Last week, Express published a letter by reader Peter Rose, which questioned whether Guernsey had a real financial black hole or needed GST.
Another reader has written in to question Mr Rose’s logic – so here’s his letter in full.
Peter Rose’s recent letter entitled “States funding shortfall is fake news” raises legitimate concerns about States forecasting credibility and the need for broader fiscal reform, but it rests on a dangerously complacent reading of Guernsey’s structural position. Its core arguments are undermined by demographic and financial realities it either underweights or ignores.
Is the £50m shortfall “fake news” or a real structural problem?
Firstly, he dismisses the current estimated annual shortfall, now put at around £50m, and projected to grow to approximately £80m by the mid-2030s, as “fake news,” which is rhetorically effective but analytically thin. That the shortfall is currently lower than earlier headline figures reflects higher-than-expected Pillar 2 receipts and a generally better-than-anticipated financial position; it does not undermine the structural trajectory. The financial shortfall derives from the States’ own demographic modelling: projected population changes over 20 years, driven by a rising over-65s population as islanders live longer and have fewer children. Policymakers across the political spectrum broadly accept it as directionally correct.
Secondly, he cites the swing from a £23m budgeted deficit to a £61m surplus in 2021 as evidence that forecasts cannot be trusted. But a single year’s outperformance, heavily influenced by post-COVID rebounds and one-off factors, does not invalidate a 20-year structural trend. Confusing cyclical volatility with structural trajectory is a significant analytical error.
The demographic risk is Guernsey’s Achilles heel
The letter’s most serious weakness is its failure to engage with Guernsey’s demographic challenge. Official projections show the working-age population declining at 0.4% per annum, requiring net immigration of 200–300 people annually just to hold the workforce steady. Over 20% of the population is already aged 65 or over, and that share is rising.
He suggests a shrinking workforce would also shrink States costs, which is superficially logical, but wrong. Healthcare, long-term care, and pension costs do not fall with a declining workforce; they grow, because an ageing population consumes far more of those services. Indeed, the estimated cost of providing like-for-like health and social care to a growing older population is around £5m above inflation year on year, just to maintain current service levels. Revenue falls while expenditure rises. That is the definition of a structural deficit.
Near-total reliance on income tax is the core vulnerability
Peter Rose also does not address Guernsey’s most fundamental fiscal risk: 77% of government revenues come from income-based taxation, a figure that includes social security contributions alongside personal and corporate income taxes. That proportion is far above the international norm, and it makes the island acutely vulnerable to employment and earnings shocks. In an ageing economy, this is a structural trap. As the workforce shrinks, the income tax base contracts on two fronts: fewer workers paying tax and rising numbers of retirees contributing far less. Rose himself notes that wealthy residents “living mainly off their savings contribute little or nothing,” but treats this as a secondary observation rather than the central flaw it is. A revenue engine designed to stall cannot power a growing elderly population.
Rose is right that GST alone is not the answer, but for the wrong reasons
The argument that the GST campaign was poorly executed has some merit, and the newly elected States clearly reflect genuine public scepticism. But, Peter Rose’s implicit conclusion that Guernsey can afford to wait, is more dangerous. The States’ own November 2024 tax package, if approved, would raise only around £50m per year, which is less than the projected long-term shortfall. Every year of delay worsens the demographic starting position from which reform must eventually begin.
Alternative Revenue Measures Deserving Serious Consideration
Peter Rose acknowledges that broadening the tax base is necessary but offers little in the way of alternatives. Several mechanisms deserve policy attention:
Land and Property Taxation. Guernsey’s property market has seen significant appreciation yet remains lightly taxed. A land value tax or enhanced document duty would capture wealth accumulation rather than income, and is harder to avoid.
Corporate Tax Broadening. Broadening the 10% element of zero-ten and applying GST to commercial property have already been debated. Many financial services profits are effectively untaxed at source under the zero-ten regime.
Pillar Two (Global Minimum Tax). Expected to increase corporate tax revenues, though likely insufficient to offset demographic pressures alone.
Wealth and Capital Gains. A modest capital gains or investment income surcharge — carefully designed to avoid capital flight — could address the anomaly Rose himself identifies without GST’s regressive impact.
Tourism and Environmental Levies. Bermuda, Cayman, and the Isle of Man use visitor levies and environmental charges to broaden the effective tax base beyond resident taxpayers.
Conclusion
Peter Rose makes some legitimate points, but his letter overreaches in suggesting there is no urgent structural problem. The demographic trajectory cannot be wished away by pointing to a good year in 2021. The working-age population is projected to fall steadily, the dependency ratio to rise, and the total population to decline to around 60,000 by 2065, all of which will compress an income tax base that already accounts for 77% of public revenues, far above international norms and heavily exposed to employment and earnings shocks.
Calling a structural deficit “fake news” does not make it disappear; it simply ensures that when it arrives in full, it arrives unaddressed. The real question for Guernsey is not whether to act, but how to design a broader, fairer, and more resilient revenue system before the demographic window for manageable reform closes. GST would effectively spread the tax load and significantly rebalance Guernsey’s lopsided and vulnerable tax structure. Every year spent debating whether the problem is real is a year not spent building the solution, and in an island ageing as fast as this one, that is a luxury we no longer have.
Yours sincerely,
Rupert Dorey
