Sunday 14 April 2024
Select a region
News

EXPLAINED: An acceptable way forward?

EXPLAINED: An acceptable way forward?

Wednesday 08 February 2023

EXPLAINED: An acceptable way forward?

Wednesday 08 February 2023


New taxes, increased taxes or major public service cuts have been tabled by States leaders hoping to break the deficit deadlock ahead of the resumption of the Tax Review debate next week - but what’s being proposed?

The States debate at the end of January failed to reach a conclusion on the tax review, with several amendments and the main policy letter not even close to being debated.

Treasury is forecasting a structural deficit of around £85-100m per year, every year, within the next two decades. 

This is driven by demographic changes (increasing pension and healthcare costs), fewer people paying-in income tax (the general revenue base) and limited economic growth which is not keeping up with public expenditure.

But how do we raise the millions we’re told are inevitably needed?

P&R will put three options to the vote next week to try and decide that. 

All the headline options include consulting with Jersey and the Isle of Man to find a new way forward on corporation tax across the Crown Dependencies, based on options fleshed out in the publicly commissioned Ernst & Young report.

This could include a territorial corporate income tax system, a flat levy to contribute towards infrastructure, or an ‘alternative corporate vehicle’ to raise up to £20m per year, according to the professional forecasts.  

All options also will review the Government Work Plan (the annual States to-do list) and capital projects (the post-16 campus, the anti-tank wall, the hospital modernisation etc) to make them more manageable and realistic.

policy and resources

Pictured: Will it be third time a charm for the Policy & Resources Committee?

Option A

The package you know and 'love', but now with a few minor changes.

GST at 5% on most purchases, including online, for everyone on-island which would do the heavy lifting by raising £67m.

A major reform to the social security system where everyone would get an allowance, which means no contributions would be paid until that threshold is crossed.

Mitigations are provided to the inflationary GST through a 15% income tax band for earnings up to £30,000 a year, an increase in the income tax allowance of £600 and preemptive increases to States’ pensions and benefits.

Those who are struggling in low-income households but fall outside the benefits net would be handed cash under a new support scheme.

P&R say they would also look to find £10m in public spending savings, efficiencies, or reforms.

A slight change in the wording of the GST propositions seeks to lock in the rate of 5% for a decade, with a two-thirds majority needed to alter that, rather than the usual simple majority in the States Assembly.

This option remains the Committee’s preferred choice.

Homes_town_cars_traffic.jpg

Pictured: Homes and vehicles are in the crosshairs if the original package is rejected.

Option B

The revenue-raising alternative, which P&R members say they will support in the event Option A is rejected by States members. 

This package removes GST from the deficit-solving equation.

Instead, the shortfall would be met largely through a similar reform to the social security system, but with the aim of raising an additional £15m per year.

How? By jiggling around either the rate which people pay, reducing the personal allowances (the threshold at which you start to pay-in), or excluding some from the benefits system altogether.

Or we could see a combination of all three.

More modest amounts would come from a 50% increase on Tax on Real Property for all domestic properties, to raise an extra £5m a year. A deferred payment scheme would be investigated to protect those on low incomes. 

Taxes on transport would also enter the fold, to raise between £10m and £20m. This could be paid parking, a new motor tax, or distance charging – which is already being investigated by Environment & Infrastructure. 

austerity_cuts_cut.jpg

Pictured: Austerity is the final option.

Option C

The scorched earth contingency plan.

Major, far-reaching cuts to public services to save £31m a year. 

That won’t be found just by reducing the number of senior civil servants and their wages and defined benefit pensions – it would require cutting back frontline services in Health, Education, the Revenue Service, and introducing charges for things we previously used for free.

Social security would not be reformed and instead annual increases in contribution rates would continue for years to come. 

While P&R would prefer Option A over the viable Option B, they say the consequences of this option C are bordering on the unthinkable. 

President Peter Ferbrache said: “It is effectively taking a hatchet and slashing public services in a way that would inevitably impact the lives of Islanders. 

“Guernsey cannot expect to have world-leading services in every area given our small size, but we do expect to have reasonable quality services in areas that most would agree are essential. Those essential services are already strained and demand is rapidly growing, especially in healthcare. 

“They would be severely damaged by such drastic cuts. I hope the States at the very least do not take us down that path.” 

The tax debate resumes on Wednesday 15 February. 

READ MORE...

Two new ideas for Tax debate

Deputies warned against opting for "comfort blanket" of delay on tax

Act now on tax call from Ferbrache as States losses mount

"Unacceptable" and "damaging" service cuts if States reject GST

Social security changes help poorer families and 'middle Guernsey'

Sign up to newsletter

 

Comments

Comments on this story express the views of the commentator only, not Bailiwick Publishing. We are unable to guarantee the accuracy of any of those comments.

You have landed on the Bailiwick Express website, however it appears you are based in . Would you like to stay on the site, or visit the site?