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Budget 2020: Guernsey on the cusp of a major challenge

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Tuesday 08 October 2019

The Policy & Resources Committee is today publishing the 2020 Budget Report. In doing so, it is drawing the attention of States Members and the community to the challenges faced by the Island in the coming years, and advising that a major review is needed to decide how the rising cost of public services will be met longer term.

The concerted effort by government over a number of years to deliver savings and financial restraint means Guernsey is well-placed to meet this challenge. But the scale of it, and the speed in which it is beginning to impact cannot be underestimated. This year a balanced budget is possible because of a recommendation to reduce the amount transferred to the Capital Reserve, which is safely manageable given the slower than expected capital programme. Pressure to address the sustainability of the Long Term Care scheme, demands for more access to NICE-TA drugs and treatment and the introduction of the Secondary Pension Scheme will all drive the cost of public services up further, on top of the increasing demand for existing services.

Deputy Gavin St Pier, President of the Policy & Resources Committee said:

"In recent years we have steadied the ship, delivering budget surpluses and savings with the backdrop of a growing economy and substantial reserves. We are in as a good a place as we could hope to be as these challenges become real and a very good place compared to so many other jurisdictions. We have increased the contributions from companies and created a more progressive tax system which asks those most able to contribute to take on a bigger burden in funding public services. We will take those measures further in this year's Budget, but we have to be realistic and recognise that we are running out of room to raise more revenue in this way. The government must continue to be responsible in its spending, but the truth is continued financial restraint, whilst still necessary, will not produce the kind of funding we need to meet the growing demands we face."

Guernsey currently raises revenues equal to 21% of GDP including personal and company income taxes, excise duties, property taxes and Social Security contributions. This is far below what the UK government raises which is 38% of GDP, or 53% of GDP in France. It is lower also than Jersey where the figure is 26%.

For the first time, this Budget will include figures breaking down the real cost of providing public services, and the contribution made by Islanders. Politicians and taxpayers need to have a realistic, informed debate on what services they want and how much they are prepared to contribute.

Deputy Lyndon Trott, Vice-President of the Policy & Resources Committee said: "It's important we all have a very clear understanding of the cost of essential services. Many people will be surprised to learn for example, that the revenue costs alone, of educating a single student in the States secondary system for a year, exceeds the annual taxes paid by the average islander. On average we pay around a quarter of our income in tax, in an increasingly progressive system. This makes us a low tax jurisdiction and I would prefer it if those conditions remained.

Across the course of their lives Islanders benefit from a huge range of public services. In most cases the total value of these services is greater than the amount they might pay in taxes and contributions. That is to be expected.  While part of this cost is sustained by other sources of revenue, such as tax on property, as the population ages and demand for services grows, this position is becoming unsustainable.

In my view, primarily due to changing demographics, we must all be prepared to contribute a little more on an annual basis or we will face even greater challenges, individually and as a community, in the coming years. The debate must be around what is fair, reasonable and proportionate. The issues will not go away."

The revenue raising and expenditure proposals for the 2020 Budget focus on the coming year. They are included in the 'Budget on a Page.' But the Policy & Resources Committee hopes it will start an informed public debate in the coming months, ahead of January 2020 when a revised 'Review of the Fiscal Policy Framework' will be debated. This policy letter will ask the States to decide what the new long-term aggregate limit on States' revenues should be, and will seek to formally kick-off a review of options for restructuring the tax system and raising additional revenues.

Deputy St Pier said:

"The public discussion we have between this Budget and the January debate on the new Fiscal Policy Framework will determine how able we are to provide the services Islanders need and expect. Getting this right is crucial to our future and it cannot wait any longer."


2020 Budget Report 2020 - Budget on a Page

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