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Last week, in the Guernsey Press, I wrote that the States needs to address the structural imbalance in the States finances created by zero ten some sixteen years ago (by introducing GST as we should have done back then), find another route to funding (all) the rising demands of demographics, reform the corporate tax regime and address its cultural disposition to keep spending more of our money because there wasn’t widespread public support for it. I called it ‘all of the above’. This was the key message I wanted to get across.
It’s an editor’s job to get readers attention, and one of their tricks is to pull out in enlarged type a particular passage or quote to grab readers’ attention.
In last week’s column, the Editor picked out my observation, first made by Nick Mann, Senior Reporter of the Bailiwick Express granted, that the 2025 Budget does away with any attempt at cost savings.
What I specifically wrote was: “One of the most jaw-dropping lines in this year’s budget is the most plain spoken, ‘for the first time in recent years, this budget does not include a central savings target.’ Or put another way, the States hasn’t been very good at delivering savings, so we’re not going to even bother with the pretence of effort this year."
It was a deliberately facetious comment that opinion writers get to make. I knew so when I wrote it, but, whatever, a bit of raw meat for your baying public never does a columnist any harm...
So, listening to the BBC Guernsey debate on the radio last Friday morning, I thought at first that the President of P&R was deliberately parodying my comments when responding to a question from a listener as to why no central savings target had been set in this year’s budget. As I listened, it dawned on me he was earnestly serious. It turns out that the truth was even more stark than I imagined.
This is what he said in full:
"We’re not a bloated States and the evidence is all there; all the comparators make that very clear. The reason there isn’t a cost savings target in place is because we carried out an exercise quite recently when we went out to the community and we said right guys tell us where all this waste and inefficiency is because we’re genuinely, you know, interested and what came back was a surprise even to me. Nearly all of the responses talked about ways of raising additional revenue, additional fees, additional charges, additional revenues, but when we asked States departments what they needed, the amount they needed more than we’ve allocated them was £16m, so in other words they wanted £32m more than we had initially said they could have. £32m, that is more or less the equivalent of 2 pence on the basic rate of personal income tax, what we effectively said was, and, it wasn’t, we didn’t set out to half it, but when we looked very closely, we were able, we went back to them and said you can only have about half of what you want, but remember Tim (the BBC presenter) even after these proposals we’re still going to be £16m pounds a year the wrong side of where we should be, so what I’ve (been) saying to people, is the honest truth is a 2 percent rise in income tax isn’t enough."
These comments blow away any pretence that P&R’s ten percent rise in income tax is aimed at addressing the structural deficit. It’s not, it’s just being used to fund increased spending.
Now, this certainly isn’t what the public wants. The public may have come round to appreciating that we have to address the structural deficit through GST, but what the public won’t wash is higher taxes just to fund more discretionary spending. And with zero effort by the public sector to first tighten its belt.
There was a great article in the Economist a couple of months back. ‘Governments are bigger than ever. They are also more useless’ was the headline. Its central argument was that whilst governments’ spending across the West had risen by several percent points of GDP since the early sixties, their effectiveness had fallen. The reason, it explained, was that they had become ‘lumbering leviathans’ whereby an ‘enormous expansion in spending on entitlements’ had not been met by a commensurate increase in taxation and had crowded out government spending (and its effectiveness) in other areas.
It’s a storyline that supports the current States narrative, not the one about it being the worst States ever, though that too probably, but the official line that it’s just health and pensions spending that’s been rising over the last decade. It’s not that the Guernsey bureaucracy has become bloated, far from it, it’s operating at maximum efficiency, goes the propaganda. "We’re not a bloated States, and the evidence is all there, all the comparators make that clear."
But here’s some numbers for Deputies to ponder this week before voting on whether to increase workers’ taxes by ten percent:
The proposed combined Committee Cash Limit for 2025 totals £650m. And not a penny could be found in savings?
But as Deputy Trott explained last week, there was no need to try. we have a lean mean public sector machine. And anyway, it’s just so much easier to raise income tax. And easier to understand apparently. Which apparently is important.
The year I came to Guernsey, in 2008, total net revenue expenditure by Departments was £296m. Yes, health spending has ballooned (and something needs to be done to address this) but strip out health and welfare payments, government spending is still 20% (one fifth) higher in real terms, ie after inflation, than when I arrived in 2008. There’s a technical term for this: tyranny.
The 2025 Budget keeps trying to ram home the message that we’re a low spending jurisdiction. I’m not convinced.
We need better analysis than what’s been offered up in the Budget. But no matter, the key issue is that time was when we were a low tax jurisdiction. Not so much today.
With P&R’s proposed ten percent rise in income tax, an individual on median Guernsey earnings of £42,180 (as of Q1 this year) will be subject to total deductions of £9,100.92 in tax and social insurance contributions. The same earnings in the UK would be subject to just £8,264.40 tax and national insurance. Or to put it another way, after increasing income tax by ten percent, someone earning the average Guernsey salary will pay ten percent more tax and social insurance than they would in the UK. In fact, you’d need to earn more than £55,000 before your take home pay was higher in Guernsey. Ouch.
That’s not competitive. That’s not sustainable. That’s not reasonable. That’s not equitable. In fact, temporary or not, last minute amendment or not, that’s just not right.
