Tax has never been more of a taxing topic!

dudleyowenDeputy's Blog 2018

Yesterday, Friday 30th June the States of Deliberation broke up for it’s Summer holiday. Don’t panic though….that doesn’t mean that work stops. Far from it. Committee meetings continue, sub-committee meetings, presentations, constituent enquiries, etc all carry on .. business as usual during the summer. The States as a group though has a summer recess and next meets on 6th September.

After a four day, intense meeting this week, it is a welcome relief  to know that we have a break from wading through a telephone book sized Billet for a month, which is in addition to all the other reading that we have.

So to recap this last States Meeting, we were immersed in the Future Guernsey Plan Phase Two – the purpose of which was to outline a) the Policy & Resources Medium Term Financial Plan (how they are going to spend, make and save money over the period) and b) the policy plans for each of the principle Committees (envisaged that they should be the priorities ones).

Here is a link if you are interested to see the documents including the Billet itself and all 33 Amendments:–Resource-Plan—Phase-Two

Most talk this week revolved around how to ensure that we are breaking even and also returning to a surplus to replenish rainy day funds. As you would expect this centred mainly around how to tax and save our way out of deficit. The bottom line is that we need to find ways of providing public services that are cost effective but that crucially do not affect the quality of that service.

Concentrating on funding, sourced only through some sort of direct taxation in my view is old hat and not very imaginative. Sure we need basic taxes and our social insurance to deal with our core services and pensions, but there is more than one way to  skin a cat (sorry for the more squemish amongst you – I’m not too keen on that one myself…alternatives welcomed on the back of a postcard)

So herein below is my speech which gives a broader view about how we can use States resources to facilitate public services. In context this was speaking against the Amendment laid by Deputies Yerby & de Sausmarez wanting to explore more methods of levying taxes upon us. You might be pleased to learn that it was voted down.

Tax Amendments Deputies Yerby & de Sausmarez

Sir. I cannot understand why we are fettering ourselves and only looking at tax take as the sole route to providing public services. We need to broaden our veiw.

A lot has already been said during this debate about ways to raise revenue, focussing on taxes and this Amendment is entrenching us further down this route. In my view given the nature of our current tax structure and our reliance on it for to fuel our economy it is also very misguided.

I supported the P & R Amendment No. 26 which we tackled first in this debate and in the context of our current tax structure I support the premise of taxing those better able to shoulder the burden in terms of individuals and entities and was pleased that this initiative had been raised in the Medium Term Financial Plan.

I do caveat that support though – as like other members such as Deputies Green & Kuttelwascher – I did find the wording in the plan rather vanilla and on face value it can be construed as just rhetoric – Deputy St Pier has now gone on record and provided clarification cutting through some of the wooliness of the language.  

I am very sure that we do need to reduce the gap between those who are least well-off in our community and those who are wealthier.

I am not however convinced that in general it is the significant diversification of taxes which will achieve this. In relieving people of the heavy burden of the pennies in their pockets by taxing them, they will have less disposable income and therefore less to spend. This we know has a negative knock on effect in the economy. It is the gap in disposable income that is the biggest problem between sections of our community: denying the opportunity for many to save and structure their household finances for the rainy days for the big capital outlays or the nicer things in life.

I do support limited changes to our existing income tax system to seek greater contribution from higher earners such as the reduction or removal of allowances with 20 means 20 or looking at the introduction of income tax banding for different levels of annual earnings. I would expect that these are all within the gift of P & R to explore and some of these measures would form part of their commitment to raise further revenue using our current tax mechanism.

What also disturbs me about this Amendment is how any measures introduced as a result of the requested review will hit Guernsey lower and middle income earners hard. I am not so interested by arguments using comparisons with other jurisdictions as we have heard in debate this afternoon – to me that is not really relevant. I am interested about how much money we are demanding from the public that is in context with how we do things here.

I suspect …..that the ideals of the authors of this Amendment and their supporters are so strong that it could be said that the members – are themselves almost blasé and unfazed about the damage that would be done to Guernsey if the root & branch examination that is called for and the possible introduction of these measures is approved.

I’m sure that I don’t have to remind members – but I will anyway to emphasise the points that Deputy Trott & Deputy Ferbrache graphically spelt to us out earlier in our debate about the importance of the Finance sector to our island: Sir the Finance sector together with directly related professional services makes up approximately 50% of our GDP.

Now I ask Members to please keep that figure in mind because given that the sector and support services make up half of our economy this serves to underline the folly of the various Amendments set out to broaden our tax base. Our tax framework has evolved and is structured so that residents including Guernsey registered companies are not subject to taxes charged elsewhere such as Inheritance Tax or Capital Gains. We have created an attractive offering in tax neutrality, in line with other Crown Dependencies and indeed onshore jurisdictions globally, for wealth management products and services.

This amendment and others laid by Deputy Yerby are designed to stretch and test the appetite for changes to our tax structure locally. I think this form of test is completely reckless and threatens the very core of our economy and our island’s prosperity. Let us not underestimate the benefit that we have derived from the finance sector – there is not one other sector in the island that has not benefited directly or indirectly or from the multiplier effect of that industry.

Deputy de Sausmarez has stated again during debate her displeasure with the way this matter has been handled by P & R saying they confused and conflated the suite of tax Amendments laid. Deputy de Sausmarez was also at pains to point out during a recent BBC interview that this was an academic exercise, to look into alternative forms of tax for the island. Yet she ended by saying that this work would be undertaken with view to introducing one or even two of these researched measures …    this gave me no comfort at all because of course this then ceases to be a purely academic exercise if tax measures would be expected to be implemented as a result of the review. What would be the point anyway of an academic review – we want action not theory.

I am one of the few in this Chamber who has direct experience of working in the finance industry at the coal face and because of this I am all too aware of the negative views and often unfounded criticism that we as an international finance centre have faced over the years.

Many come from international charities and so called tax justice campaigners. I understand many of their arguments despite not being based on fact and I think that these Amendments have a flavour of the principles expunged by these campaigners – from Members who themselves have benefited and continue to, from the tax structure that we have here in Guernsey.

I don’t think that the idea of academic research into broadening our tax base is a particularly creative one. I am not convinced that our preoccupation with the diversification of our tax base is right for our 21st Century society. I have thought long and hard about how we can raise additional revenue by sticking rigidly to the traditional or variations of tax take measures such as the increasingly popular Tobin Tax which seeks to tax international financial transactions, especially forex transactions. Or as unrealistic as this…..why not move away from tax and see if we could look at enabling everyone to receive the same rates of pay – a universal maximum wage.

I have also wondered if we can make certain taxes ”optional” – so that those who can most afford it are able to contribute if they want in a philanthropic way towards the provision of public services.

There are so many things that we can explore which will help to provide cash for public services. But this is where I start to wonder why we as a government are the ones who are always looking to fund the cash.

The community, the public want the services and it is right that we should facilitate but is it right that we continue to be the ones who demand the cash, management that cash and provide directly the services required? I do question the reliability of government to effectively and efficiently spend taxpayer’s money – worldwide and historically there isn’t a great track record.

I would therefore support strongly a broadening of our minds in this respect and for us to place more emphasis on researching and implementing social impact investing and commissioned States models to deliver services which have traditionally been delivered by government. Indeed we need to strengthen our 3rd sector Compact and embrace all charities, not just a handful, which provide much valued volunteer support to so many in our island and beyond. We say we will do it – but there’s are not too many case studies to evidence that it has truly been embraced.

After all we are living in the 21st Century not the days of Pitt the Younger who first introduced income tax to fund his war against Napoleon. Aren’t we more sophisticated and better informed today, don’t we appreciate good governance and transparency? Aren’t we lead by efficiency and value for money? Then why are we constantly trying to retain control, when others could do it so much better? This is not some sort of pie in the sky, new fad that would blow member’s minds Sir….we are already working successfully with Commission models where the States have facilitated the creation of arms’ length structures such as the Youth & Arts Commissions.  Education Sport & Culture have supported the set-up of the fantastic new facility Bright Beginnings at the old St Sampson’s Infants school, by providing the charity with the premises free of charge. From there they will deliver a variety of services to our island families. An initiative with identifiable outcomes which translate into savings and which would have been very expensive for the States to fund directly.

The States have also looked at and still not been brave enough to enter into social impact investing – and this is such an easy one for us here, given our local financial services – this would be a viable alternative way to fund the Overseas Aid Commission perhaps? Some low hanging fruit as they say, which would help us fund programmes such as MESH for maternity services support families in need and crisis.

Some of us have been involved with the Chamber Social Impact Investing sub-group and the work that they are doing trying to raise awareness and to introduce this to Guernsey so I am surprised that we are still running shy of more sustainable, less burdensome and more creative ways to provide services to the public which are facilitated by government rather than directly delivered by government.

I hope Sir that I have highlighted for Members that there are alternatives to the measures listed in this Amendment which exist here and now in Guernsey and already used by the States and that they support me in voting against the inclusion of these proposals in the plan.”