Ahead of the debate on the Funding & Investment Plan, the Policy & Resources Committee is releasing more details comparing the effect of its proposed sustainable tax package with an increase in income tax.  It has today published a short report entitled: ‘Why not just increase income tax? A brief comparison of the progressive model against an income-only based alternative.’  The report can be found at www.ourfuture.gg/public-finances, or it can be downloaded here: Why not just increase income tax?

Some members of the community and some States Members have suggested increasing income taxes to raise the revenue needed to make public finances sustainable and fund essential services as demand grows.

Over the course of the Tax Review, the Committee, supported by a specially formed sub-committee, reviewed a wide range of possible revenue-raising measures.  It found there are very few options for raising the significant amounts needed to meet the forecast shortfall, and financially any option would involve increasing income taxes or introducing a consumption tax.

While there have been a number of suggestions on how income taxes could be reformed to raise more, a common one is simply adding ‘two or three pence’.  The Committee appreciates this is attractive and would seem to be fair as people on higher incomes do pay more through income tax.  However, the Committee is showing that this option is far less progressive than the proposed package, which includes a consumption tax but also other measures including a reduction in the rate of income tax, greater personal allowances and increased pensions and benefits.

Modelling included in this latest report shows how raising income tax would see all households whose income is above the personal tax allowance threshold, paying more.  Unlike a GST, income taxes mean we have to raise more from each individual islander as it comes only from the money they earn, rather than from money spent in Guernsey which comes from a bigger, broader group.  In addition, if income-based taxes were increased by only 3% it would raise a similar amount of revenue as the proposed tax package but not enough to include any of the measures that will reduce the tax burden for low income households.  Including these through an income tax-based option would mean even higher tax increases.

Deputy Mark Helyar, Vice-President for the Policy & Resources Committee said

“I hope the modelling in this short report is helpful to people who instinctively feel income taxes are fairer and more progressive than a package that includes a Goods and Services Tax but also a number of important measures that will benefit low earners.  We’re showing in black and white what effect it will have on households of different income levels on average, so the comparison with our proposed package is really clear.  The package we’re proposing is by far the better deal for people on low and middle incomes, and I really hope the States recognise that in the debate this month."