In just a few weeks’ time, deputies will be asked to vote on one of the biggest changes to Guernsey’s tax system in decades.
If approved, the proposals in the tax reform policy letter will affect everyone. Families doing the weekly shop. Pensioners living on fixed incomes. Businesses trying to stay competitive. Future generations who will inherit the consequences of these decisions. For these reasons alone, the proposals in the policy require careful consideration, a hefty dose of scrutiny and, above all, transparency.
I should say at the outset that this is not an argument against tax reform. The policy letter makes a compelling case that Guernsey faces a long-term financial challenge. Our population is ageing, our birth rate is declining, and the gap between what the States spends and what it raises cannot be ignored indefinitely. Few people argue that doing nothing is a sensible option.
The question is not whether action is needed. The question is whether we have been given enough evidence to conclude that this particular package is the right answer.
Having read through the policy letter, I am left with a nagging feeling that I had been shown the destination, but not the map. The report is clear in its conclusions. We are told that a consumption tax could raise around £55m. a year. We are told that the proposed international services entity regime could generate a further £10-12m. annually. We are told that the revised package will have a lower impact on inflation than previous proposals.
These are all important claims and, if accurate, they deserve serious consideration. Yet throughout the document I found myself returning to the same solitary question: where is the evidence that allows us to test these figures for ourselves?
When I was young, I was constantly chided by my maths teacher. I kept showing the answer to a question, but not how I got there. If a classmate or teacher can tell how you reached your answer, without having to guess, you have showed your work. As an adult, I understand why this was necessary.
There is a difference between being told a number and understanding how it was reached. If a builder tells you a house is structurally sound, most people still want to see the survey. If an accountant presents a set of financial statements, they are lawfully obliged to provide detailed notes along with them.
Trust and transparency are not opposites; they are partners. The stronger the evidence, the stronger the confidence it inspires. The more you show your workings, the better. That is why it feels surprising that so much of the upcoming debate appears to rest on headline figures, while much of the underlying modelling remains out of view.
One issue in particular caught my eye, and that is the distinction between revenue and benefit. The policy letter understandably focuses on how much money various measures are expected to raise. Yet revenue is only one side of the ledger. What ultimately matters is what remains once all associated costs have been considered.
Shareholders would never judge the success of a company solely by its turnover. They would want to know the profit after expenses, cashflow, risk factors, forecasts, and so on. The same principle applies to government.
Indeed, one of the most striking features of the policy letter is that while considerable attention is given to projected revenues, far less attention appears to be given to the costs that may arise as a direct consequence of the policy itself.
If inflation is expected to increase prices throughout the economy, then logic suggests it will also increase costs within government. Yet there appears to be no easily understood reconciliation, all in one place, showing how additional expenditure on pay, pensions, non-contributory and contributory benefits and other inflation-linked costs has been incorporated into the headline figures being presented.
For readers, this leaves many questions unanswered. What is the actual net benefit? And what does it look like broken down on an annual basis?
Reading the report, I found it surprisingly difficult to identify a clear explanation of the net fiscal benefit once implementation costs, administration costs, compliance costs, benefit increases, inflation-linked expenditure, staffing costs and pension costs have all been taken into account.
These issues are discussed in various places throughout the document, but they are not brought together in a way that allows us to see the full picture at a glance.
For a proposal of this scale, this feels like an important omission.
The treatment of inflation raises perhaps the most important issue of all. Considerable emphasis is placed on the argument that the revised package will have a smaller inflationary impact than previous versions, with the policy letter suggesting an overall effect of approximately 1.9%.
The report goes further. It specifically addresses concerns raised by commentators regarding the effect that GST-induced inflation will have on public sector pay and pension costs. The policy letter states that these concerns have been overstated, and that the impact would be less than has been suggested.
That may well be true.
But having rejected those calculations, where are the alternative calculations?
The States 2025 accounts report annual staff costs of roughly £415m. (Note 6b). Over two years, this is a not insignificant rise of 14%. Applying the policy letter’s own inflation assumption of around 1.9% to a payroll of that size would imply additional annual costs approaching £8m., before factoring in recently agreed-on government staff pay increases, employer pension contributions, future pension liabilities, and other associated costs.
Yet despite directly addressing the issue and then dismissing all estimates, the policy letter is conspicuously silent over what impact its own inflation assumptions are expected to have on these costs and liabilities; and in turn how this affects the net benefit to the taxpayer.
For many readers, that is likely to feel like a missing piece of the puzzle. After all, inflation does stop at the doors of Sir Charles Frossard House.
If prices are expected to rise across the board, then it seems reasonable to ask how much of that increase eventually finds its way into the States’ own expenditure and onto its balance sheet. And if concerns about pay and pension costs have genuinely been overstated, then publishing the calculations to prove this would surely strengthen the case being made.
The policy letter may be entirely justified in concluding that previous estimates were too high. The problem is, having dismissed those estimates, the Policy & Resources Committee does not appear to present an alternative assessment that allows us to understand what the actual cost could be.
For a document that contains detailed projections of future revenues, this omission feels significant. If inflation-linked costs are expected to be materially lower than some have suggested, then publishing the calculations would strengthen the credibility of the report, and allow the Assembly to judge the issue on evidence; rather than assertion.
At present, readers are effectively being asked to accept two propositions at once: first, that concerns regarding pay and pension costs have been overstated; and second, that P&R’s counter assertions are correct. Yet the workings that would allow us to verify either proposition remain absent.
The same principle applies elsewhere in the report.
The projected revenues from the proposed international services entity scheme could make a valuable contribution to the island’s finances. Yet they also raise perfectly reasonable questions. The policy letter asserts revenue generated from the ISE scheme will match that of Jersey, purportedly between £10-12m. a year. Guernsey and Jersey share many similarities, for sure, but they are not identical. Their economies differ in size and composition. Their financial sectors differ in scale. If comparable revenues are expected, we should be able to understand the assumptions that support that conclusion.
To be clear, none of this means the policy letter is wrong. The modelling may be robust. The forecasts may be realistic. The conclusions may ultimately be justified. The issue is not whether the work has been done. The issue is whether enough of that work has been made available for independent scrutiny.
As deputies, our responsibility is not to wave proposals through because they are presented confidently. Equally, it is not to reject them simply because uncertainty exists. Our duty is to ensure that major decisions are supported by evidence that is clear, transparent and capable of being tested.
That responsibility becomes even greater when the decision will shape the island for generations to come. Once a consumption tax is introduced, it will not be undone. Systems will be built. Staff will be recruited. Businesses will adapt. Consumers will change their behaviour. Whether one supports or opposes the principle of GST is, in some respects, beside the point.
Before taking a step of this magnitude, the States should be satisfied that the evidence has been fully laid before it. The policy letter asks islanders to place their trust in a series of forecasts and projections. Perhaps those forecasts will prove accurate. Perhaps they will not. But before we ask the public to trust the numbers, there is one question every deputy should ask themselves: have you seen enough of the workings to trust them too?
