Guernsey’s Policy and Resources Committee has outlined three options to be considered for changing the income tax structure.
The Tax Review has been carried out against the backdrop of both immediate and long-term financial pressures. Its aim is to ensure that Government finances are sustainable and seeks to answer the question ‘If it is necessary to increase government revenues what is the best way to do it?’.
This project sits alongside other workstreams identified as a priority in the Government Work Plan, including those to reform public sector spending and encourage economic growth.
The Policy and Resources Committee has outlined the three following options that will be included in a policy letter published in August 2021 for debate in the States of Guernsey on 29th September.
Option 1
- Apply an income-based health tax at 3%; and
- Change the Social Security contribution system so that it is fairer and more progressive and use this to raise more money.
Option 2
- Apply a Goods and Services Tax (GST) that will gradually increase to up to 8% with mitigating measures to protect low-income households;
- Increase the personal income tax allowance; and
- Change the Social Security contribution system so that it is fairer and more progressive but without raising any more money.
Option 3
- Apply a Goods and Services Tax (GST) that will gradually increase to up to 5% with smaller mitigating measures to protect low-income households;
- Make a smaller increase in the personal income tax allowance; and
- Change the Social Security contribution system so that it is fairer and more progressive and use this to raise more money.
Each of the three options include the assumption that additional revenue will be raised through changes to the corporate tax system.
When published, the policy letter will ask the States to give direction on the key principles, after which, further development and engagement will take place before the final proposals are presented.
Deputy Mark Helyar, Treasury lead for the Policy and Resources Committee, said: “This Review is about making sure we are clear about how we should raise revenues, if and when we need to. It doesn’t mean we are going to raise revenue now, or even next year but we may need to eventually.
“Our current tax base is unsustainable. It is uncomfortably narrow with almost two thirds of our income derived from taxes and contributions charged against people’s income. The number of older people in our community is increasing and so is the volume of pensions and care services they need. We also need a long-term solution
to support investment in our Islands’ infrastructure – the borrowing agreed in the Funding and Investment plan will support our capital programme to 2025 but not beyond. Change is needed, but the question is, what will that change be?
“In presenting these three options to the States, we are one step closer to ensuring that we have a sustainable tax base. But at this point, none of these options are a fait accompli. It will be for the States to assess these three options and provide direction as to the path that we should take.
“This isn’t just about tax reform. This is just one part of the solution and we will also need to deliver on States’ priorities to accelerate the pace of Public Service Reform and promote economic growth. All three are necessary if we are to ensure the States can continue to provide the services our community rely upon.
