The Policy & Resources Committee has put forward its 2025 Budget which includes proposals for a two-year ‘temporary’ 2p rise in income tax.
In announcing the Budget, the Committee’s President, Lyndon Trott, nobly declared that going into an election year it would have been easy for the committee to produce a ‘steady as she goes’ Budget, but that doing so would have been irresponsible.
With a heavy heart and no doubt with sorrow in his voice, he explained: ‘We cannot in good conscience knowingly leave public finances in such a challenging state for our successors to pick up’.
He went further. He heralded the Committee’s proposals as ‘a Budget for tomorrow – a budget for infrastructure’ and one that would permit, and encourage, investment in the island.
All very noble. But -- and while I have no doubt that Deputy Trott believes every word he’s said – he's forgotten two things. First, that Guernsey’s prosperity is founded on the very opposite of what he is proposing, and second, that the history of ‘temporary’ tax rises is not on his side.
Take the case of income tax in the United Kingdom, for example. First introduced as a ‘temporary’ tax to fund Britain’s efforts in the Napoleonic Wars, the tax was reintroduced -- again on a temporary basis -- in 1842 to pay for reductions in customs duties and cover a swelling financial deficit. The tax remains with us to this day, and sadly shows little sign of abating.
A more recent example came two years ago. Under much pressure, the Conservative Government announced a temporary windfall tax on oil and gas companies following the invasion of Ukraine. Since its introduction, the tax has been expanded and extended. It is now scheduled to continue until at least the end of the decade. What was meant to be a response to extraordinary, excess profits has morphed into just another way to fund further public spending.
Nor are ‘temporary’ tax rises unique to the UK. In 1991 the German government announced a ‘solidarity surcharge’ as an additional income tax that was introduced after reunification to finance East German reconstruction. It was sold a as a ‘temporary’ charge. Today, more than three decades later, and with the tax having raised over €330 billion, policymakers in Germany show little appetite to rescind it.
The States’ proposed increase in income tax is a symptom of a wider, sloppier approach to fiscal discipline. Take for example its increase to Document Duty on buy-to-let properties in November 2022. From my conversations with industry, sales have been hammered (down by as much as 300 per cent according to some estimates) and the tax take from those operating in the sector proportionately affected. Small businesses in the lettings sector are urging the States to revise their decision and offer some much-needed respite.
As Margaret Thatcher, whose low tax and liberalising agenda Guernsey has much to be grateful for, said: “Pennies do not come from heaven. They have to be earned here on earth.”
Indeed, rather than depending on taxpayers and businesses to fix the problem with more of their own money, the States should first address glaring inefficiencies in their own spending. Take the issue of overspending on large-scale IT and infrastructure projects. The new patient records system being rolled out has not only been delayed but its cost has spiraled, already tracking an overspend of more than 28 per cent on its original budget. These delays disrupt the very health services they are meant to improve, causing frustration for both the staff involved and the public alike.
The £30 million overspend on the extension of Princess Elizabeth Hospital is a symptom of this wider problem with the States and its handling of large projects. This kind of fiscal mismanagement breaks down trust between the States and taxpayers who continue to see their financial contributions being poorly spent.
Given this record of delivery, can taxpayers be assured that the ten-year IT transformation announced in 2019, at a cost of around £200 million, will not go over budget?
Meanwhile, the recently approved secondary education reforms are expected to cost £160 million, a figure that doesn’t even account for the overspends we so regularly see from large projects. Nobody argues against ensuring that Guernsey has an excellent education system. However, if these reforms follow the same pattern we’ve seen, the intended benefits could soon be overshadowed by growing costs. When these projects spiral out of control, it’s the taxpayer who foots the bill, time and time again.
Beyond these large-scale projects, there remain pockets of spending that few in Guernsey support but continue to be afforded whilst taxes are being increased. Take the millions spent on consultants for policy advice, audits and project management. While consultants are intended to lend their expertise, their involvement in the Island’s projects hasn’t yielded visible results. Instead, their fees add to the growing costs of government.
Given the record of project cost overruns, the resources spent on these experts don't appear to be good value for money. Nonetheless, according to the 2025 Budget 2025, spending on consultants is set to increase from last year.
Raising income tax should be a last resort for the States, not the first. The deficit in the States’s finances is not the fault of Islanders and taxpayers but a symptom of chronic overspending.
Before asking islanders to pay more of their money to the States, it’s time for hard choices to eliminate inefficiency and streamline spending. After all, the reality is as esteemed economist Milton Friedman said: “Nothing is so permanent as a temporary government program.” Deputies should reject this proposal.