TAX ALTERNATIVES: The ‘original’ 5% GST+ plan

Policy & Resources (P&R) has repeatedly argued there are “no credible alternatives” to its own tax reform proposals, which includes a 3% GST.

So Express decided to test that claim, by looking at a series of other proposals.

Next up: GST+, the 5% GST package backed by the States Assembly in November 2024.

The big idea

GST+ was designed as a broad tax reform package rather than simply a standalone sales tax.

The centrepiece was a 5% Goods and Services Tax, intended to broaden Guernsey’s tax base beyond its reliance on personal income tax.

The package also included an additional 15% lower income-tax rate band, a restructure of social security contributions and other mitigating measures intended to offset some of the impact of GST on households.

The States Assembly backed the package in November 2024, directing P&R to finalise proposals and submit legislation for an integrated package of revenue-raising measures to be operative from the start of 2027. The proposition was carried by 20 votes to 15.

It was therefore not simply an alternative floated by backbench deputies.

It was the package the previous Assembly had instructed P&R to develop before the current tax reform debate moved in a different direction.

In P&R’s own words: What was GST+ supposed to do?

At the time, the last P&R argued that Guernsey needed to broaden its tax base and reduce its reliance on income-based taxation.

“Doing nothing is not an option. The structural deficit is real, driven by inescapable demographic pressures on healthcare and pensions, and it will only worsen if we fail to act.”

On GST, the case was that a consumption tax would bring in revenue from residents, visitors and spending by businesses, while allowing some of the burden on lower earners to be offset elsewhere in the tax system.

The previous P&R said: “Introducing a 5% GST allows us to broaden our tax base away from an over-reliance on personal income tax, bringing in revenue from visitors and corporate spend while protecting lower earners through increased allowances and a new 15% income tax band.”

It also argued that alternatives based on spending cuts, new levies or smaller tax changes would not generate enough recurring revenue.

The diagnosis: What is actually broken?

P&R’s argument was that Guernsey faced a structural funding problem, rather than simply a one-off budget shortfall.

An ageing population means fewer working-age people supporting an increasing number of older residents, while healthcare and pension costs are expected to continue rising.

That creates a problem for a tax system heavily reliant on income and employment.

GST+ was therefore intended to shift part of the burden towards consumption.

A consumption tax also captures spending by people who do not pay Guernsey income tax, including visitors and some corporate spending.

The underlying argument was that a broader tax base would make the public finances less dependent on a relatively narrow group of income taxpayers.

How the numbers stack up

The broad figures associated with the GST+ package were:

Measure	Approximate annual impact
5% GST	+£55m to +£60m
15% income-tax band / higher allowances	-£25m
Social security rate increases / restructuring	+£15m to +£20m
Corporate tax extensions / fee adjustments	+£10m
Net direct tax yield	~£50m
Planned public spending savings	~£20m

These figures should not be treated as a guaranteed £70m of new money.

The approximately £50m figure represents the estimated net direct tax yield from the package, while the £20m spending figure was a separate government savings target.

The two therefore should not simply be presented as £70m already available to spend.

The GST revenue estimate also depends on the eventual tax base, exemptions, behavioural responses and how much of the tax is passed through into prices.

Express scorecard: GST+

Question	Score	Our assessment
How much will it raise?	★★★★☆ (4/5)	Generates around £50m in net recurring direct tax revenue, making it a substantial response to the structural funding problem, although wider spending pressures remain.
How fast can it be done?	★★★★☆ (4/5)	Had already been approved in principle by the States Assembly, with P&R instructed to develop the legislation and implementation arrangements for 2027.
Will it help the economy?	★★☆☆☆ (2/5)	A 5% GST would increase the price of taxable goods and services, although the wider package included measures intended to offset some of the impact.
Is it fair to working families?	★★★☆☆ (3/5)	GST applies broadly to consumption, but P&R proposed a new 15% income-tax band, higher allowances and changes to benefits and social security to mitigate its impact.
Does it stop government waste?	★★☆☆☆ (2/5)	The wider package was accompanied by a £20m spending savings target, but GST itself does not impose a legal cap on healthcare or other spending growth.
Is it backed by hard data?	★★★☆☆ (3/5)	Supported by Civil Service modelling, although the underlying assumptions and model have been questioned and neither has been published. Note: If the modelling or methodology had been published we may have been able to upgrade this score.

Note: We are testing the proposals at a high level, looking at what they propose, the evidence and assumptions behind them, and how they compare with the P&R’s stated position. We are not independently modelling each proposal or assessing its full economic impact, as we don’t have access to P&R’s underlying tax models or data, so our analysis should not be read as an independent economic assessment of the potential revenue or wider effects of any proposal.

The catch

The obvious problem with GST+ is the same feature that made it attractive as a revenue-raising measure: it applies broadly.

A 5% GST would increase the price of taxable goods and services across the economy.

The precise effect on households would depend on what was ultimately included or exempted, how businesses passed the tax through and how the other parts of the package affected individual households.

P&R’s answer was that GST should not be considered in isolation.

The proposed 15% income-tax band, increased allowances and social security changes were intended to soften the impact, particularly for lower earners.

There was also a wider question about spending.

GST+ would raise substantial additional revenue, but it did not by itself impose a hard limit on how quickly government spending, including healthcare spending, could continue to grow.

The separate £20m savings target was intended to address that side of the equation.

The bottom line

GST+ was the previous States Assembly’s chosen route towards a broader tax base.

Deputies voted in November 2024 to direct P&R to develop the package, including a 5% GST, a new 15% income-tax band and social security reform, for implementation from 2027.

On P&R’s figures, it offered around £50m of net recurring additional tax revenue, alongside a separate £20m public spending savings target.

Its central strength was also its central weakness.

A broad consumption tax can generate significant recurring revenue from a wide range of spending, including spending by people who do not pay Guernsey income tax.

But that also means the tax is felt widely.

GST+ therefore provides a useful benchmark for the current debate: it was not merely an untested alternative floated from the back benches. It was a package the States Assembly actually voted to pursue.

The question now is whether the revised proposals being put forward by P&R can deliver the same underlying objective, with a smaller GST and a different balance of tax rises, savings and redistribution.