BREAKFAST CHAT – Why Guernsey needs to court, rather than exploit, wealthier individuals

Below is the latest in our series of talking point pieces under the heading of “Breakfast Chat”, intended to provoke thought and discussion.

 

Why Guernsey needs to court, rather than exploit, wealthier individuals.

 

The States of Guernsey Medium Term Financial Plan 2017 made an estimate of capital expenditure needs for the following four years, and proposed raising some £14M of these by “targeted tax measures”.  A continual emphasis in the Plan is that of “those who can afford to pay more, paying more.” Unfortunately, of course, this phrase carries a built-in judgement which means all things to all men. Everyone tends to subscribe quickly to the stated principle without really translating it into actual measures, because not to agree automatically with it risks looking selfish, cold or greedy – and anyway, people also instinctively feel that those who can “afford to pay more” are simply those who are wealthier than they are themselves. However, the tide underlying this philosophy can lead to a dangerous apparent targeting of, and antipathy towards, the very individuals whom Guernsey ought to be encouraging to come or stay here, and to contribute to the island’s prosperity and well-being.

 

It is not suggested that the general concept of “those who can afford more should pay more” needs to be abandoned, but it does need to be applied with caution. Those who can afford to pay more in fact already pay more in general taxation terms, because the flat rate percentage tax imposed across earnings means that they inevitably pay “more”. Once you follow a policy of distorting this basic effect further, by resort to an increasingly “progressive” approach of imposing a higher proportionate burden on “those who can afford to pay more” as individuals, you risk at least three disadvantageous consequences. These risks therefore need to be balanced against any real gain, as contrasted with an illusory one or simply ideological gratification.

 

First, by pressing this concept too far, you create ever increasing resentment amongst the better off. Most of the more affluent members of society will in fact accept that they can reasonably be expected to pay relatively more than others to some degree towards the common need and good, because the proportionately greater money which is taken from them is money which they would use for luxuries rather than the basic necessities of life. However, most of them will also feel that they have come to be “able to pay more” because they have made energetic or prudent use of their talents, opportunities and resources, and that their fortune is not the product of unmerited good luck, but of care, astuteness, hard work, and risk-taking. They will feel that it is therefore unjust to deprive them very greatly of the ability they have created for themselves, to enjoy life with a high quality of assets and experiences, and an improving standard of living, to the full. Like everyone, they only have one life and they too have a right to be able to make the most of it. They will accept an imposition against this to some extent if it is not too great, and there are compensating advantages such as feeling good or gaining respect, but there will come a point at which their goodwill evaporates.

 

Second – and very importantly leading on from this – at the higher end of the spectrum of “those who can afford to pay more”, are persons who are very mobile. They can vote with their feet. They do not have to base themselves in Guernsey; they choose to do so – and the balance of pros and cons affecting their decision to come or to remain will be under constant review. Despite any vague establishment aspirations to make Guernsey one of the “happiest and healthiest places in the world to live”, living in Guernsey has significant practical disadvantages compared with other places. Travel access is often difficult and unreliable, and is famously expensive. The island is small with consequent limitations on experiences. The cost of housing, at all levels, is breathtakingly high. The cost of living is is also high, being on a par with that of Central London but without the access to London’s facilities and entertainments. Most food is imported, making it both expensive (even absent VAT or GST), and less fresh in quality. It is very difficult to get things done promptly and affordably. Therefore, to induce the better off to come and give their support to the island’s economy, it is necessary to make them feel that there are advantages which more than compensate for these downsides.

 

Third, repetition of the mantra that “those who can afford to pay more should pay more” simply encourages law-makers to press this approach, because they see it as a good, popular way to garner votes from those who see themselves as amongst the less able to pay – whose number is, naturally, far greater in vote terms than the wealthier end of the spectrum. The vital point here, though, is that the actual financial gain to be made for the States coffers from from heaping progressive taxation obligations on to individuals who are perceived to be able to “afford to pay more” does not, in practice, bring in a significant amount of revenue, and almost certainly insufficient to have any discernible effect in reducing the necessary burden of tax on others at middle or lower income levels. Its real point then just becomes that of appeasing the less well off by penalising the better off. That is an unworthy approach and should not be allowed to drive policy decisions on progressive taxation.

 

Guernsey in fact needs to cherish and encourage the presence of high net worth individuals on the island. Because such persons are looking for support, in both business and domestic matters, they create jobs – although it does seem that, as many indigenous islanders regard these as unduly menial and Guernsey has enviably full employment, such jobs often go to incomers from the Latvian or Madeiran communities. The more affluent impose less of a burden on States resources because they have private resources which they find it more convenient to resort to, even though at greater cost to themselves. Where they feel welcome, they will use their own resources voluntarily in charitable and other beneficial works for the community. Their contribution to the good of the island is largely underestimated and is ignored by those who see them only in the abstract stereotype of “rich toffs”, or on an “us and them” basis. Facts and figures showing this underestimated contribution were demonstrated last year by the survey carried out by the Open Market Forum, which set out to improve the “image” of the Open Market, following justifiable anger that their property rights and interests had been ignored and overridden by the States when amending the Housing Laws.

 

Guernsey really cannot afford to alienate either the Open Market community, or the more affluent local market community, by making them feel that they are seen simply as a milch cow by politicians with a socialist agenda.

 

An example of this last, mean-spirited attitude has already been implemented by the States in the disgraceful “rolled up” proposal to make rates of TRP on residential properties (ie people’s homes) more “progressive”. The proposal was to impose increased “progressive” rates of TRP in bands, rising according to the increased floor size of the property, but it was claimed that it was “too complicated” to introduce the entire hierarchy of these rising band rates at one time. So in a particularly nasty move, it was enacted, not merely to increase TRP rates generally, but in the same provision, to impose what was ultimately to be the very highest band rate, payable only on the largest properties, alone and in full at the very outset, thereby raising TRP on such properties by an eye-watering 76%. The proposed lower tiers of increased rates for less large properties were to be deferred.

 

It may well have been appropriate to increase TRP rates generally because of inflation. There may also be an argument for progressive rates of TRP for larger properties, – although once again, those individuals who inhabit larger properties are inevitably “paying more” even though their consumption of public services is no greater, and very often less, than those who inhabit smaller properties. But the appropriate approach would have been to bring in the higher bands gradually from the lower levels upwards, over successive years, rather than just to “soak” the theoretically better off at one fell swoop, achieving very little financial gain, just because it was easy to do so, and would doubtless help appease the complaints from the majority of the populace facing a general increase in rates of TRP.

 

The message this discrimination sends to better off individuals is that their assets and wealth are the subject of envy, and that the States will take advantage of any opportunity to try to extract more money out of them, and make them pay extra for their good fortune. Such an attitude will deter from our island just the kind of individuals whom we should be seeking to encourage to join us, and to contribute – by investment, energy, goodwill, job creation and voluntary contributions, – to our society and its prosperity.

 

At present, one of the attractions of Guernsey to the well off is that it still appears to believe that an individual’s money is, in principle, his own to do what he likes with, and government should take in taxation only that which is required to ensure the security of the population, to provide necessary infrastructure and services as required by all, to support those who, through no fault of their own (the young, the old, the infirm, the temporarily jobless) need financial support from the community in general, and otherwise to facilitate individual enterprise and responsibility. It has not yet fallen into the mind-set that an individual’s money really belongs to society at large, and government is entitled to decide how much it will graciously allow the individual to spend on himself. Guernsey needs the well-off and it must think of means to attract them – although this of course extends beyond the purely financial, to matters such as a high quality education system, attractive environment and general quality of life. Guernsey cannot, however, afford to appear to have a socialist agenda.

 

Bemused of Torteval

© 2019 The 2020 Association