The latest package of proposed tax reforms is “more rounded”, according to Guernsey’s most-senior politician.
Express sat down with Deputy Lindsay de Sausmarez, President of Policy and Resources, to ask her some taxing questions about tax.
GST was going to be 5%, now it’s 3% – is P&R flip-flopping?
Deputy de Sausmarez rejected the idea P&R was “flip-flopping”, saying she’d never supported the proposals from the last States to introduce a 5% goods and sales tax as part of the GST+ package.
She said the new States had committed to keeping the old package until a viable alternative existed, but had also promised to explore all options, leaving “no stone unturned”.
Deputy de Sausmarez said P&R had engaged with businesses to understand their concerns and the practical issues they were facing, and that had “informed” the changes.
She praised Deputy Charles Parkinson’s tax-review sub-committee, which had looked into the possibility of corporate tax reforms.
While the sub-committee ultimately concluded that changes to corporate tax couldn’t plug Guernsey’s financial black hole, many of the recommendations were being worked into the new package, she said.
Deputy de Sausmarez told Express: “Our package is quite different from the original, because it has many more strands to it.”
The proposals would blend GST with reforms to income tax and social security, reducing the tax burden for “median” income workers, she said.
There would also be tweaks to taxes on corporates, as well as changes to transport taxes, which were currently “really unfair and getting less fair by the moment”.
A lot of people will be pleased electric vehicles (EVs) are now going to be taxed, but why aren’t cyclists and electric bikes being taxed too if they use the roads?
Deputy de Sausmarez said there were no plans to tax cyclists, including electric bikes, as doing so was almost unheard of globally.
She said: “You will only find one country in the world that taxes bikes… and I don’t think they ever got around to implementing it because it was too mad.”
Previously, a 5% GST was supposed to bring in £50m, but now it’s dropped to 3% the figure is £55m. How can a lower tax bring in more money?
Deputy de Sausmarez said the two figures were not directly comparable as it was “not comparing apples with apples”.
She said the previous figure was net – meaning it excluded operational costs – while the new one was gross – so included them.
A 5% GST would bring in around £85m to £90m gross, she said, compared to £55m for 3%.
Despite bringing in less money, a lower GST would be fairer and the difference would be made up by other tax reforms being proposed, she argued.
She told Express: “Our package is a more rounded package… a broader and more resilient mix.”
Benefits and pensions are going up to ‘offset’ GST. Isn’t this another example of working people being squeezed?
Deputy de Sausmarez disputed the allegation it was unfair to increase benefits when working people’s wages wouldn’t be increased – either in the public or private sector.
A “median earner” in Guernsey had a salary of £42,600, but would take home about £1,250 more under the proposals, she said.
“As a working person, you are getting a significant tax break compared with now,” she added.
This would be driven by a higher personal allowance (£600 more), a new 15% tax band on earnings up to £28,000, and changes to social security allowances.
Overall, the average working person would be better off as the “tax break” would outweigh any increase in prices because of GST.
Because they’d be better off under the new rules, civil servants would not be getting an extra pay rise, she explained.
“You’re getting a tax break, basically.”
The package was “designed to protect low‑income households”, which was why people on benefits and pensioners get more money, because they wouldn’t benefit as much from tax cuts.
Rich people can cap their tax at £50k or £60k, compared to £250k in Jersey. Will you be increasing this?
Rich people moving to Guernsey who buy a suitable Open Market home can cap their tax at £60,000 on all their earnings for four years.
Similarly, “internationally-mobile” people who opt to be here for between 91 and 182 nights can cap it at £50,000 on their non-Guernsey earnings.
Deputy de Sausmarez said increasing the tax cap for high-net-worth individuals was not on the agenda as part of the proposals.
Instead, it would be treated as a “budget measure” by the Revenue Service as part of their normal operations.
Innovate Guernsey recently called on the States to increase the cap to between £100,000 and £150,000 as this would increase revenue but still keep the island cheaper for wealthy people than its direct competitors.
Although Jersey’s equivalent tax cap is nearly five times higher – with the Isle of Man closely behind at £220,000 – Deputy de Sausmarez said it was important to “be mindful of our overall competitiveness effect”.
How much will GST cost the civil service and businesses to implement?
Deputy de Sausmarez said the States had already factored in the cost of introducing GST, including both ongoing administration and one-off setup costs.
She said around £2.5m had been set aside for annual administration, while one-off implementation costs – including IT systems – were expected to come in at around £10m, with contingency built in.
“The biggest impact is around Border Control and Customs… [they are] likely to need some more people,” she added.
Despite that upfront cost, she insisted the tax would quickly cover its own introduction.
“It more than pays for itself in year one in terms of income.”
Businesses had raised concerns about the cost of adapting systems to handle GST, but Deputy de Sausmarez said the States had “budgeted some support” to help them adjust.
She added that officials were working with industry to determine what that support should look like.
Why do people in Guernsey earning a normal PAYE salary have to file a tax return, when they don’t in the UK?
According to the Gov.gg website: “Anyone living in, working in or receiving income from Guernsey is required to complete a personal tax return each year unless they have been advised, in writing, by the Director of the Revenue Service that they no longer need to complete one.”
By contrast, in the UK the default position is that ordinary working people are assumed not to need to file a tax return, unless they’re self-employed or have complex tax affairs or investments.
When questioned whether Guernsey’s approach was efficient, especially considering the tax backlog, Deputy de Sausmarez said: “I think what you’re talking about is automatic assessments, and that already happens.”
However, she would be giving “an update on Revenue Services and the recovery plan in the next States meeting (23 June) – and I think those questions are probably going to be better answered then.”
She said: “I know it feels like it’s a tax reform thing, but it’s not.
“That’s just business‑as‑usual Revenue Services, so it’s not part of this package.”
Deputy de Sausmarez said P&R had given “careful consideration to the impact on Revenue Services” of any changes and was “confident that is all manageable”.
You say there will be £20m of savings. Will teachers and nurses be sacked or will you just be making efficiency savings?
Before the latest recommendations were published, Deputy de Sausmarez had already admitted there was “no choice but to look at spending”.
This may have left some civil servants and other public sector workers nervous about their jobs.
However, Deputy de Sausmarez reassured them that there were no plans to cut staff, either from the civil service or “frontline” staff – like teachers, nurses and police officers.
“We feel very strongly [the savings] should be about genuine efficiencies, not expenditure reductions which are going to impact frontline services,” she said.
Instead, she argued the savings would be made through finding cheaper ways to deliver the same services, pointing to measures such as digitisation and automation.
She used the example of “labour-intensive, time-consuming” processes such as rostering in the health sector, which would be made more efficient with the installation of new “e-rostering” software.
So does this mean the States will spend £20m less next year or the year after? No.
Firstly, the savings are actually under £7m a year until 2029 and will be £20m after this.
Secondly, P&R isn’t promising the States will spend less.
In fact, it’s actually likely to spend more overall.
Deputy de Sausmarez argued that if nothing changed costs were going to rise by a lot, because of factors like an ageing population and increasing prices.
The difference is that now spending was not going to rise by quite as much.
Deputy de Sausmarez said demand was “going up”, with spending on health alone rising by “about £5m a year – year on year”.
“So, every single year it costs us more to deliver exactly what we’ve been delivering this year, because demand is growing – because we’re getting older – then that puts into context the fact that we can bank £20 million of savings.”
This is why it was unlikely the States would reduce the number of civil servants, but instead could have the same number of staff “delivering more”.
“The status quo is that demand is rising… so it’s not a static baseline,” she added.
However, Deputy de Sausmarez said there was scope for individual committees to look at making targeted cuts to services where they felt this was necessary, through a mechanism called “priority-based budgeting”.
Committees could look at “whether a service needs to be provided at all, whether something needs more focus while something else is dialled back”, she said.
So should civil servants be nervous about losing their jobs?
Deputy de Sausmarez’s answer? A very to-the-point: “No.”
She said Guernsey had a “very small public service” compared to “pretty much anywhere else per capita”.
“So there’s not nearly the sort of fat that many people imagine,” she added.
The bottom line is that the public should not expect the States to spend less money – despite the purported savings – and neither will it be making significant cuts to the civil service.
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You can read Deputy de Sausmarez’s full interview exclusively in Express.
