P&R: Public spending can't rise just because of higher GDP

Tuesday 30 January 2018

Government spending cannot rise without increases to taxes, despite the £0.4bn mark up to the island's GDP, the Policy & Resources committee have said.

An upwards restatement of GDP does not mean there is more money available for the States to spend, it explained in response to the release of the Annual Independent Fiscal Policy Review for 2017.

The authors of the review that was published on Friday said the revision of the GDP from an original £2.4bn in 2016 to £2.86bn following improvements made to the methodology by which it is calculated, presented an opportunity for Guernsey to revisit the debate on the size of government.

In its fiscal framework, the States have said that their revenues cannot be more than 27% of that GDP. Following the change, the revenue now comes to 21% of GDP, lower than international averages, but similar to other off-shore finance centres.

"It is important to highlight that the economy hasn’t changed as a result of the restatement of GDP, it is the data that has changed. There is no new money," Deputy Gavin St Pier, President of P&R, said. "As such, while there may be political appetite in some quarters to increase the amount we spend on public services, as a result of the new GDP data highlighting that the government’s share of the economy is low, the only way any higher spend can be funded is by higher taxation."

Deputy St Pier also cautioned that any moves by the Assembly to increase government spending could only be met with higher taxation, and that the 28% mark was only an upper bound:

"We can increase investment in public services without increasing the overall amount of government spending. This can and will be achieved by the continued focus on public service reform. We have seen significant progress in the last year in particular; for example what was the substantial task of vacating both the former Education Services base at Grange Road House and Income Tax in Cornet Street."

Deputy Lyndon Trott, Vice-President of P&R, added that he was pleased the authors of the report had recognised the value of the planning process that was the Medium Term Financial Plan and that how the States' finances had improved because of its prudence.