Policy & Resources Committee warns Deputy Parkinson amendment will create significant uncertainty while failing to secure funding for essential services

Friday, 13 January 2023

The Policy & Resources Committee is urging members not to support an amendment to the Tax Review recommendations led by Deputies Parkinson and McKenna, warning it would lead the Island into a position of enormous annual shortfalls before any significant measures can be brought in place.

The amendment proposes to only pursue one option, which is already included in the Policy & Resources Committee’s recommendations.  This measure would, according to an independent review of Corporate Tax options, generate at most £20m which is far short of the amount needed to address the annual shortfall, and in addition it carries significant risk for Guernsey as a financial services centre.

The amendment would see no significant revenue raising options explored until 2029, meaning there would be no possibility of introducing measures until the 2030s.  The forecast shortfall will reach £100m every year by 2040.

As well as delaying any real revenue raising measures, the amendment proposes moving to a territorial tax regime.  The Policy & Resources Committee is already committing to developing corporate tax reforms that could raise up to £20m as part of its recommendations, but to do so in consultation with industry and the other Crown Dependencies.  A territorial tax regime is one of the options it will continue to explore, however it will be mindful to consider the Island’s competitiveness, recognising the risks identified in the EY report. As one example of the risks highlighted, this option would likely trigger a reassessment of Guernsey by the EU Code of Conduct Group and/or OECD Forum on Harmful Tax Practices.  This period of review could be considerable creating significant uncertainty and drive businesses away.  For these reasons, the Committee is extremely concerned about proceeding with this option without very careful discussion with other jurisdictions and local business.

In addition, by deleting the Policy & Resources Committee’s proposals in relation to Social Security, the amendment would leave in place the ten-year programme of escalating social security contributions.  Because such contributions currently apply to all of the earnings of anybody earning more than £8,500, this would disadvantage those on modest incomes.  By contrast the Committee’s proposals would introduce a significant social security personal allowance, reducing the burden on low earners.  The amendment would also delete the proposal for a 15% income tax band on earnings up to £30,000. Taken together these two measures will make people on low incomes much better off, but both benefits will be lost if the amendment is passed. Therefore it is clear that the amendment would significantly disadvantage those on modest incomes. 

Deputy Peter Ferbrache, President of the Policy & Resources Committee said:

“This amendment will be enticing to those who will oppose any package that includes a GST, even if that package will mean low and middle-income earners are better off as is the case with our recommendations.  That is a real concern for us, as it leaves us with no way of meeting the growing shortfall in public finances and funding essential services and I’m appealing to States Members not to support it.”

Deputy Mark Helyar, Vice-President of the Policy & Resources Committee

“We are in favour of raising more revenue from businesses through changes to corporate tax, that’s why our own recommendations include developing those options.  We recognise Deputy Parkinson’s preference for a territorial tax regime and that’s why we asked EY to investigate it.  But we need to be very careful in how we continue to explore this going forward so that we don’t create so much uncertainty that we damage the very sector that creates most of the jobs in the Island, and drives our economy.  If we proceed headlong down this road, it could put question marks over our credibility as an international finance centre, and we could do irreparable damage and ultimately the shortfall in public finances will be even greater.”