Andy Sloan: Three years later

I started publishing on Substack this week.

I’d clearly decided there were people beyond the shores of Guernsey who might benefit from my wisdom and enjoy my sardonic prose. At least that is the working hypothesis.

In reality, one of the attractions was that it gave me an excuse to revisit some of my old Guernsey Press columns.

I rather high-mindedly explained that this wasn’t simply an exercise in saying ‘I told you so’. One of the useful disciplines in writing is occasionally forcing yourself to go back and read something you wrote several years ago and asking whether events have proved you wise, foolish or somewhere in between.

There is, admittedly, another advantage. After five years of monthly columns, I have accumulated quite a back catalogue of opinions, observations and occasional rants that can be re-purposed for a wider audience.

For my first publication I chose a column I originally wrote in early 2023 called: We need growth.

At the time, inflation was running at more than 10%, interest rates were climbing rapidly, public finances were deteriorating and everyone seemed to be arguing about the cost of living. Looking back, I expected it to feel rather dated.

Instead, what struck me was how current it still felt.

Inflation has eased. Interest rates are no longer dominating the headlines. Some of the immediate pressures have subsided. Yet the underlying issues remain remarkably familiar. Housing remains expensive. Healthcare costs continue to rise. Public spending continues to grow. Economic growth remains weak. And political debate remains overwhelmingly focused on how wealth should be distributed rather than how it should be created.

Three years later, we are still having largely the same conversation.

Or perhaps more accurately, we are still avoiding the same conversation.

The central argument of that article was that politics has become increasingly preoccupied with dividing the proceeds of economic activity whilst paying comparatively little attention to the conditions

required to generate those proceeds in the first place.

Taxation matters. Public spending matters. Redistribution matters. But ultimately these are debates about how to allocate resources. They are not debates about how those resources are created.

Economic growth is not a cure-all. It does not solve every social problem. It does not eliminate inequality. It does not guarantee competent government. But without it, almost every other challenge becomes harder.

Which brings me to the recent Scrutiny hearing into the States Accounts.

Most of the media coverage understandably focused on our concern about whether the accounts are genuinely understandable to ordinary taxpayers rather than simply technically compliant with accounting standards.

That is an important issue.

But another point attracted rather less attention.

During the hearing, members were struck by the extent to which expenditure growth was often presented as something almost inevitable. Demographic change. Rising demand. Increasing complexity. Service pressures. All real factors, certainly.

Yet spending growth is not simply something that just happens to governments. It is also the product of political choices, priorities and management decisions. There’s a page in the accounts, page 24, where there’s a helpful infographic illustrating how every single category of non pay costs have grown faster than inflation – justifying a suspicion that everyone seems to have given up on any notion of expenditure control.

That matters because over the last 15 years, public spending has grown at roughly twice the rate of the economy that funds it. The exact ratio varies depending on where you start and finish the calculation. The underlying trend does not. It is a point I first made several years ago when I published some analysis comparing growth in spending with growth in GDP. It was news at the time, it’s now accepted wisdom.

At some point a society has to decide whether it wants a bigger economy to pay for government, or bigger government paid for by the economy. Increasingly, we seem to have chosen the latter.

Sooner or later that creates a problem.

If spending grows faster than the economy indefinitely, one of three things must happen. Taxes rise. Services deteriorate. Or economic growth improves.

There are no other options.

Which brings us, inevitably, to tax reform. This is not really a column about GST. People already know where I stand on that issue. What interests me is something much broader. For almost 20 years Guernsey has approached tax reform from fundamentally the wrong direction. Every discussion begins with the same question: how do we plug the gap?

It is an understandable question. Governments need revenue. Deficits matter. Fiscal sustainability matters. But it is not the only question. But it’s the only question our policymakers have had time for this last decade. It’s little wonder Jersey politicians feel emboldened to take a jibe at Guernsey taxing itself into decline.

A tax system should not simply raise money. It should also support economic activity. It should encourage investment. It should reward enterprise. It should help make a jurisdiction competitive. It should support growth.

Yet almost every tax discussion I can remember has focused overwhelmingly on revenue extraction rather than economic design. The objective has been to fill holes rather than build something better.

Part of the problem, I suspect, is institutional. Official advice naturally gravitates towards balancing budgets. That is entirely reasonable. It is what officials are supposed to do. But balancing budgets and growing economies are not quite the same thing.

Years ago, when I sat on the Fiscal Policy Panel, Matthew Agarwala asked whether any of the modelling underpinning our fiscal projections incorporated dynamic behavioural effects. In other words, whether policy changes might alter economic activity itself. The response suggested this was not a question that had been asked very often. I’m being polite. That exchange has stayed with me.

Too much of our fiscal debate has been static. If tax goes up, how much money comes in? If spending rises, how large is the gap? Those are important questions. But they are not the only questions. What happens to investment? To competitiveness? To employment? To growth? To the tax base itself?

Those questions seem to receive rather less attention.

Our political class has not always helped. Long-term economic strategy requires confidence, imagination and ambition. It requires politicians willing to think beyond the next budget cycle and ask what sort of economy they are trying to build.

My own preference has long been for a simpler and flatter tax structure. I have written about it before and published proposals setting out how such a system might work.

Others will disagree. That is perfectly reasonable. The point is not that my preferred solution is necessarily correct. Though I imagine it’s not half bad.

The point is that we rarely seem willing to have the broader discussion at all. And perhaps now is precisely the moment to have it. Recent admissions from Policy & Resources suggest that the current package is, at best, a partial solution rather than a permanent one. We are already being told that further tax increases may be required in future years and that GST could well be higher by the end of the decade.

If that is the case, then surely this is the time to pause, take stock and ask some bigger questions. Not simply how we close the next funding gap. But what sort of tax system we actually want. What sort of economy we are trying to build. And how we intend to generate the growth needed to support both rising living standards and public services in the decades ahead.

Because having reread that article from 2023, I find myself arriving at exactly the same conclusion. We need growth. The worrying thing is not that the argument still feels relevant. It’s that three years later we are still spending far more time discussing how to divide the proceeds than how to create them.