Islanders in firing line
Friday 18th November 2011, 2:30PM GMT.
Motorists face another hike in fuel duty, up today by 9.8% - or 4p a litre - after last year's rise of 10.8%. (1194871)
AUSTERITY measures within the 2012 Budget revealed today will see the man in the street hit by indirect tax increases.
And Treasury minister Charles Parkinson also announced that a solution to the island’s corporate tax strategy would no longer be presented to the States at the start of next year. Instead, the new Assembly will have to deal with it.
Householders will face a 20% rise in tax on real property (TRP) next year, having absorbed 10% and 20% increases in 2009 and 2010. The commercial TRP increase, by contrast, is 0.5% less than last year’s rise and remains relatively static at 3%.
Motorists, smokers and drinkers will all be hit. Fuel duty will today go up by 4p a litre and the average pack of 20 cigarettes will cost at least 21p more, – up to around £5.70.
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Whats new? Whatever they do we can moan but it won’t make any difference there is nothing we can do and they know it. Moan and pay up!
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Disgrace.
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Oh how the rich and powerful hate fair taxes that are income related.
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A 20% increase in TRP and 9.8% increase in fuel duty and how exactly is that justified Mr Parkinson? Lucky you’re not standing in the elections next year and I hope everyone will remember at the ballot box all those that have been responsible for further increases in indirect taxes. What exactly has 0-10 cost us? And how much has the dithering over the airport and waste strategy cost? How much cost cutting have the States actually done?
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It could have been all so different, at the start of October when the UK devalued (Quantative Easing) we could have devalued Pro – Rata 75 million in the pot, no raised taxes, put 30 million into the deficit and 45 million into Bullion. A complete alternative budget in one paragraph.
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Answers on the back of a postage stamp please!
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Us Guern’s need to stand up for ourselves. We cannot let the States control our lives by putting the price of petrol up! They’re also considering adding more one way roads, that way we have to spend more fuel as we’ll be travelling more miles!
Let’s all use marine fuel, it’s so much cheaper!!
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It is a disgrace but we can try and do something like they are doing in the UK now and that is start a petition about fuel increase. We run a small business and have several vehicles and it is coming to the point where we can hardly afford the monthly fuel bill. The 20% increase in TRP is really bad and is becoming like a small mortgage for a lot of people. People just havent got the money to cope properly. By the way what does Parkinson mean by an average house? He makes it sound as if he is doing us a favour or something when he says it be only about £20 or so more a year! Not true. Beer and cigs I can understand as one has a choice in the matter. Does any business want to get the ball rolling and start a petition for fuel prices to remain as they are. This will hurt us all and could cause more unemployment. Does anyone know the outcome in the UK?
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Totally agree, don’t think I’ve seen many more subjects raise such outrage with the Guernsey public and Guernsey businesses. Please go to the gov.gg website at: http://www.gov.gg/ccm/general/states-members-and-committees/states-members-email-addresses.en Here you have a link to every deputies email address on the island. Let’s all email them and lobby them to change this outrageous increase. I do not have aproblem with alcohol and cigs as we all have a choice here. But with fuel it affects every single person in the island as it is inflationary to every business, therefore prices WILL increase to cover it, LOBBY YOUR DEPUTY NOW!
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It’s a shame that these measures are required but if we can’t get the savings through efficiency measures, then its its what needs to be done… better this than a GST.
Paying tax in proportion to TRP seems as fair as anything to me and the “man if the street” doesn’t have to smoke, drink or drive a rangerover.
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I agree.
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Love the fact that the people with a mortgage, that need to drive are being forced to pay more, while the social benefits are going up!
My brother seems to have made a better career choice than I did – 16 years ago he decided to not work and has been getting regular money since then.
I’ve studied, earned a qualification, saved a deposit, bought a house and I get clobbered with more tax and his benefit rises!
He recently got together with an unemplyed female “friend” and they managed to produce a child – yet more money coming out of the States coffers (which I am funding)
Can’t wait for the elections to come around, we’ll see if Guernsey can try to correct these ‘errors’ made by the States, similarly to the Wall Street protestors.
Enough is enough, stop punishing those of us trying to make something of ourselves and stop rewarding the scroungers on the dole!!!
I’d like to point out that some people do need social support, no problems with that, some people are dealt a bad hand and need some help. My problem is that I am forced to fund the lazy sods who can work and just choose not to.
How about I pay no more social and just pay for my brothers rent, doctor, dentist? Oh not forgetting the large quantity of spirits he and his non-local (also receiving benefits) wife drinks for breakfast 7 days a week!!
Pathetic, but as usual, us working folk will have to lump it, struggle a bit more, keep our heads down, as no one will be caring what we think!!
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Well said ! I agree !
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How exciting, original and surprising it would be if pbfalla took this rare opportunity to write some witty prose ending in (remember the block capitals) “RIP THE OLD GUERNSEY”
Come on pb……..we’re all waiting to laugh.
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This doesn’t just have an affect on fuel prices, this will affect everything from services provided by small business to food prices.
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Ian3
I dont use a capital G for gUERNSEY
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Here we go again the people of guernsey moaning,complaining,bitching just because their elected representatives raise taxes,one can only wonder what would happen with 20% unemployment.
If you dont like it then leave
Simples PEEPS
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Guernseyman,
Nothing like a good bit of brotherly love eh!!
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Just wait for the next pathetic estimate of RPI – no doubt it will be totally unrealistic as usual!
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All of this is basically down to 0/10, the finance industry , for the most part is being taxed at zero, while the average taxpayer is being taxed to the eyeballs.
The Chief Minister,in his address to the States on the debate on 0/10, on the 28th June 2006 finished by bringing out five key tests;
1) Does this package of proposals keep our economy strong and competitive?
His answer, Yes. The actual answer (Yes & No)
2) Does this package protect the lower paid and those on fixed income?
His answer , Yes. The actual answer (No)
3) Does this package minimise the impact on middle earners?
His answer, Yes. The actual answer (No).
4) Is this package deliverable and is it compliant with international standards? His answer , Yes. The actual answer (No)
5) And Finally, does it feel right? His answer, yes.
Well we all know about bad judgement (No)
And what has happened to 0/10? We are still in limbo while the EU play games with their review.Now due 31 january 2012.
Of course we should have had the review along with Jersey and the Isle of man and it would have been all done and dusted, but we thought we would be clever. We failed and the ordinary taxpayer will continue to pay for all the mistakes.
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Slight clarification on my previous post.
In 2006 The Chief Minister was Laurie Morgan.
The above were statements made by the then Treasury Minister, Lyndon Trott, The current Chief Minister.
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Charles Parkinson another states member that needs to go, he must be very well paid to make these clever decisions. the people of Guernsey are getting ripped off.I have said all a long that when they put tax on fuel they will charge what they want and they are. The people of Guernsey need to take action. if the states want money they must look at what they are spending it on like paying for unemployed some which have never worked in there lives. The states of Guernsey and there departments are one big joke.
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OK Gary, clever clogs. What would you have done in 2006? Risked the entire finance industry instead I assume? How much tax do you think you would be paying now if we hadn’t gone for zero 10? 40% or 50% income tax and 15% GST after our GDP halved overnight with all the business disappearing to Jersey and the Isle of Man? You might bemoan where we are currently in a major global recession, but you totally forget where we would be with an uncompetitively taxed finance industry AND a major global recession.
What real alternative was there to zero 10 in 2006? How close would we have been to getting it perfectly right in 2006 if there hadn’t been since then one of the biggest global recessions ever, something over which we have no control whatsoever?
Smell the coffee and look around you. There are many basket case economies all around us, yet we are in great shape in comparison.
If you think 4p on a litre of fuel and 21p on fags and 20% on TRP is tough – take a look at most of Europe. Take even a look at Jersey – 5% GST and still in a mess.
20% income tax, no GST, no CGT, no IHT, less than 400 unemployed. Take a look around you and do the comparisons. You might then just realise that we are in a very healthy position. And you and others are looking to blame our politicians who, with the odd exception, have done a very good job cutting public sector wastage over the past 3 years.
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GM I think GB points were more about the impact 0/10 has had and what LT told us the effects would be, re GB post?. Dave Jones has spoken about this in a similar manner.
I dont think he is being a clever cloggs and the points he has raised are all true.
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Ah, the Zero – Ten old hat, a lot of water under the bridge since 2006.
GM “our GDP halved overnight”
It would seem if you look at that figure not using sterling its down 25% in 3 years (sterling devalued).
GM “worst global reecssions ever, something over which we have no control whatsoever?”
Not true there are things we could do, they won’t change the global situation but we can help ourselves.
If I recall the 3 tenets of 0-10 were
Growth – well that went.
Spending cuts by the States – too little too late.
Keeping inflation down – this particular one has been a dead duck since 2008 when the UK started printing money with the express intention of avoiding deflation ie promoting inflation, I would bet that in this scenario UK fiscal policy prevails over Guernsey’s.
The reason Zero – Ten is hated is that its viewed as inequitable, The Rowntree trusts poverty survey highlighted a shameful situation which this proposed budget does not adress at all,the low incomes squeezed more and more and the middle incomes pushed downwards.
We need to be looking at post Zero – Ten solutions not going over old ground relating to situations that no longer exist. Devaluation of Sterling is the new reality and by the by don’t be too smug about the unemployment figures.
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Can someone please enlighten me as to why everything is going up with immediate effect when it is a 2012 budget?
The middle of November 2011 seems a very strange time to start a 2012 budget or is it that the retailers have found an opportunity to cash in at our expense?
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It’s a RIP-OFF Kevin, simple as that. How they can justify an immediate increase with no debate is beyond me. Even if they do reject it, they will not be able to refund the duty paid. totally unfair and undemocratic. LOBBY ALL DEPUTIES NOW!
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It was not Charles Parkinson that got us into this mess, it was the previous Government Led by Laurie Morgan as Chief minister and Lyndon Trott as Treasurer. Charles Parkinson inherited the mess.
I agree in some respects that its time the States took the bull by the horn and and laid some of these taxes back onto the Finance industry, but they don’t appear to have the guts to stand up to either the UK or The EU. They are very good at giving things away but fail when it comes to actual negotiations for the Island.
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sick to death of all these rises, its no wander there have been numerous suicides this year
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Ok I enjoy my tipple and smoke, big increases there but can put up with cutting down or out!
Fuel prices not! That increase will end up with all consumer goods prices going up sooner or later. Any way commercial users could have a dispensation using different coloured petrol?
It will hit hard delivery people, taxis, etc
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Wednesday Sir Mervyn King stated that Quantative Easing aka Devaluation had depriciated the “real exchange rate” 25% in the last 3 years.
We have alredy had 2 rounds of this and likely another early next year, which ought to trash this proposal.
Wake up Devaluation of Sterling is a modern and ongoing reality, if we don’t learn to live with it we will sink!
Only the islands are exchanging a full non devalued £ for a 75p UK one! The Politicians appear to be hell bent on busting our Econonmy before they admit this, does the £ UK have to reduce to less than 50p in value before we act?
They can wriggle every which way they want but you can’t build fiscal plans on a financial fault line of shifting sands.
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If the finance industry is not prepared to pay its way then let it go, life was a lot cheaper for everyone before it arrived!
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Sorry about the length of this.
GM My answers inter-dispersed with your statements:
GM’s comment:
OK Gary, clever clogs. What would you have done in 2006? Risked the entire finance industry instead I assume? How much tax do you think you would be paying now if we hadn’t gone for zero 10? 40% or 50% income tax and 15% GST after our GDP halved overnight with all the business disappearing to Jersey and the Isle of Man? You might bemoan where we are currently in a major global recession, but you totally forget where we would be with an uncompetitively taxed finance industry AND a major global recession.
Gary Answer:
My views have not changed from the time 0/10 was first muted, all you have done above is take an extreme view. Of course we had to remain competitive but there was a better alternative put on the table by Charles Parkinson, which still maintained our competitiveness, but also just about balanced the books. I don’t believe for one minute we would have lost the established finance business, because we would still have been competitive. The 0/10 put forward relied on growth to eventually balance the books. The UK expert we got in at the time, Rosemary Radcliffe, thought the growth strategy very risky, but we took no notice, certain people knew it all. Well growth failed, of course the global crash didn’t help, it exacerbated an already poor tax strategy. So we are where we are today with the finance industry still not contributing their fair share to the tax burden and the onus being placed more and more on the lower and middle income taxpayers.
We thought we were being clever over delaying the review on zero/ten, another mistake, we should have gone with Jersey and the Isle of Man. The UK Treasury and the EU are playing games with us. We now have uncertainty until the end of January 2012 and the Finance industry for the most part are still taxed at zero.
GM’s comment:
If you think 4p on a litre of fuel and 21p on fags and 20% on TRP is tough – take a look at most of Europe. Take even a look at Jersey – 5% GST and still in a mess.
20% income tax, no GST, no CGT, no IHT, less than 400 unemployed. Take a look around you and do the comparisons. You might then just realise that we are in a very healthy position. And you and others are looking to blame our politicians who, with the odd exception, have done a very good job cutting public sector wastage over the past 3 years.
Gary Answer:
Our politicians have been forced down the current road because for too long they have been too careless with the public purse. The States went through a period of vast overspends, billets were taken before the States that lacked information and proper contractual arrangements, projects were not properly costed. The present States have had no choice but to start becoming more professional and start tightening their belts. Although you wonder at times. Its not just this budget, it’s the increase in every area of living, way above cost of living. Pensions are overtaken within weeks of a rise by increasing costs, making the average pensioner poorer by the month. We may be better off as an island than most, but that in certain sectors is declining. The finance industry maintain their standards, but its the ordinary taxpayer who is subsidising them.
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Gary,
Absolutely right, couldn’t agree more,lets have a level playing field for all instead of relying on the individual to subsidise the finance sector.
I’m not convinced that the finance industry benefits the island as a whole although there will doubtless be many people who will try to tell me otherwise!
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Gary
I have replied to your first point on the separate thread, and no, zero-20 would not have retained our competiveness. It would have been a far bigger gamble to take. Nobody knows even now how much business we could have list, so it’s a cheap and easy jibe for you to make now.
Re your second point, I agree with most of it. The House (in fact the previous one) inherited from a free-spending one but that’s a separate issue altogether, I repeat – take a look at the state everybody else is in and tell me that the people in Guernsey are badly off.
You are one of many who are making the mistake of comparing where we are now with where we used to be, rather than comparing with the rest of today’s western worked.
Things could be a whole lot worse than they actually are in Guernsey. Far better to be trying to balance our books than those of Greece, Portugal, Ireland, Italy, Spain, France, Belgium and even the UK, I’m sure they would all willingly trade their positions for ours.
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GM
We are where we are today because of the way Guernsey had, in the past, always operated within its means and built up a rainy day fund. It only spent on what it could afford. That is why we are in the position we are today. Unfortunately we started slipping when zero ten was introduced and allowed up to £100M to be used from the rainy day fund to help balance the books, hoping that growth over the following few years would catch up and cancel this out.That hasn’t happened, We are not living within our means at present with a deficit of around £30M and some Deputies even suggesting that we borrow for capitol projects, luckily this has not been accepted at this stage.
The cause of all this is zero ten, because the finance industry are not paying tax into our coffers at a fair rate (and yes I know we have to be competitive) and the States are trying to make this up with tax rises that are hitting the less well off far more than the more affluent members of society, at a time when every utility is rising at a far greater rate than the cost of living.
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Isle of Man started this off and we are suffering because of it and so is Jersey
Are the Isle of Man people also having to put up with raised personal taxes ?
If they are why not incarcerate the three Finance Ministers on Lihou and leave them there until they agree a scheme to replace 0-10 which works for all three jursidictions?
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Gary is right in respect of us always living within our means, despite the old Board of Admin’s best efforts with overspends. The contingency reserve has had 5 million so far taken from it as a result of Zero 10, it will have according to the 2011 budget 30 million allocated to plug the deficit this year and if the next crop of elected deputies can reach the savings target from the financial transformation programme and sort out our corporate tax policy fairly quickly in the next term, then the damage to that reserve will be limited. We have under spent this year by 7 million on departmental budgets and together with the interest the contingency reserve generates we are in much better shape than many thought we would be at this stage of the Zero 10 policy. One other bonus will be that if we have the good sense to adopt the proposed waste strategy, then we won’t need the 90 million allocated to the incinerator and a large chunk of that will be available for other capital projects. My concern in all of this is the accumulative effect this and last years budget is having on the low paid 20% increase on property taxes to go with the 20% last year 40% in two years is financially unmanageable for many families when you put these increases together with all the others increases in Food, Electricity, Gas, Telephone line rental charges, Parish rates and Water with a further waste water charge on top of that. We are told as justification the property taxes and fuel charges are very low compared to other jurisdictions but then so is our 20% income tax rate but I don’t see T&R rushing to raise that in line with everyone else which a much fairer way of raising revenue.
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Gary
Not quite correct. For about 20 years we built up the rainy day fund partly because previous Houses failed to invest to maintain the infrastructure of the island, resulting in the deferral of major capital projects to restore the infrastructure.
The decision to use the rainy day fund was of course the right one – we had money in the bank so why not use it? It was deliberate to run at an operating deficit for 3 or 4 years -you make it sound like it was an accident. This process depended partly on growth and partly on public spending cuts. The latter has largely been successful. The former was hit by the global recession which nobody foresaw at the time.
I would reiterate that had we not adopted zero-10 and had become uncompetitive by going for zero-20 instead, and had lost banks and jobs as a result, then every single taxpayer on the island here would be paying a lot more than they are at present to make up a far greater deficit than currently exists, and with no realistic alternative employment opportunities for those who would have lot their jobs. Better to ride the storm than to capsize the boat, I would suggest.
You seem to be criticising the decision which was made, without suggesting any alternative which would have been far riskier. I am convinced that our House at the time made a difficult and unpopular decision but which, on balance, was the lesser of the various evils.
Ray – you are right. The Isle of Man fired the gun in the race to the bottom and had it known that it would lose £175m of annual VAT refunds from the UK, it would not have done so. The Manx economy is in an absolute mess at the moment as a result.
Yes – Guernsey, Jersey and the Isle of Man should ideally set a common tax rate (zero-12.5 would have been probably the ideal to be competitive with Ireland) but one of the three islands unwisely decided to break rank it changed the rules altogether. A very expensive decision indeed.
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GM
I agree with most of what you say except perhaps the bit about neglecting our infrastructure, it has been a slow process I will grant you over the years but we have only been able to do it as the money became available. Of course part of what has changed over the years is that people want everything NOW, whereas the States would only spend what it had. I have listed some of the projects over the last couple of decades or so.
We have over the years had a new dairy, a new government building (SCFH however awful) new police station, new customs facilities, two new RO RO ramps, new Jetty, three new marinas, new cranes at St Sampson, new States workshops and offices, new grammar school, Oak vale school, the New Le Rondin school, a new performing arts centre, a brand new high school with another new school under construction (Les Beauchamp) several phases of a new hospital including a brand new Clinical block together with a new hospital in Alderney, a new nurses home, new airport building, new courts, a new sheltered housing scheme (Roseaire Avn) New training flats for the NCH, New leisure centre, Masses of new Social housing, with two new care homes on the drawing board for the elderly, not to mention several new road improvement schemes and together with renewing the islands fresh water network and extending the foul drainage network that has cost millions with a sewage treatment works yet to be built, and a few more facilities I can’t think of for a minuet, and we have managed to do all of this without borrowing a single penny from anyone. We have no national debt something I think we can be very proud of.
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Ray,
You have just hit the nail right on the head, what a simple solution, but can you see our politicians going for it.
GM
We were starting to head for a better solution when the States debated it in October 2009, accepting that zero/ten had served it purpose, (only because the EU were making noises). They actually debated going forward on a presumption of a Corporate tax rate of 10%. If all three jurisdictions, as Ray said, could get together and come to some agreement, it would sort all their problems out and ours. Perhaps all three jusisdictions have the wrong people in power. We need people who can speak to each other and come to some mutual agreement that serves all our purposes.
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Dave Jones
I agree with you, although the point I’m making is that most of those projects were carried out in the past 10 years and in the previous two decades we had undertaken very few such capital projects, which enabled the island’s reserves to build up to a high level up until a decade ago. It means that the urgent need for many of those projects all came at the same time.
It just means that our reserves were somewhat artificially inflated for a period, and as a result helped to create an environment of “we can afford it” when if the capital spending had been more gradual over the previous two decades we might have been a bit more careful when it came to avoiding overspends on large capital projects. If the good disciplines currently being displayed towards large capital projects had been prevalent for the last 10-15 years we would be in far better shape.
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Well done Dave Jones for having the conviction to change view when the situation changes.
We all know Dave is a current member of the house.
Is GM also a member?
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Les Beaucamps Boy
No I’m not – I never have been and I almost certainly never will be. I would never last 5 minutes our of sheer frustration.
Gary Blanchford
But Gary, you are once again forgetting the competitive factor. Are you seriously saying that Guernsey should have stuck to its guns and adopted 10% even though Jersey and the Isle of Man were sticking with 0-10? Do you have any concept of how devastating that would have been for us both before and after the recent decision of the EU Code of Conduct? It would have been utter madness and total suicide for Guernsey’s finance industry and this the entire economy. The one mistake that the House made was to agree to mention the “presumption of 10%”. There was absolutely no need to make that statement, although if we hadn’t done so then we would have been reviewed at the same time as Jersey and the Isle of Man. Where would that have got us? Temporarily “celebrating” zero-10 yet no further forward in having a model which is acceptable to the EU. In other words, no further forward at all.
And the higher-earners are already paying extra tax – its called Social Insurance.
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Les Beaucamps Boy
I haven’t changed my view on Zero 10, I think it was the right strategy at the time and it has kept business in Guernsey also the decision on whether businesses would move away would not have been made in Guernsey but in head offices in London, Frankfurt, Singapore, Switzerland and elsewhere. However the Zero 10 strategy was predicated on future growth and as we all know that has had to be revised downwards due to the global economic climate. What we cannot do is simply ignore that fact and the strategy has to be revised in view of the present situation. We could for instance broaden the 10 part of the strategy and collect more tax that route. We also know that all our competitive jurisdictions will have to revise their corporate taxes in the near future as sure as night follows day the EU will sooner or later refuse to accept Zero as not harmful to their economies, so we could introduce say a 7% rate and then adjust it as their rates become known. The point is that we would be bringing in extra income while the broader strategy is finalised. We could also end the constant use of hugely expensive consultants to tell us what we already employ well paid civil servants to tell us, it is after all their job as the professionals we employed them for to research and give us sound advice, not bring in another crew as soon as they are asked a question that requires some thought. We have spent millions on consultants over the years mostly to tell us what we already knew. My concern is that I meet people every day who are really struggling with some pensioners having to choose between heat and food, young families who once managed to stretch two modest wages until the end of the month now unable to do so. I fully understand that we must remain competitive but we also have a duty to have a fair tax system that does not make the less well of in our community bare a disproportional share of the tax burden.
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Dave
Broadening the tax base (so that more businesses who currently pay zero would pay 10%) is a no-brainer, but you have to be very careful in how its done. It is vital to protect the zero-tax product for the fiduciary and funds industries and when you refer to possibly increasing it to 7%, I fear that you may have overlooked that. We mustn’t kill off the fiduciary industry by imposing a tax rate on all Guernsey companies. Clients from that industry are far more mobile than any other. It would need to be a territorial tax system to make it work.
The EU Code of Conduct will not approve any tax rate under 10%. Period.
Where there is a tax gap at the moment is local fiduciaries and other similar businesses currently paying 0% when they never actually asked for it. These are mainly locally-owned businesses and the local shareholders pay 20% tax eventually on those profits anyway, once distributed. So why not improve tax cash flow and take 10% each year from those fiduciaries, rather than waiting another year or two until those profits are eventually distributed, as at present? That’s not extra tax revenue, just quicker tax revenue. Foreign-owned fiduciaries operating here should also pay 10%. Why were fiduciaries ever taken out of the 10% group in the first place when we didn’t ask for it?
I suspect there are quite a few people like myself who would be willing to pay a higher rate of tax on earned incomes over £100k, but if that was to be the case then one would have to look at the extra Social Security being paid at present as well, as that is nothing other than an extra tax as its not needed for Social Security purposes. Maybe 25% income tax on incomes between £100k and £200k and 30% on any surplus? Pretty hard to argue with when there’s no CGT either. Why does the 20% income tax rate have to be sacrosanct? It might be necessary for the open market rentier sector but why shouldn’t earned income be differently treated? It wouldn’t bother me – its not an unreasonable price for high earners in the finance industry to pay.
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GM
perhaps you didn’t read my comment correctly, I am not suggesting we go it alone, that would be uncompetitive and suicide. Lets get together with Jersey and the isle of Man and produce a united front. Like Dave Jones mentiones above, we could shose a corporate tax rate of somewhere between zero and ten, he mentiones 7%, but that must be in all of our interests. At present we are all trying one upmanship and cutting our own throats. I would have though collaborating was an obvious move.
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Gary
You’re not being very realistic. We had an agreement with the Isle of Man and Jersey that none of the three islands would break rank. The Manx decided to break the agreement and the rest is history. We can hardly sue them. An agreement is worthless.
A rate of less than 10% is futile, The EU will not approve any rate less than 10%. But it’s not the rate which is important – it’s the basis which matters. The rate could be 20% if it’s a territorial basis. If you are advocating a rate for all companies without territorial basis then that really would be economic suicide as it would be terminal for the fiduciary industries of all three islands. Nobody is going to agree to that as it’s one of the strongest legs of the finance industry both itself and as feeders for the banking and investment management sectors. If that sector goes then we are all doomed, make no mistake. An effective zero-rate product for clients of the fiduciary industry is absolutely sacrosanct. Without it we may as well all get on the plane now for Singapore or the Bahamas.
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GM,
Very noble of you to offer to pay a higher rate of income tax, I think I’d probably also agree to it if I was on a modest annual salary of £100K+!
I’d like you to do a couple of years on £20K or so and experience what the less fortunate have to put up with in order to assist with (supposedly)ensuring the future of the finance industry.
If financial institutions can still afford to be paying wages of £100K+ then they can afford to pay tax.
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kevin
Why shouldn’t high earners pay a bit more? And that’s not limited to the finance industry either.
You obviously don’t understand the reality of the financial institutions. Its not at all about whether they can afford to pay more. Its about whether they would stay here in the first place if they had to pay more tax in Guernsey than they have to pay to deliver identical services and products from identical jurisdictions, i.e. Jersey and the Isle of Man. Some of them are in two or even all three jurisdictions. If one becomes more expensive in tax terms to operate from, they will simply move to or consolidate in the others. That’s lost tax revenue to Guernsey which cannot be replaced. That’s lost jobs in Guernsey which in the current climate wouldn’t be replaced. That’s more tax burden for the rest of Guernsey, and so on.
Why do so many people in Guernsey take such an insular approach? The global financial institutions do not have to be here. They can be elsewhere, and tax competitiveness is one of the factors which currently causes them to choose here (as well as political stability, time zone, well-trained staff etc., but many other competing jurisdictions have those same attributes).
Is it because Guernsey people are used to a captive domestic market where customers have to pay the price if they want the job done (i.e. tradesmen?). If I need a plumber for a job then I have to pay the local rate for a plumber. Ditto multiple services over here. There is a small market and the local price finds its level. in the global financial economy totally different rules apply and everyone wants our good financial services business. We risk it at our peril, and don’t be fooled into thinking that its only those in the finance industry who would miss out. Every single person in Guernsey would catch pneumonia, not just a cold and not even flu, if a big chunk of the finance industry was driven away through adopting the wrong tax structure.
But yes, high earners can and should pay more tax. Of course we already pay a lot more tax than low earners as 20% of 5x is a lot more than 20% of 1x, but why should a 20% rate be the cap? We can’t afford to scare the open market away either, so unearned (investment) income could still be taxed at 20%, but why not have additional higher rates of 25% and even 30% for high earned incomes?
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GM,
Thanks for your reply, whilst I understand what you are saying and I can’t blame you for defending the finance sector (I would be doing the same in your position) I’m sure the majority of people on low incomes would like to see it pay its way.
I know that it brings a lot of work and money into the islands but at the same time it has also greatly increased the cost of living here.
Looking in from the outside it is not the best feeling seeing the number of £60K Range Rovers driving around without a care in the world whilst many of us are struggling to pay the mortgage,monthly utility bills and fill up our 12 year old Ford Fiestas!
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It really depends what you mean by “pay its way”.
Compare a household earning £200k, running a Range Rover that they change for a new one every 3 years, with 2 kids in private schools; to a household earning £30k running an old car they don’t change and 2 kids in state schools.
I think the £200k household could argue it is the one paying its way, while the £30k household isn’t and is surviving on subsidies.
The £200k household pays around £36k in income tax (compared to £2k); pays way more in fuel duty; helps support local jobs at car dealers; and pays additionally for the jobs at the private schools.
There’s always more than one way to examine an argument…
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kevin
That view stated in your last paragraph is understandable and inevitable. It would be no different anywhere else in the world either.
All I’m trying to do is get the point across that taxing the finance industry does run a significant risk, in several sectors of it, of losing that business to other jurisdictions. Times are tough, even for the finance industry, and they will look at all potential cost savings, tax being one of them. Once that happens, people will realise that maybe it was a fatal mistake, but by then of course its too late and every islander then suffers, either directly or indirectly.
A better balance needs to found locally, but those who simply shout “tax the finance industry more” have to be extremely careful what they wish for. If they were to say “tax the local high earners more”, as opposed the industry itself, then that’s a different matter altogether.
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GM
I’m sorry, just because an agreement broke down in the past doesn’t mean that like governments should not work for their common interest.
I’m sure the isle of man are now feeling the pain of zero/ten especially since they lost their VAT concession. Jersey certainly are and the lower paid in Guernsey are really starting to feel the effect of having to subsidise the finance industry through tax.
Whatever the best method of raising more tax through the finance industry, whilst still remaining competitive should be explored by all three jurisdictions as a group. Someone needs to take the iniative, otherwise I can see years of discontent ahead as the gap continues to widen between those who have and those who have not.
To me tax is very simple:
As an individual, you work, you earn, you pay a fair percentage in tax.
As a company: You run your Company, it earns a profit (or not) you pay a fair percentage of tax on that profit, either to the jurisdiction it is earned in or split between that jurisdiction and a home jurisdiction.
That way all elements of society pay fairly towards the Jurisdiction they live in.
I don’t think its working out quite evenly at present.
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Gary
I would expect your last few lines will stir a reply from Arnald
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James,
Yes, there is more than one way to examine an argument but the basic fact is that everyone including the low paid are having to subsidise the employees of those households that are earning £200K a year.
Granted the high earners do contribute more to the economy but then they can afford to which sadly many of us can’t.
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GM,
I’d go for taxing the high earners more but be realistic it will never happen – the States are far too scared to upset the richer people of the island.
I’m afraid it will never change – money talks!
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Gary
The point I was making was that any such agreement between the three islands is unforceable and so cannot be relied upon.
Your simple analysis of how you think tax should work is undermined by competition at the top end. Other jurisdictions want the taxes of the mobile wealthy (the open market sector) and also that of the corporates (and more importantly of the jobs that they create).
Today’s Opinion page of the Press highlights the high tax burden on the individual in Guernsey. The harsh reality is that whilst corporates don’t directly pay much tax, they do create the jobs from which a masive percentage of the individual PAYE is generated. Very simply, without the jobs created by the mobile corporates, our tax base barely exists, so its not as simply as personal tax v corporate tax. PAYE revenue is much more important than corporate tax revenue to us.
Take an example – a big company here (not a bank as banks pay more) might employ 200 people and make say £4m profit on which it pays no tax. Average PAYE paid by those 200 staff is £8,000 per head across the company. Ignoring Social Security, Guernsey gets £1,600,000 of income tax via that company being here. Assume the tax rate goes up to 20% for that company. So the company now pays £800k of tax on its profits. The Isle of Man sticks to 0% (or even 10%). The company decides to move there to save £400k to £800k of annual taxes on profits. As a result of trying to collect £800k per annum of corporate tax, Guernsey loses the £1.6m per annum of tax revenue. It now has to pay out lots of unemployment and social benefits to the extra unemployed. The earnings of those now-redundant 200 staff no longer circulates in the economy, so there is less revenue for other island businesses. Its not quite as simple as that, but you get my drift. Not a great result for Guernsey though.
Retaining jobs here is critical. Jersey now has around 1,500 unemployed and its likely to rise by another 1,000 at least because of the fulfillment industry problems. That’s 2,500 no longer producing tax revenue. At an average of even £5,000 per person, that’s £12.5m of lost tax revenue, even before the knock-on effects. And you can bet your bottom dollar that they would roll out the red carpet to attract good businesses from Guernsey.
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Kevin
Can you explain the first paragraph of your post number 47? You’ve lost me!
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GM,
Sorry I’ve just realised that I’ve had a reply to my post 44 which was directly to me and not viewable on the public forum!
Thats why it won’t make any sense to anyone but James who sent it to me (it probably won’t make sense to him either!!) lol
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One way to compensate for fuel price rises, one I find works 100% of the time. Walk to places more. You loose weight and save money. The Island is hardly massive!
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Short-sighted view Pedestrian. Your food, electricity, taxi, buses and many more things (including your walking shoes)will go up in price. It is inflationary to every aspect of our lives. This budget alone will probably add at least 0.5 – 1% to our inflation rate.
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In the UK during the decade ending April 2009, average real incomes after deducting housing costs increased by 37% for the top 10% of earners. Meanwhile, the bottom 10% saw a reduction of over 11%. The top 10% helped themselves to 31% of total income, the bottom decile a meagre 1.3%.
Thus, the rich have got richer and the poorer…. you guessed it.
I have not got the figures for Guernsey, but assuming that there is some sort of correlation with the above, this is my 6 point plan towards a more equitable and increased tax take:-
1. A much increased marginal tax rate for very high earners (top 1 or 2%).
2. More allowances for the lower paid. This would make the decision to work rather than accept benefit a lot easier as wages earned would be tax free.
3. An increased marginal tax rate on high threshold unearned income.
4. Modest tax on finance institutions. I’m sure a 2% tax (or a bit higher), for example, wouldn’t lead to a PB Falla type exodus. Having set a low initial level, Guernsey could probably increase this %age by a small amount once in a while with no adverse material consequences.
5. Some sort of Capital Gains Tax at a level which still makes Guernsey fiscally attractive.
6. A streamlined, globally compliant tax regime which gives tax administrators a decent chance of collecting tax in a timely manner and doesn’t become a tax adviser’s charter to earn extra fees.
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Hobbesvlocke
Please don’t stand in the 2012 elections, if you ended up as Treasury Minister the island would be bust in no time.
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Blimey, I can’t think of a less likely possibility. Is it something you’re thinking of doing?
I do believe though that many Governments will, eventually, have to address the inequality between the lowest paid and the very top earners at both an individual and corporate level.
For example, in the US, Apple has something like US82bn in cash and therefore appears to have more cash than the US Government. This has happened because the US State has provided a trading and social environment through legislation (e.g. intellectual property rights, employment laws etc), in which a few players are able to benefit massively.
In times of growth and plenty, these consequences are over-looked and even applauded. In the opposite case, these matters are critically examined.
Why?, because the state has to ensure legitimacy and the main way it is achieved is by ensuring that it sets out and enforces polices for the benefit of the majority of its citizens
Hence, if Governments do get round to address these issues, there may be the opportunity for Guernsey to do something similar but at a slighly lower level so as to still remain competitive.
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Lol. Agreed.
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GM,
You have chosen a scenario that suits the argument you have put forward. I.m sure there are many Companies with small numbers of employees making large profits and the pendulum then swings in the other direction.
There are now more and more finance companies minimising their staff levels, less people to provide greater income for the Company. Yes of course individual employees from the finance industry provide a fair percentage of our tax take, but that should not be a reason for those particular companies not to pay tax on their profits. ( I know we must remain competitive). That is why it is so impotant for us to negotiate with jersey and the isle of man.
You mentioned the Guernsey press leader. The figures there show:
‘Figures published by the professor from Treasury and Resources and the Social Security Department show just how highly taxed islanders now are. Of all the money spent by government, 66% comes from the individual through personal income tax, personal indirect taxes and personal or self-employed contributions to Social Services. Add the employer contribution as well; and the amount taken from the individual goes up to 79%.
Businesses, by contrast, fund just 11% of the island’s annual expenditure, or 15% if corporate indirect taxes are factored in.’
If those figures are to be believed then I would suggest Corporate business is not paying its way through Company profits , only through their employees tax contributions.
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Gary
You aren’t completely wrong, but its very difficult, and indeed potentially impossible, to differentiate between sizes and types of company. That’s actually the reason why zero-10 is so difficult to address as ringfencing and separate treatment is what the EU Code of Conduct will not accept. Adopting a low rate of tax on ALL companies (as Hobbesvlocke seems to be proposing in his point 4 above) es) would eliminate the fiduciary services industry instantly unless the one single tax system for all companies is a territorially-based one, as there are multiple offshore jurisdictions around the world (including many not attached in any way to the EU) who offer a zero-tax product and will continue to do so without any external pressure to change.
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GM
Excuse my ignorance, but why would that wipe out the fiduciary Services?
Are you telling me they do not make any profits?
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Gary
Isn’t it obvious? They would have no clients left!
The thousands of Guernsey companies owned by the fiduciary firms’ clients don’t pay tax on their profits. Never have done. They pay annual fees to the States and Guernsey benefits from the profits and employment of staff by the fiduciary company. Those client entities are the biggest feeders of banking and investment management business to the local banks and wealth managers.
If you are, say, a Middle Eastern client with a Guernsey company with £10m of assets in a Guernsey company and are not currently paying tax on its profits in Guernsey and you are then told that it’s going to be 2% annual tax on those profits, you could liquidate that company or redomicile it within a couple of weeks (literally) to just about any other jurisdiction in the world which currently competes with Guernsey’s zero rate product. Why wouldn’t you move it? The cost to the client is negligible. The clients leak out of the fiduciary and it’s dead before you can do anything about it.
That’s why Guernsey has to offer a zero-tax product without unacceptable ring fencing.
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GM
That’s not strictly true is it? Why would the clients “leak out of the fiduciary”? Why not just shift the assets into say a BVI company then continue to have it looked after by the Guernsey fiduciary? Or migrate the company elsewhere and continue to have it looked after by the fiduciary?
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Nigel I totally agree with you. Let’s all lobby our deputies about the fuel and property tax rises. Your link to the government website is great. Easy I know but most people would not be able to find it. Very strong opposition to this budget and rightly so. What i fail to understand is how Parkinson and co can compare our taxes to places like the UK saying we should be more in line blah blah. Is he having a laugh on us when he know well it is very very different. I’m not saying it is any easier but I know for a fact that families don’t end up with huge medical bills they are unable to afford and food prices etc are I would guess about 40% lower that here. Never mind the captive marked of the airlines charging us a fortune to get of this rock. They never mention that do they? Amyway let’s all lobby our deputies now and thank you Nigel for that link. Another thing I feel so sorry for pensioners over here. They are a lot poorer than my mother I know that. The things she doesn’t have to pay for in the UK but here how can they live on that paltry amount. God help us all. LOBBY NOW.
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Phil
You are not wrong, but that’s assuming that non-Guernsey companies don’t get caught by an extended zero-10 as well, which is quite feasible.
However, if the Guernsey Registry lost the annual validation fees of say 25,000 Guernsey companies at the current £500 per annum then that’s £12.5m per annum of lost revenue to Guernsey, plus of course less revenue for Guernsey legal firms advising on Guernsey company law (although many of them now also cover BVI law so maybe that’s not such an issue). If non-Guernsey companies had to pay the annual validation fee then there is the chance of signficant leakage because the clients would then be simultaneously paying statutory fees in two jurisdictions and might decide that’s to be avoided.
I wouldn’t like to over-rely on that arrangement being available in say 5 years time. If it is, then great.
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GM,
The Fiduciary firms obviously make good profits out of their clients.
Are they also zero rated?
Are we once again just relying on collecting tax from their employees.
The clients may pay an annual fee to the States , but their profits must be taxed somewhere, surely their home jurisdiction requires them to declare profits in an offshore jurisdiction. Do we withhold tax for those jurisdictions, if so why are we not taking a percentage for so doing. That would not infringe on the clients profits.
We seem to have a gun at our head and we are continuously taking the easy way out at the expense of the ordinary Guernsey taxpayer.
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I don’t disagree with GM that there is a delicate balance to be struck here between a much fairer tax system and preventing business flight to other jurisdictions because we look less competitive, there are other clear attractions to operating elsewhere not least the freedom of companies to bring in whoever they need and house them without licence restrictions, less expensive travel in some cases, more scope to expand (land etc) so if we add to those attraction in anyway through being uncompetitive at a fiscal level, then our very lucrative business base could contract considerably. Having said that, what has irritated me over this particular budget is the label it has been given that it is “tough but fair” it is tough if you are on a low income or if you own a property and are on a modest income, drive a car, like a bottle of wine or smoke. And it is blatantly unfair because it targets the poor as well as the better off and no tax system that does not recognise the basic principle of people who can afford to pay more should do so, can possibly be described as “fair”.
My other beef is the accumulative effect of these tax rises, with utility charges and related household costs already stretching family budgets that simply have no slack left in them. Making families poorer is not why I supported zero 10, forcing people into receiving States help because they cannot make ends meet on their own is not a sensible policy and any extra tax raised is likely to be paid out to families we have helped to impoverish in the first place.
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Gary,
you can’t impose any taxes on the clients and have to be extremely careful about what you do with the fiduciaries who serve them. The client’s business can leave literally overnight (and does)to a more favourable jurisdiction. They aren’t interested in the nice cliff walks, schools or any other benefits of Guernsey life. Guernsey Plc benefits from the business – if there are no clients then no fee income, no employees, no spending in shops, no work for tradesmen employed by the fiduciary’s employees, etc. The clients aren’t remotely interested in the social welfare of the less well off in Guernsey or whether the earnings difference here is fair. Our fiduciaries are amongst the best in the international market but are very expensive compared with elsewhere (a by product of the high cost of living and overheads here) and clients have already left because of that – increasing the cost of doing business here for fiduciaries reduces their competitiveness in the market and increases the exodus of business to elsewhere which in turn leads to an increase in the tax take that the States needs to make and the viscious spiral sets in. A difficult balance to get right and very easy to get wrong! In the round whilst social inequalities may not be fair the “ordinary Guernsey taxpayer” does very well in contrast to most places. Whilst I’m jealous of the guy who drives past me every morning in town with the new Ferrari if he wasn’t able to buy it then I suspect there would be a whole lot less of those ordinary taxpayers about.
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What if the Green Lions were actually real lions?
I saw a magnificent match recently in which the Green Lions easily beat their visiting UK counterparts. The make-believe Guernsey lion mascot cavorted in delight each time Guernsey scored. At the final whistle, the 1,800 strong crowd along with the Guernsey players left the ground obviously very happy. The only people who were upset were the visiting side – but, fortunately, there were only a few of them. So, in terms of increasing the net sum of overall human happiness, the match was a success.
Then, I got to thinking; say this match occurred in Rome circa AD 64. Also, what if the Guernsey side comprised of real lions (perhaps very hungry ones)? Further, say their opponents were, in fact, a collection of Christians. The conclusion of the match would be broadly similar. i.e. the crowd very happy, the lions contented and fed, and the Christians- not so good.
This rather reminds me of our current tax dilemma. The argument is that to increase the net sum of Guernsey happiness we need to have Zero-10 (or something similar). Otherwise, the overall tax take will reduce markedly and we will all suffer. I don’t like this assessment but it is almost certainly true
In the current economic climate, the consequence of pursuing this policy means that a portion of the population will suffer dis-proportionately more than others (e.g. lower paid front line care workers and those on fixed incomes).
At what point do you start to question the status quo and conclude that whilst the net sum of happiness in the community is still high, don’t these mauled victims have some rights too?
If there is no change in the current tax strategy, more needs to be done to support those who are working hard (or have worked hard in the past) for low incomes who are seeing their real incomes diminish.
PS A “real-life” blood-bath occurred though at a recent GFA match. I witnessed a side who hadn’t won a single match for 10 years lose 137-0 to a club which routinely contests for top honours.
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A Bod,
The minute we accept that we are totally tied to complying with the wishes of a certain area of Commerce, (or UK and EU) and it is they who are pulling Guernsey Government’s strings as to how they use Corporate tax, to the detriment of certain areas of society, which apparently is the position we are in according to your assement above. Then we either act with some principal at a possible financial loss to the Island, or we subjugate ourselves to those pressures and the Guernsey Government becomes the puppet of business (UK & EU), a position I feel we have already achieved.
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Gary
The fiduciary businesses are indeed zero-taxed but they never asked to be. There is no reason why they should not pay the 10% rate but as most of them are owned by local residents who pay 20% income tax anyway, the actual tax take would not materially increase, although some of it would be taxed earlier and that would benefit Guernsey. The fiduciary companies which are owned off-island would then be taxed on the same basis as locally-owned ones, which would level the playing field. Moving the fiduciaries into the 10% bracket is a no-brainer in my view.
You don’t seem to understand how interntional tax planning works. Its about using legitimate tax planning structures so that clients do not have to pay tax in their home country on an arising basis. Clients are not evading tax in their home countries, just deferring or avoiding it (not the same thing at all). Proper tax planning structures inevitably result in deferral of taxes at the very least. But of course there are also clients living in jurisdictions which don’t tax foreign income and gains (territorial basis), clients living in nil-tax jurisdictions like the Middle East who use trusts for estate planning reasons,with no tax benefits, non-doms living in the UK who are taxable only on a remittance basis, foreigners living in the US as beneficiaries of trusts settled by non-US settlors etc., so they are legitimately using zero-tax companies and trusts here.
You need to have a rather better understanding of the industry before suggesting that the Guernsey entities themselves should pay tax. Any moral arguments as to whether they should or should not is a separate issue but if we do try to tax them it will quickly become irrelevant because they will no longer be here.
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GM,
I’m well out of my depth now so this might be a silly question, in your first paragraph of post 67 you say that most of the fiduciaries are owned by local residents who pay 20% income tax, presumably they pay themselves a salary or do they just pocket the profits?
If they pocket the profits then don’t they end up paying more tax on their income than if their company paid 10%?
Also the finance industry has been well established in the island for the last 25 years – long before 0/10, how can everyone be so certain that it would fold if they were taxed at a sensible rate?
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GM,
thanks for that reply, I don’t profess to have any in depth knowledge of international tax arrangements, but i do have very strong feelings on the moral issue affecting us at this current time.
There appear to be many variations of arguments but the latgest by far is the money one, we must fall in line and continue to be run buy the Corporate sector, the UK and the EU. In fact our Government might just as well go home and let them sort it out between them.
Kevin,
I think the answer is the Isle of man, it started all of this and apparently to stay competitive and not lose business, Guernsey jumped in straight after them
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kevin
The owner would be paid a salary and also take dividends. Salary would suffer PAYE (20%) and the dividends, when received, would suffer 20%.
They wouldn’t pay more tax if their company had to pay 10% tax on its profits because the 10% already suffered by the company would be treated as a credit against the shareholder’s personal 20% tax liability. But the difference is that the tax office would get the 10% tax on the profits every year instead of getting 20% in the form of personal tax when those profits are distributed, which might perhaps be 2 or 3 years later. So for locally owned fiduciary services companies the tax office would not get extra tax, but it would get some tax earlier than it does at present. But the tax office would get an extra 10% from the foreign-owned fiduciary services company which pays no tax on its profits here at present.
Re. your last question its got nothing to do with “sensible rates”. Its to do with whether the rate is a lot higher here than it is in another competing jurisdiction. Its all about competition. The world is an incredibly competitive one at the moment and many financial services company are struggling to grow. Guernsey is already an expensive place to do business because the salary cots are very high compared with some jurisdictions. That’s to a large extent offset by the high quality of staff here and good regulation. But if you add extra taxes as a cost of being here then you will soon hit a tipping point.
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Gary
I understand your sentiments but we are where we are and if we don’t protect our main (only significant?) industry then our problems will be one of Armageddon proportions. We are over reliant on one industry, albeit a diverse one, and that’s far from ideal but nobody has managed to identify one to diversify into. I may be wrong but not suppressing the fulfillment industry might well have been a sympton of not knowing what else to diversify into.
The Isle of Man’s strategy would have worked like a dream for them if we hadn’t followed them!
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