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.


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