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Policy & Resources Committee responds to Independent Fiscal Policy Review

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Monday 29 January 2018

An upwards restatement of GDP does not mean there is more money available for the States to spend, the Policy & Resources Committee has said in response to the Annual Independent Fiscal Policy Review 2017.

The authors of the independent review, published on Friday, said the revision of GDP from an original £2.4bn in 2016 to £2.86bn following improvements made to the methodology by which it is calculated, presented an opportunity for Guernsey to revisit the debate on the size of government.

The States of Guernsey's Fiscal Framework establishes that government revenues will not be greater than 28% of GDP. Following the restatement of GDP, the States of Guernsey's revenues are currently 21% of GDP, which is low relative to international norms and other similar off-shore finance centres.

Deputy Gavin St Pier, President of the Policy & Resources Committee, cautioned that any moves by the Assembly to increase government spending could only be met by higher taxation.

He also stressed that the 28% of GDP figure in the Fiscal Framework was an upper limit, not a target.

'It is important to highlight that the economy hasn't changed as a result of the restatement of GDP, it is the data that has changed. There is no new money.

'As such, while there may be political appetite in some quarters to increase the amount we spend on public services, as a result of the new GDP data highlighting that the government's share of the economy is low, the only way any higher spend can be funded is by higher taxation.

'We can increase investment in public services without increasing the overall amount of government spending. This can and will be achieved by the continued focus on public service reform. We have seen significant progress in the last year in particular; for example what was the substantial task of vacating both the former Education Services base at Grange Road House and Income Tax in Cornet Street.

'At this stage, the Policy & Resources Committee remains to be convinced that such action is necessary for the States to meet its strategic objectives. The 28% of GDP in the States' Fiscal Framework is an upper limit in terms of the amount of revenue government generates via taxation; it is not a target we should be aiming for and it remains the intention of P&R to take no more tax off the hard-working Guernsey public than absolutely necessary.

Deputy Lyndon Trott, Vice-President of the Policy & Resources Committee, said:

'Notwithstanding P&R's position on the need to refrain from increasing taxes unless essential to do so, as stated by the Committee in December when the new GDP figures were published we are, as a result of the GDP restatement, reviewing the implications for States of Guernsey policies and will report back to the Assembly in June with any recommendations.

'In the meantime, I am pleased that the authors of the report have recognised the value of the planning process undertaken through the Policy & Resource Plan and the Medium Term Financial Plan. They have also acknowledged that the States' finances have improved as a result of fiscal responsibility and discipline.'

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