20% income tax rate saved

Thursday 19 October 2023

Guernsey's 20% income tax rate has been preserved as a sacrosanct fact of local life after deputies overwhelming rejected suggestions of increasing it by up to 3%.

Proposed by Deputies Lyndon Trott and John Gollop, raising the income tax rate to 21%, 22% or 23% was proposed as a way of increasing States revenue without the need for a consumption tax.

Speaking yesterday, Deputy Trott acknowledged that this would be far from the "perfect option" but he said it was likely to be the only way this week's States meeting would end with some revenue raising measures agreed.

With the island facing a growing financial deficit - predicted to reach £100million by the end of this year - Deputy Trott said it's imperative more money is paid into the public purse to cover the higher costs of running public services and maintaining and developing infrastructure.

"...the motive is a determination to leave this debate with something, and there is no question that whether you are in favour of GST or opposed to it, this amendment provides the assembly both now and in the future with the most flexibility, because if we do decide to raise the personal rate of income tax but an assembly in the future decides it really does want to introduce consumption taxes then of course it can lower those rates as part of that package, if it wishes to do so. So there is a real structural flexibility in this approach," he explained.

Pictured: Deputy Trott argued that changing the income tax rate wouldn't impact lower earners who are beneath the threshold anyway.

Anticipating arguments that increasing the level of income tax would leave some people worse off, Deputy Trott expressed that it would be mitigated by not having a GST at 5% for residents or for visitors.

"There are some things that are strongly in favour of it," he said. "And when we listen to what our community is telling us many of these things that are in favour of raising the personal rate of income tax are the very issues that the community is concerned about it is easy to understand.

"...if you're not paying any tax, because you're a pensioner, for instance, someone on a fixed income below the threshold, raising the rate of income tax won't make any difference. Whether it's 20% of nothing or 23% of nothing of course the effect is the same and it is easy to collect.

"This is unquestionably one of its strongest selling points, and it is proportionate relative to income."

In urging deputies to back his amendment, Deputy Trott said doing something is better than doing nothing.

"I ask members to vote for this amendment to add it to the list for us to consider later. Because Deputy Gollop and I believe that it is likely to be the last revenue matters standing but like definitely partisan. I wouldn't be in the least bit offended if you don't. But I can't think of anything worse than leaving here with nothing."

Pictured: Deputy John Gollop seconded the amendment. 

Some agreed that it should be kept on the table for further consideration alongside the main proposal of a goods and services tax to be debated later in the week, but ultimately the majority said no with 30 deputies voting against the amendment and just 10 supporting it.

Deputy Dave Mahoney was one who thought the idea was dangerous to the island's international reputation.

"What I have had is plenty of comment from the business community, who do keep abreast of the sort of things that we talk about in this room, asking if this is a genuine possibility. Listening to this debate so far they will be scared witless of some of the comments that have been made so far.

"Many members have noted about progressive tax packages but the public haven't been brought along. Most of the public don't even know what's being discussed here today.

"In any sensible modern government, it must be inconceivable that something as critical as the tax rate can be introduced a week or so ago, and then put in for debate today. This will make us a laughing stock," he said.

Deputy Mark Helyar - the P&R financial lead - agreed that changing the income tax rate is a bad idea.

"It's the powerhouse of Guernsey's economy, it drives pretty much everything that we do," he argued. "One of the reasons the finance sector is here is because this is such a stable place. Very little changes and it changes very slowly. Sometimes it can take seven or eight goes. You can mention so many debates that have been held over the last few decades, where nothing has happened. (There are) lots of words in this place, lots of hot air, but no progress. And for business, that's a really good thing. Because it means there's no prospect of a two week warning to increase income tax by 3%. Such a knee jerk thing could never happen in a jurisdiction like this because it's too stable."

Pictured: Deputies Mark Helyar and Dave Mahoney both argued against changing the island's 20% income tax rate.

Deputy Helyar warned that changing the income tax rate would cause mass instability and would lead to problems "beyond anyone's imagination".

"There are a lot of people listening today in the finance sector who are seriously concerned about this even being tabled," he said, "and if we do vote it in and leave it as a backstop proposition I think it will have really serious consequences for stability not just in in the business sector but also politically."

The final vote saw off the amendment comprehensively with three quarters of the States saying no to any chances to income tax.

Deputies Trott and Gollop won over just eight other States members, with many of those saying they would vote in favour just to keep increased income tax rates as an option, with no guarantee they would vote for it at the end of the debate.

Deputy Trott said he wasn't even sure if he would, but he wanted it as an option which he was prepared to face the public for.

"Do I believe that this amendment is the perfect option? No, I don't," he said.

"Do I believe that this amendment is probably the only chance of leaving here this week was something on the revenue side" Yes, I do."

The States voted 10 pour and 30 centre. The full voting record is available HERE.

The debate continues...