I was interviewed by BBC Radio Guernsey yesterday and they then put up a feature on our discussion. It does seem that several people have already commented on the fact that I described Guernsey's tax strategy as a "strange economic policy", but I'm bemused as to how else a rational, third party observer could describe it. For those in doubt the main features are:
1. The current corporation tax rate of 20% is halved for banks and finance companies (who pay most of it) and abolished for everyone else;
2. Import and other duties are increased;
3. Employer social security costs are increased substantially, at short term cost to them and long term cost to the people of Guernsey;
4. Some local income tax reforms will have a cost for the people of Guernsey, but not if they own companies – where they can now shelter their income at their pleasure.
OK, I accept that’s a simplification – but it’s the core of the issue. And the reality of this is that:
1. This is a massive subsidy for the banks and their rich clients;
2. It shifts the tax burden off the well off of Guernsey onto the less well off.
But most dramatically it leaves a “black hole” of £50 million a year in Guernsey’s income. It hopes that economic growth will fill this gap. So let’s face some realities:
1. Guernsey has not seen 4% growth or more (as is needed) for a generation or more;
2. Nor has its neighbour, Jersey;
3. Nor has the UK;
4. In fact, immigration aside nor has just about anyone else in the developed world – and immigration is heavily discouraged in Guernsey;
5. Guernsey’s new tax package is probably less attractive than Jersey’s, or the Isle of Man’s.
None of which bodes well. In fact, Guernsey is planning to subsidise its one, failing, industry to the tune of a quarter of its retained worth in the next two years at least, and for maybe longer. Which made it fairly easy for me to predict it is pursuing o policy of going for broke – which in this case means going bust.
It says it has the option to introduce new taxes in due course. I doubt it. These will take two or three years. We have seen a couple of tax havens go broke before and give up the trade – Nauru and Niue in particular. I think Guernsey could be the next. When you put all your eggs in one basket, and that basket leaks tax as much as the finance industry does, you will go bust – and Guernsey looks like it will prove it.
PS Accountancy Age give the story another go here.