Continuing his series on the new tax regime which will come into force next year, Treasury and Resources minister Lyndon Trott explains why the decision in June was so important AFTER all the public meetings and extensive consultation, the Policy Council produced its final proposals for States debate in June.
The key element, that there should be a zero-10 tax regime, was largely the same at this stage as it was at the beginning in 2002.
However, the original proposals had been improved in a number of important respects - testimony that we had taken the public consultation on board.
As alternatives came forward, extensive independent professional analysis of them was undertaken.
The alternatives, which included the flat-10 and zero-20 options, had been comprehensively rejected by experts.
What had quite rightly been billed as the most important States meeting since the end of the Occupation took very nearly three full days of intense debate and included a range of amendments.
It was generally regarded as one of the best, if not the best, States debate of modern times.
That I believe was clear testament to how seriously members had taken on board the huge issues at stake and how actively engaged in the process over the previous two years.
At the end of that intensive debate, the States approved the Policy Council’s main proposals with relatively few changes.
So what did the States actually decide?
First and foremost members agreed that it was absolutely essential that the island responded positively and clearly to the competitive pressures from elsewhere and in turn made sure that our future economic and social well-being was given the very best possible chance.
By adopting the standard rate of business taxation of zero it gave our finance industry, the island’s single biggest and most vibrant sector, the competitive advantage it needs to compete in a global economy.
It will also allow us to tax certain banking activities at 10% without hurting that competitiveness.
The strategy was also supportive of other local industries and meant that these sectors could also flourish, giving the island a broad and sustainable base for the future.
The States also, intelligently, decided that it would adopt a phased two-stage process.
The change required is considerable and to try and get everything done in one go is neither achievable or economically and socially desirable.
It is also prudent to be watching and responding accordingly to what may unfold elsewhere.
As a result, the first phase of the strategy, which should take us to at least 2012, will be to secure the competitiveness of our economy and closely evaluate its progress.
During that initial phase, as little as possible, but no more than half of the so-called Rainy Day Fund (a little more than £100m.) will be used to balance the budget and ensure that vital public services are properly delivered.
As a result the impact on the average working person will be significantly reduced.
Some taxes will rise, but the policy of taxing those who are likely to benefit from the new regime together with protecting those on lower incomes was a very strong part of the proposals.
We have decided to investigate a goods and services tax, but to avoid its introduction unless absolutely necessary.
This was very important to many members, including myself, as such taxes inevitably hit those on the lowest incomes the hardest.
In order to further protect those on lower incomes, the changes to Social Security contributions were targeted at employers - who will be benefiting from the lower taxes on their profits - and those on higher incomes.
It is often forgotten that three in every four employees will see no change to their social security contributions whatsoever.
The basic rate of personal tax will remain at 20% and generous mortgage interest relief will continue for the vast majority of people’s homes.
Although there will be increases in the duty on alcohol, tobacco and on property, again these will be modest and in most cases merely bring them back to the levels of a decade or so ago.
In any case tax rates in Guernsey will continue to be very low by comparison with other jurisdictions.
Another very important aspect of the debate was the focus on the government’s spending.
It was very clear from the consultation process that the public wanted to see the States making real efforts to contain expenditure and cut out waste.
I can fully appreciate that view and I am extremely proud of the Treasury and Resources Department’s record in the last two budgets in helping achieve that necessary restraint.
But while we restrain our spending, it has been agreed that we must continue to invest in the essential infrastructure of the island - its hospitals, schools, and other public services.
In June, these main decisions were made:
n to secure the future of our economy.
n to ensure that those on lower incomes were protected.
n and that any tax rises should be targeted at those most able to benefit from the economic prosperity.
Importantly however, this was not a one-off debate. The decisions taken have to be carried through and I believe it is very significant that at practically every States meeting since then, resolutions have been carried that have been consistent with and have underpinned the key resolutions of last summer.
As an example, in September the first stage of the changes to social security contributions was approved.
Three months later the annual budget was approved which incorporated many of the recommendations of the June debate.
Unsurprisingly, the Government Business Plan was also developed in line with the strategy.
These are all excellent examples of a government moving forward in a joined-up manner for the good of our community at large.
Considerable progress has been made since June to implement the agreed strategy and early indications are very positive.
The island’s economy continues to excel and business confidence remains high. But the work does not stop here.
Later this month the States will again be considering the next parts of the strategy and looking at the performance over the last year.
This will be the subject of my next article in a week’s time.
Article posted on 3rd May, 2007 - 12.00am
Loading ...
Most Commented: