tax rises and spending reductions. Most of all, we need an honest discussion about what government should and should not be responsible for.
Most islanders understand perfectly well that public services cost money and that the books eventually have to balance. What many object to is the assumption that the answer is always to reach deeper into taxpayers’ pockets while avoiding any serious examination of whether government itself has become too large, too ambitious and too involved in areas that once belonged to individuals, families and communities.
The reserves are not bottomless and pretending otherwise simply delays the reckoning. At some point the island either controls the size of government, or government steadily controls more and more of your life.
