In the first of a monthly series, Ernst & Young tax partner Graham Parrott contemplates the forthcoming zero-10 structure. IT IS now only 10 months until Guernsey launches its zero-10 strategy, whereby we all but eliminate corporate income tax.

There is a feeling at the moment that in all the hoo-ha surrounding Fallagate, this most important development has been forgotten. Therefore as the countdown continues, this is a good time to remind ourselves exactly why this is going on.

I think it fair to say that most if not all of us would rather not be doing this.

Having successfully fought off an attack from the OECD on what was considered harmful ‘ring fencing’ (practices that favour foreigners at the expense of locals) following a positive intervention from the Americans (there’s a thing), we were brought down to earth by the EU on the same issue.

Notwithstanding the fact that we are not part of the EU, an issue for another day, we agreed to this.

However, it was very quickly realised that without an internationally competitive finance sector – and whether we care to admit it or not, a favourable tax regime is an essential component of that – the island would be in considerable difficulty.

Therefore, the decision was taken in 2002, some four years ago, to reduce corporate income tax to nil for everyone, foreign and local. Not perhaps what the EU had expected or wanted, but its concerns would be addressed.

However, eliminating a large part of the island’s income is a problem. It is this issue that launched the debate that continued up to the States last year and beyond as to how to make good this shortfall and ‘fill the black hole’.

It remains a source of considerable frustration for me that in the four years since then we have done virtually nothing to help with this while we had the time to do so.

Any squirrel will tell you to put away nuts for the winter and that certainly is not rocket science.

This year has seen the beginning of something.

In the last Budget there was some money put into the contingency reserve and both social security and tax on rateable value have been increased, but neither by as much as was originally planned.

Apparently the detail of how zero-10 will work will be published soon.

The basic strategy for this mission has already been set.

We will raise some revenue at the margin, with some banks, and no one else, paying tax on part of their income (‘zero-10 lite’), continue to control public spending, watch what happens in Jersey following the introduction of a GST and rely on growth in the tax taken from our wages, the latter apparently consistent with a zero population growth strategy.

Any shortfall during this time will be met out of the island’s savings, with a figure of £100m. accepted as a possible cost of this approach.

In the meantime, Fallagate has come along and at the very least focused attention away from the zero-10 mission.

However, assuming we do go ahead as planned, what will the impact be?

To believe some, very little, with no need for any new taxes.

What is clear is that if the finance industry does not continue to thrive, the mission will have failed.