Right. Let’s strip this back to basics. A Janet and John recap of where Guernsey is as your starter for 10. Public finances in dire straits. Real concerns about the cost of living (electricity alone up 7%), an actual housing crisis, increasingly expensive public sector and a barely-growing economy.
After all, the best the Guernsey Financial Services Commission could say about the sector it regulates is that it’s stable – neither growing nor contracting – while the latest figures for the island’s GDP is that it shrank by 3% in real terms in 2023 while ratings agency S&P Global forecasts GDP per capita growth (the £ in Mrs Le Page’s purse) after inflation will be close to zero over the next four years.
And it’s against this backdrop that Policy & Resources has presented its latest set of tax reform proposals, or what I’m calling GST-lite, to less than rapturous applause.
Yes, that’s putting it mildly for a package which has been 12 years in the making to get Guernsey out of the soup, that I’m told will see at least 15-20 States members voting against it, and probably lead to an Assembly attempt to replace the whole P&R committee if they lose the debate.
So the one question you have is, why? Why would the island’s senior committee spend so long working up proposals that so many question are effective enough, based on believable numbers or really will help the least well off?
And having spent time with P&R president Lindsay de Sausmarez last week, I can tell you. Before I do, though, it’s worth recalling that she is/was a GST opponent, having consistently voted against a consumption tax in the earlier debates on this.
So what’s now on the table is something she and her colleagues believe in. More than that, they genuinely think it will do what’s required for the island short term, and also for those who are already struggling to afford to live in the Bailiwick.
Fundamentally, however, GST-lite has one objective – to push back the fiscal cliff-edge when the island’s financial reserves run out in 2031 and win the island a bit of time. Yes, in P&R’s view, it includes added benefits, like helping the less well off, a lower rate of income tax for some and reduced fuel duties. But basically, it seeks to push back that crunch-time when the money literally does run out.
Can-kicking? No, was the response. The package plays to the Government Work Plan's super-priorities, which we’ve discussed here before, but specifically to agree and advance a sustainable health and care system.
Pish, I countered, we’ve got the already-agreed 'Partnership of Purpose' that’s doing the same thing, even if the previous Health president Al Brouard seemed rather oblivious to it when he was in office.
Perhaps so, but this, way more root and branch, is about managing demand and controlling future costs. After all, 54% of all public sector expenditure is already on health and social care, old age pensions and long-term care, while the demand for these services continues to grow.
There are fewer younger people in the island now than there were in the 1970s, even though the population is larger, and there has also been a significant increase in the number of people over 50. Longer term, by 2053 there are expected to be more people aged between 80 and 90 than children under 10. Which is particularly alarming.
So yes, the demographic impact on public finances is real and worsening and trying to get on top of that via prevention and early intervention takes time and costs money. Which we don’t have and the island is already at capacity for beds. Hence the GWP push on a sustainable health and care system.
From government’s perspective, demographics alone make what it spends a constantly moving target guaranteed to drive costs above inflation. Which is why Health & Social Care and Employment & Social Security, with the two biggest budgets, are actively looking to save money.
Deputy de Sausmarez bristles at my suggestion that savings are voluntary. These initiatives are real, painful and policed. Zero-based budgeting isn’t suitable for all States departments, which may have statutory obligations to provide services or assistance. Which means you can’t start with a zero budget because there’s a legal duty to provide them.
However, priority-based budgeting, which the States has endorsed, gets you in the same territory, she says. States Property Services and Adult Disability Services, a particularly complex area, are first in the frame and, no, political sacred cows will not be protected, whatever committee members may say.
How will P&R know? ‘I’m not giving away our trade secrets, but we have ways…’. And anyway, the budget is king and P&R won’t allocate money where it believes there is no justification. Hence slashing committee demands for an extra £26-28m. by more than half last time around.
And just look at the ban the States chief executive has imposed on the use of consultants. Needed, by the way, because departments kept finding ways around the embargo. Hence Boley Smillie’s ‘convince me first – if you can’ demand to eyeball the would-be spenders.
Deputy de Sausmarez is firm, too, that the tax package’s 1% a year cut in States baseline budgets, or £20m. by 2029 – ‘not service cuts or increased charges’ – is real and unavoidable. She also makes a prediction as part of the process of examining all expenditure, that Alderney’s runway will come in at the agreed amount of no more than £24m.
What about growth? What surprised me here is the optimism over the proposed 60 square mile offshore wind farm project. This is actively supported by the UK, which is allowing access to its contracts for difference regime (essential for underpinning the financial viability of the project) and could bring the island around £75m. a year in revenues. Plus we’ll have a better idea by 2028 of the effects on revenue of the OECD’s Pillar II global minimum tax rules.
Taken in the round, these material uncertainties, plus the impact of AI, mean no one can forecast the size of the island’s funding gap – the deficit caused by the island’s spending vs its income – with any certainty.
Which means P&R has come up with GST-lite to bridge that uncertainty gap, help some islanders, give time for cost controls to be implemented and set the States up for an ‘assurance review’ in 2030, when it should be clearer just how good or bad the island’s finances are.
So, a pragmatic approach to a complex problem or straw-clutching by a committee under pressure and facing a ultra-critical island audience? You’ll have your views on the answer, but it was a particularly joined-up, well-briefed and compelling explanation from Deputy de Sausmarez.
And at the very least you now know why GST-lite is being proposed.
Winner or loser?
Will you be a winner or loser if GST-lite is introduced? Frossard House has just released a better calculator to help islanders work out how the package will affect them and their families. You’ll find it here: https://www.gov.gg/taxreform
