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A goods and services tax of 15% will be required by 2040 if the current rates of public spending and economic growth continue, a former States of Guernsey economist has said.
Dr Andy Sloan (pictured above) was speaking on the St. Pierre Park panel yesterday evening explaining a territorial tax system where he encouraged a “more thorough reform of the tax system”.
He noted that he was not outright against a consumption tax in principle but said he had concerns with the package proposed by the Policy & Resources Committee.
One issue was that the tax review had missed opportunities, including establishing a territorial corporate tax regime which is the basis of Deputy Charles Parkinson’s amendment.
His analysis suggests that annual GDP has increased by 0.6% on average between 2009 and 2021. The finance sector has declined by 0.7% in that same period. Simultaneously, he identified around a 2% increase in public spending per year.
In that time, he noted there has been no meaningful population growth, no productivity growth and taxes have risen creating “fiscal drag”.
While changing demographics undeniably puts extra strain on healthcare and pensions, Dr Sloan said a lack of economic growth has also increased the tax burden, suggesting 17% tax increases on individuals in real terms.
@gavinstpier @sashakmiller @PeterRoffey5 @BailiwickGsy @dep_parkinson @argyllscricket @BailiwickGsy @MysticandGypsy @richarddigard @oldfarmhorace @HeidiSoulsby
— Andrew Sloan (@drandy_sloan) January 16, 2023
Economics missing jigsaw piece. Demographics makes services more expensive, weak growth makes future more unaffordable pic.twitter.com/4kozQKp6dh
Dr Sloan said setting up a financial think tank, the International Sustainability Institute, and not commenting on the taxation debate in his own jurisdiction “would be odd”.
He told the audience he believes a corporate income tax could raise tens of millions per year and “go a large way to plugging” the fiscal deficit but said he would reveal more later this week.
He will unveil his full paper on the Guernsey tax review at the Old Government House on Thursday 19 January as well as proposing a brief outline of a “more radical alternative”.
Dr Sloan, commenting on the contents of the paper, said: “We were approached to provide our thoughts on the issues, and having read the analysis provided in the policy letter published just before Christmas, do have some concerns that some underlying economic issues have been overlooked.
“The purpose of the ISI is to contribute sustainable research and thought and so we also have given thought to a more radical approach which we believe could significantly improve economic competitiveness and the sustainability of the tax regime.”
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