Every States since the dawn of time has been labelled ‘the worst States ever’. But I am beginning to think a different adjective is needed for the current lot.
‘The most esoteric States ever’? Or ‘the most outre States ever’? Then again, maybe I am being unfair, and it should be ‘the most imaginative States ever’?
What am I talking about? Well, I’ve been bemused by the bewildering tsunami of alternative options being put forward to Policy & Resources’ package of tax reforms.
In the last States, about the most left-field alternatives to bringing in GST were Lyndon Trott suggesting a higher rate of income tax, or Aidan Matthews wanting to increase property taxes. But this time around we have seen a whole raft of blue-skies ideas. And no doubt there will be more to come.
At first blush many of these suggestions seem a bit wacky, but maybe I am just an old dog struggling to understand new tricks. Let’s take a look at a few of them. Starting with those floated by Deputy Garry Collins.
Scrap income tax (well, I was always told it was meant to be a temporary measure) and social security contributions and replace them with a new, combined ‘Employment Tax’. This would then be divvied up between various funds. Deputy Collins claims that will be a big simplification which would save many millions in administration.
He could well be right, but it would hardly be fair. Instead of the previous proposal for social security contributions to be based on both earned and unearned income, this goes in totally the opposite direction. Unearned income – such as pensions, bank interest, share dividends and so on – would no longer be taxed at all.
As an OAP, perhaps I should be cheering, but I can’t help feeling it would look supremely unfair to struggling families paying the new Employment Tax to see some millionaire pensioners, with big final salary pensions, and other significant unearned income streams, effectively living in Guernsey tax-free.
That said, is fairness the only criterion to use? It looms pretty large in my judgment but perhaps we should be willing to accept some inherent unfairness in order to achieve a far more efficient tax system. Beware unintended consequences though. We have a workforce shortage and this sounds like a pretty powerful incentive to retire early and live off pensions if you can afford to.
It would also mean that income from private rentals would be tax-free. But Deputy Collins says instead landlords would pay a levy of £2,000 a year per rental property. He says that would raise £14m. a year. He may well be right but I can’t help feeling that if the States is going to get an extra £14m. from the private rental sector, that cost will ultimately be passed through to the tenants.
Then Deputy Collins wants to double domestic TRP. He tried to tell me that he thought the increase wouldn’t cost much more than a meal out. Where on earth does the man eat? I suppose many people could afford it but I am certainly aware of some (mainly pensioners) who really fear their TRP bill arriving now, because they may be asset rich but they are also very cash poor. Then again if pensions are going to become tax-free, maybe this is just a case of swings and roundabouts.
But if Deputy Collins' ideas could be described as left-field, those from Deputy Goy appear to come from out of the park. His least unusual idea is to put a luxury tax on items such as large private boats, private aircraft and high-end cars. I say less unusual because plenty of other territories have luxury taxes, but taxing wealth, rather than income, has always been regarded as anathema in Guernsey, and something that would threaten its economic model. So good luck with that one.
His next idea is an absolutely swingeing tax on empty properties. Hard not to sympathise in an island with a chronic housing shortage. The trouble is I strongly suspect that by the time you allow for all of his exemptions (things like homes under renovation, where the owners are in care homes, or where the heirs are hard to find), you might be left with far fewer properties wilfully being allowed to lay empty than Deputy Goy might imagine. So fine in principle, but not likely to be a saviour of the public purse.
His last idea though is the one that had my eyebrow raised the highest. If you live in a big house (top 10% of TRP ratings), the States will take a look at what you are paying in income tax and social security, and if it seems too low for your apparent wealth they whack you with an extra mandatory charge. Say it quickly and it may sound plausible but I suspect when you get into the detail it would be fraught with countless difficulties.
In some ways the two States members are going in opposite directions. One makes the life of wealthy islanders, living off unearned income, virtually tax-free. The other seeks to really tap them up big time. So ‘you pay your money and you take your choice’. Or in this case ‘you take your choice and then you pay your money’.
