The Policy & Resources Committee is today publishing an alternative package for States Members to consider as part of the ongoing Tax Review debate, if they do not want to support the original propositions for a more progressive tax reform that reduces the burden for people on lower incomes, while protecting Guernsey’s competitiveness and raising sufficient revenue to meet the growing demand for essential public services like health care and pensions.

However while the Committee is presenting an alternative option (Option B), it will continue to strongly argue for the original package (Option A), which includes:

• A new 15% Income Tax band on everyone’s income, up to £30,000. For someone on median earnings (about £37,000 a year) this will reduce their tax bill by nearly £900 a year
• An increase in the personal income tax allowance of £600 which will reduce people’s bill by £120 a year
• A restructure of Social Security contributions to give everyone an allowance. This makes the system more progressive and would mean an employed individual on median earnings gaining about £600 a year
• A broad-based GST at 5% with relief for a limited number of things like rents and mortgages. This is expected to increase household costs by about 3.4%, which would be about £1,100 for someone on median earnings
• Pre-emptive increases to pensions and benefits to anticipate the impact of inflation
• A scheme to provide financial support to certain low- income households outside of the benefits system
• Investigating corporate tax reforms in consultation with industry and the other Crown Dependencies to raise up to £20m
• £10m savings in public spending

The Committee recognises that, despite the overall package being progressive and the benefits for those on lower incomes, the inclusion of a Goods and Services Tax to raise the necessary additional revenue means some States Members will not be willing to support this package.  The Committee is concerned that the debate could end with no clear direction, and significant uncertainty over the sustainability of public finances, requiring by default major and urgent cuts across public services in a way that would inevitably affect the quality of life of many Bailiwick residents. 

Therefore, following discussions with States Members over the past week, the Committee has sought to prepare the best, viable alternative package to consider against the Committee’s original plan.

This alternative, Option B, would include:

• Raising an additional £34m through social security contributions (£15m more than Option A), achieved either through increasing contributions, reducing allowances or restricting entitlement to contributory benefits (or a combination)
• A 50% increase in TRP (including investigation of a scheme for deferred payment to mitigate impact on low fixed income households)
• Tax on transport, which may include a form of distance charging, motor tax or paid parking
• Investigating corporate tax reforms in consultation with industry and the other Crown Dependencies to raise up to £20m
• £16m savings in public spending

The original proposals from the Policy & Resources Committee did already include as an alternative to the main package, an option to simply cut tens of millions of pounds from public services, which would be the necessary next step if the States were not prepared to support a reform of the tax system and raise additional revenue.  Following consultation with States Members in preparing the alternative package, the Committee agreed to also keep this option and it is presented as Option C.  Option C would see increased revenue raised through Social Security contributions to the same level as Option B but without any additional restructuring to make it more progressive.  The Committee would also propose to continue investigating corporate tax reforms to raise up to £20m, if Option C were adopted. 

However Option C would require more than £31m to be cut from public services, and the Committee is advocating against this as it would not be possible to make such cuts without having a significant impact on essential services, which ultimately would be damaging on the community, especially those on lower incomes.

The following table compares the three options:

Deputy Peter Ferbrache, President of the Policy & Resources Committee said

“We’ve put together an Option B that we hope States Members feel they can support, if they really believe they cannot vote for any package that includes a Goods and Services Tax no matter how progressive it is overall.  I understand that position, given the strength of feeling we’ve seen from some in the community, even though I don’t agree.  Our Committee remains strongly of the view that the best outcome by far for lower and middle earners and for getting public finances back on a sustainable footing, is our original propositions. 

Option B is a viable package that can raise enough revenue to ensure essential services, but it is a more blunt approach, that does not help those on lower incomes.  It is however better than the third option, which we’ve defined more clearly in this amendment but is still 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.”