The Chamber executive has taken an in-depth look at the Tax reform Billet and has published a detailed brief for its membership, ahead of surveying members to understand their views on the new proposals. We have extracted the executive summary below for information.

Please read the full briefing which can be accessed here, and then please complete the survey.

Executive Summary

Another day, another attempt at introducing a fiscal reform package. You may be forgiven for thinking Guernsey is collectively suffering a time loop paradox, but it is clear both from the detail of the Billet published by P&R and from anecdotal discussion with industry participants, things are getting a lot clearer now.

Broadly, P&R have listened to much of the input from Chamber and its members and they have put together a more holistic set of propositions that clearly set out why there is a need for tax rises (which was a substantive concern in January), all the tax rises currently under consideration (rather than GST and its mitigation package along with the social insurance changes as in January) as well as setting out spending cut targets (a red line for the Chamber Executive and its member).

What Chamber wanted was a demonstration that tax rises were needed, a full tax package (not just GST or an Income Tax) covering all likely tax rises/reform, a cost cutting strategy and policies for revenue raising, particularly in growing tax take through workforce growth.

So, are tax rises needed?

With regards to making the argument that tax rises are needed, this argument has, in the view of the Chamber Executive, now clearly been made and was underlined with a budget deficit in 2022 due to poor investment returns. The reasoning sets out how Guernsey is and will continue to dip into savings to fund government spending, particularly infrastructure, if something is not done in the medium term. This is backed up by the 2022 credit assessment from S&P.

Whilst it is possible to resize the hole through reduction of capital investment, this will only cost more money in the longer term. Equally, short term support through policy change or positive investment performance will only mask the problem, not address it. As such, it is the Chamber Executives view that whilst the introduction of any new tax or any tax rises is not palatable or desirable, any discussion now urgently needs to move away from “do we need a tax rises” to “what taxes should we raise”. Deputies planning their re-election campaigns early, take note.

So what taxes?

The argument for the introduction of GST was long and laboured with the arguments against higher rated income tax (the only other viable option for the level of income needed) rather shorter on detail. That said, the argument was made and the Chamber Executive, after due consideration, agree that the introduction of GST is more compelling than the introduction of a higher rate of income tax or a much higher level of corporation tax due to the downside impacts to business and government of the introduction of the other two types of tax.

The Chamber Executive have produced a summary of the pro’s and con’s for GST to help business leaders and the public understand the high level arguments for and against GST, Income Tax higher rate tax banding, significant corporation tax changes.

The Chamber Executive has also suggested several tax initiatives that, whilst will not contribute substantially to the deficit through short term revenue generation, could decrease costs (producing a dual effect of short-term revenue and longer-term cost reductions). Examples would be a cardboard tax or a sugar tax.

What about cost savings?

The Chamber Executive was underwhelmed at the ambition of the spending cuts and have suggested areas that need to urgently be looked at through amendment such as targeting Civil Service pension reform. Whilst it is accepted tax rises are needed, a more serious approach to cost reduction needs to be adopted by both this States and any future assembly and any tax rise should only ever be considered if a serious attempt at fiscal prudence is adopted, something that has been missing from this States Assembly.

What else is missing?

The Chamber Executive has set out what they believe is missing from the propositions, being targeted policies at increasing economic activity (which will add to tax revenue/funding) and which we would urge P&R to investigate.

The Chamber Executive would also like to see more vision for the use of any tax take, such as using it to boost housing stock, longer term economic growth incentivisation (both of which would help to keep GST at a low level).

And finally …

The Chamber Executive has set out what it sees as the political position facing P&R. It notes the “simple” silver bullet suggestions being raised by some cynical Deputies such as revenue through wind generation or the suggestion that Guernsey can live without infrastructure investment. This could be viewed at best, as unhelpful, and at worst as negligent and would urge Deputies to focus on the arguments in front of them, not cynical ruse de guerre, targeting future re-election campaigns.

Please read the full briefing which can be accessed here, and please complete the survey.