Overcoming denial, by Peter Roffey
Thursday 17th October 2013, 5:00PM BST.
GUERNSEY’S Budget for 2014 won’t be welcomed in many quarters.
Why would it be? We are all about to be made worse off.
Above inflation rises in taxes on property, fuel, alcohol and tobacco will hit every Guernsey resident in the pocket to a greater or lesser extent.
Of course, those who smoke, drink and drive gas-guzzling vehicles will be hardest hit and they have some control over those costs. But even the modestly-living pensioner will be hit, both through the hike in TRP (rates) and the knock-on effect of fuel price rises.
All this is very tough at a time when most islanders have seen their incomes go up only very modestly – if at all. Concern over the impact led one minister to consider blocking the increased duty on fuel, but he abandoned that idea because he found no support from his colleagues. That’s very good news. Not from the point of view of you and I and our cost of living next year, but because it suggests deputies are at last starting to ‘get it’ as far as Guernsey’s financial position is concerned.
It’s about time.
When individuals or families find themselves in reduced circumstances adjusting their lifestyles is always rather painful.
That’s true even if they are still relatively better off than many other people. Of course, they can expect little sympathy from those who’ve never been able to afford the things they are now having to give up, but nevertheless it’s tough.
Exactly the same applies to communities. It’s beginning to dawn on islanders/deputies that Guernsey (or at least its government) is now in reduced circumstances and is going to have to cut its cloth accordingly. It’s not badly off, it’s just a bit poorer than it used to be.
How did this come about?
Well, some years ago Guernsey changed its tax system and gave up £100m. each year in corporation tax.
It didn’t want to but it had to because the alternative was far, far worse. At the time it was earnestly hoped that this downward step-change in government income could be cured, by a combination of spending constraint and economic growth. The forecasts for filling the black hole, over a relatively short period, were made on the basis of States’ expenditure remaining the same in real terms but GDP growing by an average of 3% a year.
What happened to that benign forecast? Events, dear boy, events. Firstly, there have been a few blips of the spending side of the balance sheet, but actually by historical standards the States have done pretty well. But on the growth side the sky has fallen on our head in the form of five years of worldwide economic turmoil.
As a result, despite the ludicrous over-optimism of our previous Treasury and Resources/chief minister, our black hole remains. It may not always be thus, but for the time being it’s ‘the new normal’ and just like the family in reduced circumstances we have to adjust sensibly.
We’ve used our savings account as a buffer. That was sensible, but it can’t go on forever. We’ve made efforts to restore our previous income and we’ve made some cutbacks, but we are still living well beyond our means.
Against that backdrop this is a sensible – if painful – budget package.
Taxes can’t go up too much or it risks deflating an already slightly depressed economy. So the measured rises are about right.
On the other side the budget proposes that spending is not only frozen in real terms but actually slashed by £10m. next year. That won’t be easy but it’s probably necessary. Just as with tax rises any spending cuts need to be modest or they risk sucking money out of the economy and jeopardising any potential growth.
Another plus point for the budget is the recognition that the amounts earmarked for the capital reserve over recent years were far too low and must be increased. Now all that’s needed is a similar recognition that with an ageing population, medical inflation and new treatments the HSSD budget will need to increase above inflation and we’ll finally start to get some realism into the States’ financial forecasting.
What’s really needed for the next five years is the acceptance and realisation from both the States and the public that things are genuinely tighter than they used to be and that therefore modest sacrifices are needed.
Just like the family in reduced circumstances, overcoming denial is the difficult bit.