No politician wins votes by advocating tax increases. If there were an easy alternative to the 2026 tax reform package, I would support it. There is not.
Although I have only recently joined the Policy & Resources Committee, I have not come to this debate as a newcomer. I have served on the Tax Review sub-committee, worked on economic policy and growth throughout the previous term and spent the early months of this term reviewing the government budgets, accounts and the long-term fiscal projections facing the island. The picture they paint is clear and it demands a decision.
The surplus question
One question comes up more than any other: if the States accounts show a surplus, why do we need tax reform at all?
It’s a fair question, and it deserves a straight answer.
The £106m. group surplus in 2025 was substantially driven by factors that cannot be projected forward. £119m. in unrealised investment gains, £34m. in one-off banking sector receipts and an estimated £39m. from the new Pillar 2 corporate tax that will not be fully collected until at least mid-2027. Strip those out, adjust for the long-term capital investment requirement and the underlying funding gap in 2025 stands at approximately £50m., down from the £66m. estimated in the 2025 Budget, but persistent and structural.
The accounts also show that despite the headline surplus, cash balances fell. That is because more than £110m. was deployed into infrastructure and major projects. A government that stops investing to attempt to maintain a surplus is simply deferring costs to the future.
A structural problem, not a cyclical one
The funding gap is not the product of bad management or unusual circumstances. It is structural. For more than a decade, there has been a mismatch between what our tax base generates and what it costs to run, maintain and invest in Guernsey.
This conclusion has been reached twice by the independent Fiscal Policy Panel. In 2023, reviewing the funding and investment plan, the panel found that Guernsey was no longer on a sustainable fiscal path. Public investment was lower than in any other OECD economy, well below the panel’s recommended 3% of GDP and none of the scenarios presented was sufficient to achieve permanent fiscal balance.
In March 2025, the panel returned, this time focused on infrastructure and reserves. Its verdict was the same. The current tax base cannot sustainably support both services and the investment needed to maintain the island’s capital stock. Without reform, the general revenue reserve is projected to be exhausted by 2031. The core investment reserve, our sovereign wealth buffer, stands at less than a third of its target. This has deteriorated over the last 20 years.
These pressures are not abstract. Guernsey’s older adult dependency ratio already exceeds the OECD average and will rise further through the mid-century. The Guernsey insurance fund is paying out more per year than it receives in contributions. More than half of the projected increase in States expenditure in coming years relates directly to health, care and pensions. These are obligations we made as a community, to our most vulnerable islanders. They do not reduce themselves.
At the same time, our capital stock is ageing. Guernsey’s public investment has averaged only 1.2% of GDP since 2016, far below the States’ own target of 2%, and further still below the panel’s recommended 3%. The States’ own assessment identifies a pipeline of potential capital projects which would require substantial investment. That backlog does not shrink on its own either.
What the package does
The 2026 tax reform package delivers approximately £59m. in fiscal improvements. £20m. from expenditure reductions and £39m. from additional revenues. The principal mechanism is a 3% goods and services tax, accompanied by income tax reform. The standard rate falls for the first time since the 1940s, to 15% for earnings under £28,000, allowances increase, and social security contributions are restructured to reduce the burden on lower earners.
These are not isolated measures. They form a single package designed to broaden the tax base while protecting those least able to bear additional costs. Today, approximately 77% of States tax revenue comes from personal income tax and social security contributions alone. That concentration is neither balanced nor resilient. The reforms begin to correct it.
Our advisors have been consistent and explicit; without these changes, States finances are on an unsustainable path. Reserves deplete. Borrowing rises. The capacity to invest in infrastructure diminishes at precisely the moment demand for public services is growing. The vicious circle, weak investment, weaker growth, weaker revenues, tightens further. With the proposed tax reform in place, finances can be put on a more sustainable footing and capital investment sustained.
The island we leave behind
Guernsey’s economy has real strengths; a resilient finance sector with an engaged community and new corporate revenue flows beginning to arrive through Pillar 2. But growth in our economy and primary sector will not close this funding gap. Strong public finances are
the prerequisite for everything else: the confidence to invest, the capacity to support the services our community relies on and the stable platform from which sustainable growth can be built.
The 2026 tax reform package is not perfect and certainly not painless. But it is balanced, proportionate and honest about the challenges we face. It addresses a shortfall confirmed by independent experts across two separate reviews spanning multiple years. It balances new revenues with real expenditure savings. It protects lower earners through targeted income tax reform. And it creates the fiscal foundation from which the island can invest, plan and grow with confidence.
The generations before us invested in Guernsey’s schools, harbours, roads and public institutions long before they personally benefited from those investments. We have the same responsibility. These accounts, read carefully, make the case. The time to act is now.
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