The Guernsey branch of the Institute of Directors (IoD) invited its members to respond to a survey on the current tax review proposals published by the States of Guernsey on 28 November 2022.
The survey was created by the IoD committee to give members the opportunity to express their opinions on the proposals put forward. Just under 10% of the IOD’s local membership participated* and results show that 68% do not actively support abolishing the Zero-10 tax regime, 79% are not confident that the deficit figure quoted is an accurate and sound estimate upon which the tax changes should be based, and nearly two thirds of respondents would support an increase in corporate registry fees as the preferred corporate tax option (from the options set out by the Sates of Guernsey commissioned Ernst & Young report). Over 80% of respondents believe the tax burden should be shouldered more equally between corporates, individuals and the public service.
The structural deficit & who should fund the shortfall
- Over 82% of the participants agreed that the demographic changes to the island (lower birth rate and more people living longer) will create a structural deficit, which means that a reform to the tax system is both necessary and unavoidable.
- Responses strongly indicated a lack of confidence in the quantum of this structural deficit, with just over 79% of respondents answering “no” to the question: ‘are you satisfied that the deficit quoted is an accurate and sound estimate upon which the tax changes should be based?’
- The IoD would therefore suggest that further work is undertaken to instil greater public confidence with regards to the size of the deficit, especially as this is the key driver for whatever additional taxation measures will be necessary. However further research should not create further delay, with the recent Standard & Poor (S&P) ratings downgrade demonstrating the need for urgent action on the deficit.
- Nevertheless, our members who responded to the survey overwhelmingly acknowledge that the issue of structural deficit must be addressed, and that a lack of agreement on the precise amount should not be used as a means to delay meaningful action and decisions which are necessary to steer Guernsey’s future in the right direction.
- The survey responses indicate a clear preference for the deficit to be addressed by a balance of contributions between the three key groups of: 1) corporates; 2) individuals and 3) the public sector. Over 80% of respondents thought that the tax base should be broadened to incorporate all three of these groups.
- One area raised in the Ernst & Young (EY) report on corporate tax options commissioned by the States of Guernsey was to introduce some form of flat fee corporate levy. The IoD survey therefore queried whether members would support an increase of £750 to the registry fees (taking them up to £1,000, per annum) which was supported by nearly two thirds of respondents.
- The IoD would recommend consideration of this as a viable part of the tax package given that an increase of this nature would be expected to raise up to £20m per annum (referenced in the EY report), and could be done without a change to corporate tax legislation.
- It is clearly critical to ensure that Guernsey retains its competitiveness as an international finance centre. Over 80% of respondents support the principle of widening the 10% corporate tax rate to incorporate other sectors. There were no comments to qualify as to which sectors this would apply.
- 68% of respondents expressed ambivalence or a lack of support for introducing a territorial tax system
- Over 70% of respondents declared themselves ambivalent or against abolishing the Zero-10 corporate tax regime. These responses were accompanied by comments emphasising the need for the corporate tax system to remain internationally compliant and competitive. There was also acknowledgement that international tax development may well require adjustments to Guernsey’s corporate tax regime in the future, but to make any change prematurely and unilaterally would be very damaging to our competitive position and could invite scrutiny from bodies such as the OECD and EU Code of Conduct.
- Over 73% of respondents were either slightly or strongly against the introduction of a 5% GST. Feedback included a lack of confidence in how government would spend the additional revenues generated by GST, as well as the impact of introducing GST in period of high inflation and during a cost of living crisis. However, there was acknowledgement that GST would widen the tax base to increase the tax take from tourism and higher net worth islanders.
- In terms of the mitigating measures:
- Over 83% of members were either neutral or supportive of the proposal to introduce a new personal allowance on social security contributions.
- Just over 43% of members surveyed support the introduction of a 15% tax on income up[GM1] to £30k, with 28% against this proposal.
- Over 55% of members support or strongly support the increase of the personal tax allowance by £600
- Over 60% of member respondents supportive of an increase in the social security burden for higher earners and businesses.
- The commentary demonstrated many views, but the underlying theme was that the tax burden needs to be shared across our industries and public sector in a balanced way. There were also a number of comments about the primary burden of the proposed package being on the so-called ‘squeezed middle’.
The public sector
- The respondents were asked to suggest alternative actions to tackle the identified key contributors to the structural deficit focusing on pensions, long-term care/healthcare and infrastructure investment.
- A substantial number of respondents focussed on the need to restructure the States of Guernsey Defined Benefit (DB) pension scheme as a method by which the public sector could reduce the burden of deficit. The IoD have not seen any factual evidence of the impact such changes may have but recognise the complexity of the issue.
- There was also recognition that the States of Guernsey needs to focus on bolder measures to increase economic growth and productivity to reduce the structural deficit over the longer-term.
In summary, there is a clear recognition that a structural deficit exists, despite the precise quantum of that deficit being debated. Our survey shows a lack of support for GST, which mirrors the feedback received in Jersey when they were debating the introduction of GST over ten years ago. There is also a clear desire to ensure that the burden of meeting this deficit is met by:
- Some measure of corporate reform within the confines of our existing, internationally approved system and in a manner which retains competitiveness
- Various income tax and social security measures to increase the burden on those that can afford it the most
- Public sector efficiency with a particular focus on the perceived expense associated with the States of Guernsey public sector DB pension scheme.
Guernsey’s recent sovereign debt rating downgrade by S&P is indicative of the challenges that a delay in addressing these matters can bring, and further supports the IoD Committee’s view that a clear and credible course of action must be agreed now as part of an ongoing process to secure Guernsey’s future and to provide a degree of certainty to those wishing to invest in or move to the island.