Taxation

Health and Social Care – future funding

I made the following speech about the funding of health and social care during the debate on the personal tax and benefits review report.

 

Sir, I just wish to focus briefly on recommendation 17 and more generally on the comments made about healthcare in this report.

Throughout this report it states that the costs of healthcare will rise. All Members will be aware of the statement made by the HSSD Minister on Tuesday setting out cost pressures for this year – some of which are one-off and others recurring.

The current Board is looking at truly transformational changes to our health and social care model that focuses on patients and the need to do things differently to enable people to live independent lives for as long as possible. This includes increased focus on social and community services and the use of telehealth and telecare.

However, whilst people are staying fitter for longer, and the idea of old is changing,  it is clear that with an aging population, the demands on those services will rise.

With this in mind it is interestingly to read the results of the consultation in 2013 set out in the Appendices, where  45% of respondents stated that they would not accept an increase in taxation to fund all the rising demand for health and long term care in the future with only 35% being in favour.

And respondents were equally split on whether tax funded health and long term care should be reduced and people should pay more themselves.

So, the taxpayer is not willing to provide a blank cheque for our health and social services. Consequently, we are going to have some difficult questions to answer in the near future – what services should we provide, how do we provide them and how much are we willing to pay for them?

The benchmarking review currently being undertaken jointly between T&R and HSSD will be the starting point of this process. But at some point we, and when I say we, I mean all stakeholders on this Island, will need to have a role in deciding what shape our future health and social care model will take. But of course, we don’t know what our future model will look like now, or, more importantly in the context of this debate, how much it will cost.

Therefore, given not only the views of taxpayers regarding how much they are willing to contribute, as well as the 28% Cap you have agreed to this week, we need to have an open mind as to other alternative forms of funding  to enable us to provide the health, social and community care that meet’s the public’s expectations.

Taxation – ability to pay – amendment

I laid a successful amendment to the personal tax and benefits review to ensure that, before changes were made during the transitional period, that the ability to pay is considered. My short speech is below.

Sir, I do not propose to say a lot now as I understand that this amendment will be supported by both the T&R and SSD boards, and given the number of amendments and the simplicity and straightforwardness of this one. I am proposing that when T&R and Social Security Department make recommendations for
changes during the transitional period, aside from other considerations they consider people’s ability to pay. As I said earlier in the debate on GST, I have a major issue with this report not considering people’s ability to pay, either in the transition period or the long term, and this amendment merely is a natural follow-on to that amendment.

Document duty

I voted against the amendment to the PTBR to look at replacing document duty with increases in TRP. Whilst I had some sympathy with the arguments I was concerned that this would substantially hit the commercial sector where TRP rates are already signficantly higher than domestic rates and mentioned this in the debate. The other problem associated with this proposal is that, whilst document duty is not the best form of tax in that it works against property sales, it is administratively simple and by placing more focus on TRP, it will mean the opposite of diversifying our tax base.
What I do believe should be looked at is a reduction in document duty for first time buyers.

Social security contributions – amendment

I laid a successful amendment against the personal tax and benefits review that followed along the lines of the previous Green amendment requring an investigation into the ’20 means 20′ taxation for higher earners. This amendment sought the same in respect of social security contributions. I made a short speech along these lines in the States and it was supported ‘au voix’.

Environmental taxes and mitigation measures

I supported the successful amendment to the personal tax and benefits report, seeking a review into the introduction of environmental taxes, along with mitigating effects for lower income households.  My speech is below.

Sir, I stand in support of this amendment. Indeed, this is something I put in my manifesto and I recall someone at the time saying that was a very brave thing to do. Being a fan of  ‘Yes Minister’, I did wonder whether I had actually put my foot in it by having done so. I was very supportive of the emissions element of the width and emissions tax , though my issue with it in that context was that it was a one – off cost.
I agree with Deputy Luxon–I do not have the business concerns that it is considered that there might be out there, but then I run a business which considers the environment and has thoughts of the environment very much at the heart of what it does.
We do precious little to support people to make energy-efficient means to improve their way of life, though I do believe the Environment Department planning section is far more accommodating to domestic applications for small-scale alternative energy installations. The truth is domestic alternative energy systems are now incredibly efficient, resulting in really low running costs, but the upfront costs, whilst falling, are still prohibitive for many households.
Support in this area could make a huge difference to many by reducing the cost of living, as well as improving the Island’s carbon footprint. Our environmental taxes will make improvements in that area. They should be welcomed. Therefore, I am very happy to support this amendment.

A progressive tax system – amendment

I laid an amendment against the personal tax and benefits review instructing the Treasury & Resources department to review the advantages and disadvantages of introducing a progressive personal tax system through tax bandings, with a lower rate for those on low incomes to a higher rate for those on the highest incomes. It was defeated on the back of quite erroneous scaremongering by certain Deputies, most notably Deputies Stewart who believed it would mean High Net Worth Individuals would not want to come to Guernsey as a result. This made no sense given that Guernsey has no Capita Gains Tax or Inheritance Tax. What was also forgotten was that the amendment only sought for this to be investigated, not that it should be.  My opening and closing speeches are below and I stand by everything I said that day. The reference to the dark side in my closing speech is as a result of Deputy Stewart saying that is where I had gone with this amendment. Of course, he is the one that has not seen the light!

Opening speech

Sir,

It is not unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.’ Those are not my words but, perhaps somewhat surprisingly, those of Adam Smith in Book 5 of The Wealth of Nations, covering the Sources of General and Public Revenue of Society.

And it is in support of that argument that this amendment seeks to direct T&R to investigate the implications of and proposals, if appropriate, for the introduction of a progressive system of income tax with lower bands for lower earners and higher bands for higher earners.

Now there is always a lot of noise heard whenever the idea of charging higher rates for higher earners is mooted. That by increasing tax rates it will make Guernsey less competitive. Indeed,  in the Appendices it states that increasing the tax rate for higher earners would put Guernsey at a disadvantage.

However, on the assumption that we are not talking about pernicious rates of tax, which I do not believe we need to do and certainly don’t advocate, I question that reasoning.

For a start, I would question just how much more supportive of high earners we could be here. We  have no Capital Gains Tax or Inheritance Tax for a start. Add to that low property taxes and the most well off in our society actually do comparatively very  well compared both to other Islanders and high-earners elsewhere.

 

Quite frankly when I read in this report that and I quote, ‘increasing tax rates or withdrawing allowances for high earners would increase the number of people who  plan their affairs in such a way as to minimise their tax liability, I was flabbergasted! Don’t make people pay more as they will seek to avoid it! Yes, I would say the more complicated a tax system the easier it is to avoid, but a higher tax band is hardly going to see hoard of people rushing to their tax accountants.

Arguments are often made that high earners are synonymous with entrepreneurs. Indeed, the report states  that highly skilled individuals ‘tend to’ generate economic growth by developing businesses and devising new products and services. And that by charging tax rates which could discourage such people from moving to, or staying in Guernsey could be detrimental for the Island’s economy and its growth potential, which, we are told,  in this report, must be the States’ first priority.

But I’d say, if generating economic growth is our first priority – what are we doing to encourage people to set up businesses in the first place? Surely we shouldn’t set our income tax rates on the hope someone comes along but to actively help investment in our economy.

What support do we genuinely give real entrepreneurs? Those who may not start out on fantastic incomes but have great ideas with nothing in the way of government support to help make it happen? That’s the barrier to growing our economy.

Now this amendment calls on T&R to not just look at a higher rate band but a lower rate band as well.

Appendix 1 Principles and Issues Document even states itself that in some cases the direct tax burden of lower and middle income households in Guernsey may not compare favourably with the UK or Jersey.

At present we have a recruitment crisis in nursing – this was made clear by the HSSD Minister in his statement on Tuesday.  Our biggest source of skilled nurses is from the UK for a variety of reasons, but we are actually in a disadvantageous position in terms of recruitment as there are no tax benefits of coming over here, in fact quite the opposite. And neither does it help the recruitment of local nurses on an Island where the cost of living is high. A lower rate band would contribute to making Guernsey an attractive location for those key workers.

The report in front of us today is dismissive of any changes to the income tax system, other than looking at allowances. And even more strangely, amongst all the 41 recommendations there isn’t s a single one that asks us to confirm our support of the structure of income tax. Only that we should be less dependent on it. I find that unacceptable.

Whether or not GST had been killed off, I believe further analysis needs to be undertaken of our income tax system with consideration of people’s ability to pay. And let’s not hear any one from the SSD or T&R Departments stand up and say we have got all the information we need in this report, it was looked at extensively and we have all the answers, after the comments they made about needing to look further at GST. That was their focus. If they are not happy they had enough detail on GST then there definitely wasn’t enough research done on the  income tax structure.

This investigation is needed irrespective of whether we have a GST system as well.  The 20% rate has been treated as sacrosanct for too long. It is a shibboleth that needs to be challenged. Now is the time to do just that. I urge members to support this amendment.

 

Closing speech

Sir, well, welcome to the dark side! When my son hears that tonight he will be chuffed, I can tell you. I will have to dig out his Darth Vader mask.
Deputy Langlois stated that he is shocked how much tax his son was paying in the UK. I do not see how much relevance that has got for Guernsey. Perhaps he should come over here.
Now, Deputy Stewart talks about this amendment setting hares running. Well, the only one doing that is Deputy Stewart within his crazy speech and getting everybody talking about the Open Market, clearly, trying to hijack this debate. Clearly, Deputy Stewart did not listen to a word of my opening speech. He speaks about how Jersey is attracting all these high earners. This is an Island that is running at a £50 million deficit last year with high levels of unemployment –
certainly, higher than here. So perhaps their tax rates are unsustainable. I would say they are. Certainly, that is something they are probably going to have look at.
He talks about uncertainty about Income Tax rates, but now at least we can guarantee we have no uncertainty over GST. Of course, all these ultra –
high net worth individuals he is talking about have a capped tax rate, as I mentioned. This amendment does not question that. I also repeat what I said earlier: what are his Department doing to help grow businesses?
Deputy Harwood states that the top 10% provide 40% of the income, but what percentage of the Island’s wealth does that represent? In many countries, it may represent up to 80% of the nation’s wealth. And Deputy Harwood fell into good old trap of asking me what I think a high rate earner is. Well, that is why I want the evidence. I want to see an investigation. I am not providing the
answers now; that is what I am seeking T&R to do.
I thank Deputy Conder for actually focussing on those who have been forgotten here. With all the talk about high earners, all those who have spoken about how it will hit the richest on the Island, have totally forgotten the lower earners. Remember median earnings, median earnings are only £30,000, if we are thinking about what a high earner and a low earner is. Deputy Spruce, again, forgets what this amendment says: ‘investigate’, not bring in, introduce or implement.
I will not mention about Deputy Perrot talking about the Open Market. I think Deputy Brouard dealt with that adequately well.
Deputy Adam’s comment was very interesting. Consultants’ rate –talking about how well paid consultants are. We would have a rate of tax in the UK that would well be over 50%. There is nothing like what they are charged here. A bit of a gap to play with, I think! Sir, I thank the comments and support of Deputies Laurie Queripel, Fallaize, Burford, Dorey and others. Thank you for your comments, Deputy Jones, for bringing back some sanity to the debate.
And also to Deputy Sherbourne for his passionate speech and for Deputy Brouard’s common-sense. We are not a cheap jurisdiction. You are correct. What this amendment seeks to do is make it a more equitable one. Sir, I have made no secret of the fact that, for me, a tax system should be built around the
ability to pay. During the debate on GST, I stated that the fundamental criticism of this Report was that little consideration had been given to the ability to pay, but considered that they should be.
This Assembly, by supporting Deputy Conder’s amendment, just demonstrated its desire to support a progressive system of taxation. For such, we now need to devote time and effort to looking at what such a progressive system should be, that is fit for the future, and we really cannot do that without looking at tax bandings. How can we not do so? Why is it okay looking at one aspect but not another? If we are going to investigate a more progressive tax system, we
need to do it properly and that means looking at our current tax rate and whether it is fit for purpose.
I, therefore, urge Members to support this amendment.

GST

I made a commitment in my Manifesto of 2012 that I would oppose GST should it be proposed to the States. Originally it has been the intention of the autohors to include GST as a recommendation in the Personal Tax and Benefits Review. However, as a result of the strength of opposition, this was watered down to ‘let us keep looking at it’. I still could not support this recommendation as it would basically enable it to be easily brought in for the next term. The reasons for my opposition to GST are set out in my speech. I usually like to keep my speeches relatively short, but I felt the importance of this debate required a lengthy riposte. Fortunately, the recommendation was defeated. Of course, there is nothing stopping it being brought back in the future. I will oppose it unless all other avenues have been exhausted to be able to manage a balanced budget.

 

Sir,

Last week I was attacked by a certain ex-Deputy for having an open mind.  Apparently the fact I wanted to have further information before making an evidence based decision was seen as a bad thing – whatever hat I was wearing.

I am sorry, it may be considered a failing, but I always like to start with an open mind. And make evidence informed decisions. The last 4 months has shown me just how important such an approach is.

And,  in terms of  today’s debate, what I can say is, I have read and researched the evidence for quite some time, to enable me to make an informed decision about whether we should look further into a broad based consumption tax now. And I have made up my mind that, based on all the evidence put in front me, from the research I have undertaken, not just from the last 6 weeks but over several years and from first-hand experience – no we should not.

Of course, when it comes to taxes, as well as death and childbirth, there is never a convenient time for any of them, but this isn’t about not understanding the need for change. I believe we do need to rethink our approach, which is why I welcome this debate now and why I will be laying an amendment to seek to explore alternatives.

Now instead of repeating much that has already been said that supports my standpoint,  I would like to focus on why I believe even considering GST, particularly now, will be dangerous to our economy.

But before I start I would like to know  where is the comment from the Commerce and Employment Department? We were treated to a 12 page document from C&E on the perils of a width and emissions tax, but when faced with a report that will have a significant impact on virtually every business on this Island, we have silence.  And I have to say I was astonished to hear that the C&E Minister Deputy Stewart would support further research into GST when his department is meant  to encourage local businesses and look for ways to promote a positive environment in which to conduct business on Guernsey.

So why should we be concerned about the threat to our economy by even considering GST now?  Well, firstly we need to consider business uncertainty.

We have heard a lot about how we must be very careful in how we discuss possible changes to our corporate tax system as this might cause business uncertainty. Well, the same goes for GST. If I were thinking of setting up a business involved in the provision of goods and services, particularly where I would be having to compete against those from off-island,  I would think long and hard about setting up before I knew where the States were going on GST.

We are already an expensive place to do business, all a broad based consumption tax will do is increase costs and have inflationary consequences, in addition to adding to the administrative burden. And to pick up on a point my colleague Deputy Luxon made yesterday, remember, it is far easier for a large firm with a separate accounting function to absorb those extra costs than smaller owner-managed businesses.

Just looking at Jersey’s GST website, there are pages upon pages of what you can and can’t claim, advice for different businesses, various options such as partial exemptions as well as when and how to pay, that it will clearly be a more unproductive activity at a time when we need to reduce the obstacles we put in businesses way. And on that note I think the red-tape audit, which for me was an important part of the Economic Development Framework could not come soon enough.

 

Secondly, I am concerned about some of the assurances given in the report regarding the shape that a GST would take here.

The report talks about a turnover based threshold that would exempt some businesses from paying VAT, and there is an indication that this might be similar to that in Jersey, which is currently as high as £300k. However, as picked up by Deputy Conder,  given the relatively small size of Guernsey businesses, where more than two thirds employ less than 5 people according to the latest Facts & Figures booklet, that threshold would have to be much lower to obtain the £50m claimed could be raised. But I suspect the truth is that businesses may be forced to register as the costs of not doing so may be prohibitive if they can’t reclaim input tax. So, there’s a Catch 22 – register and spend more time and money on administration, or don’t register and incur increased costs of goods and services themselves. Lose, lose. The small businesses will lose out the most.

Thirdly, I have concerns about the assumptions of economic growth.

 

Paragraph 1.1.15 states that growing the economy is not within the mandate of the review, but assumes a modest level of economic growth. However, was that taking into account the introduction of a broad based consumption tax?

There is no getting away from the fact that GST undermines economic growth for two reasons. Firstly, it disincentivises productive behaviour by driving a larger wedge between pre-tax income and post-tax consumption.

And secondly, it makes for bigger gov­ernment and bigger government means, in a static population,  a transfer of people from the  productive sector of the economy to the public sector, diminishing economic efficiency.

It would make perfect sense to consider talking to Jersey as a means of mitigating the administration costs, though I believe it will be of limited benefit unless we adopt Jersey’s system wholesale. By the way I suspect the fact the reviewers think GST will be cheaper to administer than income tax probably says more about the adequacy of our income tax systems than about the administration of GST. And in terms of Returns Creator – Deputy Perrot, speak to those that have to use it and you may get another word back to describe it other than brilliant.

But of course, when considering administration costs, we shouldn’t just focus on GST. As the Deputy Chief Minister stated yesterday, this is a package of measures, we should not look at GST in isolation. I agree we shouldn’t. We shouldn’t forget all the supposedly mitigating measures that will need to be brought in through pensions and benefits and how they will be administered.

These are not going to come at nil cost to SSD, or whatever department becomes the one administering benefits in the future. GST may  possibly be efficient in terms of tax collection but how many more SSD staff will be needed to handle the increased benefits claimed?

And this brings me to the final and what I consider to be the fundamental reason why I can’t accept recommendation 38 and it revolves around this one sentence in the report, and I quote, ‘Data suggests that, while a consumption tax in isolation may be regressive, it is possible to mitigate much of the regressive nature through the pension and benefit systems.’

 

My greatest criticism of this report is that little consideration has been given to the ability to pay. In fact, that phrase is only used twice – one being a quote from a respondent to the consultation and the other, ironically, to justify the introduction of the £1 prescription charge for those who currently do not pay.

The only way I could conceivably accept a GST would be if there were exemptions. I fundamentally have a problem with the taxing of food other than, possibly, as a means of influencing behaviour. And Certainly at a time when we are seeing food banks appearing across the Island. And what about fuel and power? This could have serious consequences for those on lower incomes. But, the truth is we could not afford to make such exemptions.  We are too small an economy. Or, if we did, the rate of tax would have to be put at a much higher level to compensate.

Deputy Perrot’s likening the purchase of a litre of milk to a tax and calling it regressive is complete nonsense.  Charging GST on a litre of milk is what is regressive. Definition from the Oxford Dictionary –  (Of a tax) taking a proportionally greater amount from those on lower incomes: indirect taxes are, as a group, regressive

But we are told, there is more detail that needs to be ironed out – what after 2 years? It’s hardly rocket science. It is broad based – so there are going to be very few exemptions, there will be a threshold, but then that is likely to be meaningless anyway, and it’s going to be 5%!

And, if the writers of this report don’t know broadly how this broad based consumption tax will work, how can they say it will raise £50m and how can they provide 16 pages of how their favoured scenario will affect a variety of households?

 

And, on that front,  according to this report there will be people adversely affected. For instance, it states that 30% of couples with children will benefit, which means a huge 70% won’t. Whether that means it won’t affect them at all, or they are badly affected is unclear, as is how many of them may have to start claiming benefits. But is that what we want? Making more people dependent on benefits? Giving them even less disposable income that can be circulated in the economy?

That’s not a future I want to see.

Life since 2008 has been bad enough for businesses, which has had a direct knock on effect on jobs and wages such that we are now seeing net migration. The introduction of a broad based consumption tax would cripple our economy at a time of ever increasing costs, red tape and though emerging, still fragile growth.

Back in 2012 I said it was imperative we got the Personal Tax and Benefits Review right. That if we got it wrong it could have a lasting detrimental effect for the future of Guernsey’s economy. Getting it right means rejecting recommendation 38,  supporting this amendment and supporting our local businesses and  I urge members to do just that.

Question of T&R Minister March 2015

I asked the T&R Minister a question following his quarterly update on the States’ financial position in March 2015. The signs were very positive at the time, which was reflected in the Minister’s speech. Contrast this to the budget 6 months later where the outlook suddenly appeared to have worsened, with less income tax receipts than were expected. My question back in March and the reply from the Minister are interesting in hindsight.

Sir, previously we have heard about problems in the Income Tax Office regarding back logs in returns. I was wondering whether the Minister could say to what extent he believes improvements at the Tax Office have contributed to the increase in income?
Reply:

Sir, it is a fair question. However, based on our previous work in this area, of course the vast bulk of our revenues are collected through the ETI system and through interim assessments, and therefore, if you like, the cash flow has not been significantly affected by the problems that were experienced in the Income Tax Office last year. So no detailed analysis has been undertaken, but clearly it is a positive that the administration of Income Tax has improved and will continue to improve this year, I very much hope, sir.


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