I have for a long time said Guernsey and will go broke over the next few years because of the black holes in their budgets as a result of their introducing 0% tax rate on non-resident corporates’ profits, on which until 2008 they were heavily dependent. They had to do this because of competition from the Isle of Man, which could of course afford a 0% tax on corporate profits because of the £200 million (or more) subsidy it receives from the UK Exchequer each year.
Now Tax-News.com reports:
Guernsey’s Treasury and Resources Department is taking draft legislation for a General Sales Tax to the States for approval this month. The government has however insisted that it does not seek to introduce a GST, but instead is merely considering its options.
So the burden of tax is, once again, being transferred from the tax avoiding corporate community onto ordinary people.
What is clear is that this is unsustainable. Of course a modest GST could be imposed in Guernsey, but let’s be clear, the capacity to do so is limited, not least because the cost of living in the Channel Islands is already very high and at some point people in Jersey and Guernsey (and Cayman and elsewhere) will reject the option of being a tax haven when the pressure upon them for being so becomes to great.
This GST in Guernsey is another step in that direction. Tax haven’s days are numbered.
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Richard
Are you seriously trying to say that the introduction of a GST will result in making Guernsey such a high-tax jurisdiction that the locals will revolt ? Give us locals some credit please ! 20% income tax, no CGT, no IHT and no consumption taxes do date – still a very attractive regime to reside in even if we now have to accept a GST. Compare the alternatives on our doorstep in the UK and France. We are not stupid ! The only reason a GST/VAT hasn’t come in before now is because we simply haven’t needed it. We may well need it now, but its not as though there is no headroom to allow for it.
You quite rightly mention a high cost of living. But that’s a relative point. Incomes are generally high and the standard of living is also high. There is some but very little poverty (and that’s also a relativity point), but some perspective is important. What the introduction of a consumption tax will do is expose those retailers locally who charge UK mainland prices and argue that the VAT “saving” is offset by freight costs (which is garbage). Its just sheer greed on the part of the retailers and they will have to adapt accordingly.
But the island is not going bust – its addressing years of overspending and unaccountability of the States of Guernsey, and is creating a new stream of government revenue to help balance the books in today’s economy.
The only surprise to me is the introduction of consumption taxes didn’t happen several years ago but if there was no need for it before, why bother ?
A GST rate of just 5% would collect around £50m a year. It doesn’t currently need any more than that. It hardly results in a high-tax system with the locals being squeezed in every direction. Locals are only too aware of what’s happening in the UK re. the tax burden and we are light years away from that.
Would you say that a business was going bust when it had such obvious untapped revenue-producing capacity ?
Dear Mr Murphy,
It is interesting how you report selectively on the tax affairs of the Channel Islands.
By contrast I see no mention of the story reported on the 5th of June that in 2008 the State of Guernsey’s budget was in surplus to the tune of £48 million. Not bad for the year which contained the worst financial crisis since the great depression. It also is the first full year of the zero/10 strategy and was well above the forecast result.
So what is this black hole to which you refer. From where I see the government finances they are in surplus.
Barwick
Why the contingency plan then?
Like Rupert, why do you continually sell such misinformation?
Richard
I would have thought the fact that the UK is spending £4 for every £3 it takes in tax would be rather more concerning to the average reader of this blog.
It is funny that people believe that Channel Islanders will revolt at the introduction of GST at the rate of 3 or 5 percent while those in the UK will accept its rise to 20% following the next general election without a whimper.
Perhaps the real lesson, which Richard fails to understand, is that people don’t like paying taxes. Even less so when they are used to fund the “New Committee on Democractic Renewal” or whatever Orwellian term Gordo gives to his latest pet project.
Paul
You too appear to be living in fantasy land
£4 to collect £3 of tax? Have you read HMRC’s accounts?
You clearly can’t interpret data
Which puts all the rest of what you write into context
Richard
“Why the contingency plan then?”
Are you for real?? why do people save and not spend every penny they have, why do people have pensions? You are an ACA surely you can see the benefit of prudence.
It would be very remiss of any government to not have Contigency plans in place, you are funny sometimes 😆
Creg
Get real: it’s because they know they need it. And that’s because the economy is in deep trouble.
You may not have noticed this, but there is a crisis in financial services with much less tax being paid. Please don’t pretend Guernsey is exempt. It’s business model to fill the tax gap required massive growth, and that is not happening.
Richard
I didn’t say anything about there being no contingency plan, just that there was no black hole in the government finances your claim is the one that is wrong and misleading.
It is not misinformation that I am spreading you can locate the Guernsey budget at this web site:
http://www.gov.gg/ccm/policy-and-hr/billets–resolutions/2009/june/billet-dtat—xvii-2009-june.en
See page 1 for the letter from the T&R minister where he points out that revenue was up £43 million while expenditure was down to £297 million.
That looks like a surplus to me, not bad during the largest economic downturn since the great depression.
Where is the black hole that desperately needs filling?
You could refer to the statement of the Treasury Minister made on 8 June. I extract it here in full so that it cannot be misinterpreted:
“The Treasury and Resources Department is taking draft legislation for a General Sales Tax to the States for approval this month — but that does not mean it is seeking to introduce a GST.
In June 2006 the States debated and approved the Policy Council’s Report on a ‘Future Economic and Taxation Strategy’.
One of the resolutions arising from that debate was ‘to direct the Treasury and Resources Department to investigate a system of goods and services tax, including that introduced by the States of Jersey, and to direct the preparation of the necessary enabling legislation’.
The Department is only presenting an enabling law. If the States decides to introduce a GST at a later date, this could be done, following a debate on the detail and the subsequent preparation of an Ordinance to this law. It could even be possible to structure a system broadly compatible with the system introduced in Jersey.
Treasury and Resources Minister Deputy Charles Parkinson said: ‘I don’t want the appearance of this legislation to take anyone by surprise. Its publication does not mean a decision has been taken to introduce a GST.
‘The States have previously directed my Department to prepare an enabling law and it is a sensible move if the States have, at some stage in the future, to introduce such a tax.’
The States would only introduce a new tax after consideration of a detailed report, which would make recommendations on issues such as the rate of tax to be applied, proposed exemptions and collection methods.”
Barwick
If you really think governments create laws they have no intention of using you are very gullible
And the only reason Guernsey needs this is that revenues may have been good in 2008, but those receipts do, I expect, relate to 2007
You may have noticed recession began in late 2007
They know what’s going to hit them (or rather, what won’t hit in the way of tax)
I’m sorry – you’re in denial and it is very clear that on this issue I am right, and always have been
Richard
Richard
Re your response to Creg, you miss one key point. Guernsey first tried to fill the tax gap without raising taxes, always knowing that it could fall back on raising taxes if it needed to. A global recession followed, and so the fallback plan can now be called upon. The point is that we had a Plan B, unlike the UK, which simply went ahead and raised taxes despite the public already being taxed to the eyeballs. Guernsey also has considerable reserves and no debt. Rather unlike the UK. If Guernsey is broke then you’re using a very different definition to any that I know of.
Just to spell it out – if Guernsey was to lose a further £100m of annual tax revenue then it could easily replace it overnight with a 10% GST. Seems perfectly reasonable to me.
Paul’s comment above is quite right…of course nobody likes paying more tax, given the choice.
Richard,
I can only presume you are being obtuse. When I said the UK is spending £4 for every £3 it takes in tax, I meant just that: I did not mean that HMRC spend £4 for every £3 in tax they recover. I meant that the government spends £4 for every £3 it receives.
It may surprise you, but beyond the world of tax, tax avoidance and tax collection there is a real economy.
If Guernsey has a black hole because it may need to introduce GST at 5% in order to balance the books, where does that leave the UK? Oh yes, owned by China, with debts that generations will not pay off. Now, that’s what I call a black hole.
Paul
I was not seeking to be obtuse: I genuinely misinterpreted your comment
But your comment still makes no sense. Of course I’m aware there is an economy out there. As a Keynsian what is happening in the form of deficit funding is entirely logical, defendable and indeed the only rational course of action.
I guess you’d have been in that group who’d have stood by and watchd the Irish die in the 1840s.
Intervention saves lives, economies and pays for itself. Try reading about the multiplier some time.
Richard
Yes Barwick, this tax take relates to previous years, a fact admitted by Parkinson. I had the impression he wasn’t really talking it up because it’s known that it doesn’t have much bearing on anything.
Guernsey doesn’t even have any decent accounts. There are never any ‘informed’ projections. The whole tax strategy was sold to the public using hysteria and fear. Threats that banks would leave and go to Jersey and IoM and that Guernsey’s reputation would suffer made it appear that Treaury ‘minister’, Deputy Trott was on top of the situation and that with the projected growth of 6%, which just happened to be the growth needed for phase one of the transition to break even, and the influx of new business caused by our sudden sharp, competitive edge, then phase two would be met with a beefed up finance industry, high on the continuous growth theory straight out of the mouths of the gods.
It couldn’t have gone worse, really. GST is inevitable with the current thinking so entrenched. It will be deeply opposed.
Rupert believes there is no absolute poverty, that’s probably nearly true. There are some folk here with absolutely nothing but not many. But there are a significant number that could not survive without state aid, and those VERY close to the brink. Since there are only 400 people unemployed there can only be one cause. The high earners have distorted all markets out of the reach of the average. The lifestyle is fueled by credit, increasingly, though the measure of the general wealth of Guernsey is reflected in its low debt-per-population.
Guernsey was shut because the dreadful thought that airport firefighters could want to earn more than £21k and not have to work compulsory overtime led to a reluctant strike. The dispute was ongoing for nearly three years. The States did not want to pay essential workers a wage high enough for them to be competitive within the consumerist system. That’s discrimination.
Put it this way. Deputy Parkinson is pleased that Guernsey was ’11th on a list of desired locations for the mobile rich’ (Guernsey media, today). Stop laughing, now, it’s true. 11th. He says he’s happy. This is despite reducing the tax cap to £200k max, removing tax on non local tax dodging vehicles, resisting raising the social insurance cap etc etc. But get this, he’s ‘concerned that Jersey is sixth because of the better transport links’ (paraphrased). So, with the backdrop that Guernsey’s economy requires Guernsey to be DROP DEAD GORGEOUS to the ‘mobile rich’, which includes having an airport that actually goes to useful places, which requires having a fire service able to handle bigger catastrophes than they are able at present, the States of Guernsey ROUTINELY ignores the fact that its essential workers are struggling through life and treats the whole concept of social justice like some imported noxious weed.
Rupert says it all by suggesting introducing a regressive tax to fill in the mistakes from failed businessmen. Make a few more bad decisions, doesn’t matter, a few more percent, cheers. All the time crowing “there’s no IHT, there’s no IHT!”, and patting your chums on the back. Oh, I imagine a response would be, bring in tax credits, JUST DON’T TOUCH MY PILE.
Still waiting for that trickle down, guys. Fraudsters.
With ref to Paul’s comment, Martin Wolf, FT 5th June: This financial year, the UK government is forecast to spend £4 for every £3 it raises.
Richard
I don’t deny any of what you say. My simple point is that if a society with small reserves introduces GST at a rate of between 3-5% is described as being “unsustainable” and with a population at the point of mutiny, how would you describe the UK?
We all know that VAT will be increased to 20% after the election. According to Hamish McRae in the Independent today (http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mcrae-the-growing-publicprivate-divide-1701051.html) the tax take in the UK last year was 36% of GDP and falling whereas the projected public spend next year will be 53.4%. At some point, that has to rebalance.
I think the crux is that we need a new model to fund society. I hope it is based on a green, sustainable, local based approach. It is a crying shame that for all of Gordo’s initiatives, very few of them ever seem to be implemented and those that are simply don’t address the problem. It is absolutely clear, for example (as you have said) that every unemployed builder in the UK should have been employed over the last 6 months to fit insulation to houses. That is not a complicated or controversial idea, and yet it doesn’t seem to be happening.
But I simply think it disingenuous to paint Guernsey as being on the brink when the position in the UK is far worse.
Paul, I suggest you investigate the potential of the natural, immobile tax base: land rent. See labourland.org, landvaluetax.org, theiu.org.