Shakespeare really is timeless. Chamber’s Finance Sector Leads Stephen Ozanne and Stephen Rouxel says there are so many lines from the bard that apply when considering today’s fiscal future: To tax or not to tax, that is, unfortunately, the question.
Raising our tax level to match comparable jurisdictions, if it is needed for our health and pensions, makes sense to add it to health and social security contributions rather than the repressive and disastrous tax that is GST.
While we wouldn’t want to go further and describe any of our Deputies as tragic Princes of Denmark, we would say Bill’s political punchlines could be used today just as well as it was 400 years ago.
Back to the tax.
So, the government has tabled the (long awaited) tax review. It has three options (that is really only two options) and unusually it’s not supported by the P&R treasury lead as it does not ‘answer the right questions’. The Chamber of Commerce Finance and Professional Sector working group and we certainly agree with Deputy Helyar’s assessment in so far as we feel that the review in and of itself does not ask the right questions or come up with the type of holistic answer we would hope for. This is not the fault of the team of consultants that wrote the report though; the report is sound and draws the conclusions based on the questions that were asked. Unlike Deputy Helyar, we had no opportunity to set the questions or amend extant questions but if we had, we would have preferred a fiscal review that acknowledged:
- That cuts are possible but not by much. Some cuts could be easier than others. But unless we cut frontline healthcare or pensions obligations, there is very little that will generate a huge amount of savings (the Government Work Plan suggests £5m a year is achievable). Easy cuts would be the 200 headcount saves we have been promised but that have never been delivered. Harder cuts would be a real discussion around NICE drugs or around the fiscally imprudent ESC proposals that went back back to the States in September. I would note that Chamber has no view on either policy socially, simply that both cost a lot and one of the policies, ESC’s, seems needlessly costly. These are hard and emotive subjects that have fairly subjective answers. Fiscally though, recognition needs to be given that these are the only type of area where big saves realistically could be made. Trimming Economic Development or Environment simply won’t make a difference. You could get rid of both departments entirely (something that just is not feasible) and you would still need to raise £50m in new taxes.
- That the real problem is a shrinking work force and a growing retirement population. Headline policy should be on dealing with this problem. Amending the population management policy, housing policy to encourage new affordable new builds and allowing new four bedroom houses, and human capital retention policy to stop the brain drain. This is where the economy would be best served. It’s all in the GWP but is not getting the air time it needs nor does there seem to be a cohesive strategy binding these things together. That is not to say there isn’t one just that it’s not clear that there is.
- Finally, the tax policy review itself should set out options, as the review has done, but should also set out when such policies should be entertained and when to engage them. It should acknowledge the desired cuts. It should acknowledge the ambition to stabilise the work force rather than fatalistically accepting it will always be so. Then a preferred option should be set out and when such an option will be needed dependent on other work streams.
What has been presented in the tax policy letter is essentially a civil service driven fait accompli. There will be a hole, it will need to be filled. This, we are told, is how to fill it. Not how to avoid the hole, not how to minimise the hole, just how to fill it. Minimising and avoiding the hole just don’t seem to be in the vocabulary, let alone given serious consideration as a solution. This, really is the singular problem.
But back to the tax.
Whatever option that is put forward, a restructure of the social security contributions is going to take place. This is badged as levelling the playing field and will, to all intents and purposes, see higher earning families pay more, see some loop holes closed and generate a bump for the revenue.
Then there is a choice between GST and a ‘Health’ tax.
GST is, unsurprisingly, coming out as the firm favourite. It diversifies the tax base, allows Guernsey PLC to gain revenue from tourists (which will allow us to raise a small amount of money on the small, and shrinking, visitor economy). It will allow us to tax based on consumption rather than just wealth. It will allow the government to pass on some costs to business to administer. There are a lot of positives but there are a negatives. The largest negatives are that (a) it will destroy Guernsey’s retail shopping sector as it will encourage greater use of internet purchases (which will be GST exempt for most purchases) (b) it disadvantages lower income earners and worst of all (c) it’s a tax that only goes one way – up.
We will be told that mitigants are in place for low earners (and I will leave it to others to comment on that) and that the retail sector will be fine. Chamber has many members who will certainly disagree with the sentiment that the retail sector will be ‘fine’. We will be told that the rate will never go up. But it will. Successive governments will raise this till it hits 15 – 20%. This will raise the cost of living even higher than it is now. It will hasten and exaggerate drastically the brain drain and the reduction in working age population thus making the root cause of the actual problem even worse.
But that leaves us with the ‘Health’ tax. This is essentially a 3% rise on income tax with a higher income tax threshold to compensate. This again will target higher earning families, will cost less to run but won’t diversify the tax base (we are not making tourists pay remember). It’s out of favour with P&R and with the Civil Service because of this last point. It does, however, have some good points. Guernsey has a remarkably low total tax level. It is below most of the developed world. Raising our tax level to match comparable jurisdictions, if it is needed for our health and pensions, makes sense to add it to a health and social security contribution rise rather than the regressive and disastrous tax that is GST. After all, if that’s what it’s for, then that’s what it should be linked to, right?
But first, let’s have a real conversation about both cuts and the real problem, the shrinking work force and what we can do about that. Then let’s have a conversation about what tax rises are needed. No doubt we will be told that this just isn’t possible. The government doth protest too much, methinks.