Transcription
Okay, good morning everybody. [snorts] Um, and for those of you that stay up to watch the football last night, it's going to be a bit of a hard slog this morning, but hopefully, uh, the, uh, euphoria will keep us going through the, uh, through the session.
As ever, this is a parliamentary hearing, so parliamentary rules apply. Uh, there are obviously members of the public here, but unfortunately, you're unable to ask questions, I'm afraid. Um, and we will be recording this, and it's obviously broadcast live via YouTube, and there will be a transcript in good time via Hansard. Um, so, no further ado, I'd like to, uh, introduce my panelists. Uh, Deputy Haley Camp to my right and Deputy Liam McKenna to my left. And if I may, Deputy Summer, if you just introduce your, uh, team as it were. I think we've got the full, full, full team this morning, I believe.
>> Uh, yes, we've got the full, full team on the pitch. No one's been red-carded yet, so that's all good. I'm, uh, Deputy Lindsay De Sausmarez. I'm president of the Policy and Resources Committee.
>> Deputy Steve Fuller, member of Policy and Resources.
>> Deputy Von Ber, vice president of Policy and Resources.
>> Andy Niles, uh, member of P&R.
>> Charles Parkinson, member of P&R.
Good morning, everyone. And, uh, and just for the benefit of the rules, therefore, there are five of you, so I won't be using a red card or a yellow card because we can't have all of you answering each question. We'll be here till the cows come home. So I might be limiting you to just very quick. Now, um, as you appreciate, we've got the tax policy letter which was published, uh, four weeks ago today, I believe. Um, I know it's been 20 years in the coming, as I did hear to the Facebook Live and listen to it, but, uh, in actual fact, we've only had four weeks to review it, and it is a new package. So we did think that on behalf of the public, it would be an opportunity for us to go, uh, through this and ask a few questions that won't be able to be asked in any other manner. Obviously, it is a little bit last minute, as some of the, uh, you know, Denier's meetings are being held this week, Deputy Fella, you know, it is all being a bit compressed in the last minute, and we've only got two hours to go now.
Um, if I may start, I'm, uh, going to start by, let me think now, making a suggestion, if I may. And this is, I'm going to ask you to sort of challenge this assump- this assessment. When I was actually called by, uh, Peter Ruffy, um, the day that this was published and asked what my, my initial thoughts were, he never actually published what I initially said. And I said, "It feels like this report is anything to introduce GST." You know, that's what it's been designed to do. And, you know, for someone who actually is in favor of consumption taxes, you know, that might mean, Machiavellian-wise, it's quite a jolly good thing. And the other, so the reason I've got two reasons for believing that. And the first is, is on the 22nd of June, Deputy St. Pierre, who, um, I believe we all know, and I should imagine, uh, had a fair input into this, said that, um, you know, almost couldn't resist himself. He said it, basically, he was sort of saying it was the, um, given that Guernsey politics is an absolute unfettered right to an unlimited number of untaxed vehicles. Sorry, reading that in the wrong, um, he said, "Is this the damp squib or is it the art of politics?" And his argument was effectively, this was a package designed to be sold, and sold it does feel it is. Because if you go through on the first line, we started off with the, with the policy letter, and it starts off with the first sentence: "The States have had a funding gap, in other words, a shortfall between income and expenditure since the introduction of 010 in 2008." That's the first sentence. So my first question is, could you tell me what the deficit was in 2008?
>> Um, uh, in real terms, in today's money?
>> Just in 2008 money.
>> Okay. 2008, what I know is that in today's money, according to a fiscal policy panel report that I believe you, um, helped to author, uh, the, or maybe it was the, No, sorry, I do apologize. I think it was the Tax Review Subcommittee. The income that was lost from the corporate sector was—
>> I'm not asking what the income was lost. I'm asking what the deficit was in 2008.
>> Well, it was £148 million in, in the value of today's money that was lost, and some was compensated.
>> I'm not asking that question. I'm asking what the deficit was in 2008.
>> Well, it would have been, uh, so—
>> I'll save you all looking it up.
>> Um, it wasn't. There was a net surplus after routine capital of £34 million. The revenue income was £348.8 million, and revenue expenditure was £296.7 million. That first sentence that says there's been a shortfall between income and expenditure since the introduction of 010 in 2008 is not true.
>> Not, well, it depends if you, uh, that may have been the surplus after routine capital, but it obviously not after, uh, the sort of levels of capital investment that the States should have been spending.
>> That's not true either. Uh, WT, it's, it's marginal, much of a difference. If we had a 2% target in 2008, it would have been in balance. The net revenue expenditure was included in the 2% target.
>> I don't believe it was. So then I can ask you, because we're going since 2008, because in those days, 2% of GDP would have been £4 million, because we calculated GDP in a different manner, and it was £1.9 billion pounds in 2008. Next question is actually, could you tell me what the revenue surplus was in 2017?
>> Jennif—
>> Revenue surplus in 2018?
>> Well, if we'd had some forewarning of these—
>> Surplus in 2019?
>> They were all higher than £75 million.
>> But that, I think we're coming back to the thing that we discussed at our last scrutiny hearing a couple of weeks ago, which is the difference between the revenue surplus and the structural deficit, which—
>> Capital expenditure those years would have been £60 million.
>> Sorry?
>> On a 2% target.
>> Sorry, I missed that. Capital expenditure would have been two £60 million pounds on a 2% target.
>> I, I think—
>> So we had surpluses in those three years. We had surpluses in 2008. Yet the—
>> The policy letter, its first sentence says we have a shortfall between income and expenditure since the introduction of zero-turn in 2008. That's not true.
>> Well, it's a difference between—
Can you tell me how much spending went up between 2019 and 2023 in real terms? So there's a, there's a difference between an operating surplus and a structural deficit, which is something we spent quite a long time discussing at the previous scrutiny hearing. So I think those—
>> It's not an accounting issue, summary.
>> No, exactly. Structural issue. We had surpluses of over £75 million in three years consecutively, which more than covered capital expenditure of 2% in those years.
>> It, but we weren't—
>> And that was using the accounting standards then, not the ones that were published the other week. So the, the average expenditure on capex over the last 20 years or so has averaged between 1 and 1.5% of GDP in that time. So we have been historically underinvesting in our infrastructure, as you yourself, um, uh, cited in the fiscal panacey, fiscal policy panel report.
>> But—
>> And actually, it was your report.
>> Million. So I'll ask you a different question then.
>> Well, it was, it was—
The demographics are a big driver of this, aren't they?
>> But can we just come back to that point?
Demographics are a big driver of this.
>> So why do we use 2050 demographics for a three-year, for income in three years' time? We've got to review in 2030.
>> Yeah.
>> Why are we using 2050 demographics to justify that?
>> Then—
>> We're not. We're using, we're using demographic trends, which obviously have to be done over a long, um, planning horizon. But I think Andy had something.
>> I just wanted to come back to the, uh, the fiscal panel, uh, review, policy review that that was carried out in 2023, which Dr. Sloan, you were a member of at that time, and, and that clearly demonstrates on, on figure 14, general revenue deficit assuming 2% return on revenue and then a capex of 3%. Since 2013, it showed between a £50 million pound, uh, structural gap in those two parameters, and, and it never showed a surplus.
>> That's a 3% figure, you know, not a 2% figure, which is the policy.
>> Correct. That's—
>> So in terms of the demographics, which is a large driver of these proposals, could you tell me what the contribution of demographics is to our funding shortfall by 2030, when the next review is made?
>> [clears throat]
>> So, sorry, can you just, um, say that question again? I'm not really—
>> In the policy letter, we use, we use 2050 demographics, and we also say, and by 60, the social security funds are are exhausted.
>> But that's 25 years' time.
>> Yeah.
>> Okay.
>> In three years' time, when there's a review, how much has been, what's the contribution of demographic to the funding shortfall?
>> So—
>> Between 2028, when these are introduced, to 2030, that's three years. Okay. So obviously, the demographic trends are instructive here, and there is one particular figure which I think is quite helpful in understanding the contribution that demographics makes to the pressure on public finances, and that is that, just in terms of providing like-for-like provision in healthcare and in social care, uh, we need to spend around £6 million pounds more each year, um, than the previous year, and that's on top of inflation. So that gives you an idea of the growing spending pressure because, um, more and more people are falling into the age categories, uh, or progressing into the age categories where they're more likely to need more expensive, um, uh, health and social care. So that's one example of the demographic drivers that do affect our, uh, demographics. Now, obviously, by, um, 20, uh, 28, or, or more pertinently, by 2030, because you're asking about the review, um, one of the super priorities is around establishing a sustain- a more sustainable model for health and social care. And so one of the things that we think is going to be, um, very relevant, uh, to that review is, um, any, uh, decisions, any policy decisions that move that baseline that have been taken as a result of that work that's being undertaken at the moment by HSC, um, or indeed any other work streams that, uh, uh, impact on it. So that's a material example of how, uh, demographics do have, um, a very real effect over a short number of years.
Okay, I'll give you that one. So six and a half million over three years, £18 million pound might be the contribution over those three years.
>> That's on the demand side.
My, my question then is, in terms of the demographics, in terms of the solution, we've obviously got an assurance review at three, after three years. We've been 20 years in the making, which I find perverse that after 20 years, we're already doing something that's a stop-gap solution for three years. On figure 18 in the policy letter, >> what you see is is that actually by 2030, on your central projection, we're £21 million pounds short of the solution, of of on your own figures.
>> Yeah.
>> Right. And then by 2035, it's now £45 million against £50 million. These are real terms numbers, by the way. These aren't, these aren't adjusted for inflation. There's no need to do that. So we start off with a problem of £50 million today, and in less than 10 years' time, the problem is £45 million on your central assumptions.
>> Yes. But—
>> Why is that?
>> Because those core assumptions assume like-for-like, uh, policy direction as now. So it assumes, for example, that that key super priority that I mentioned a moment ago on, uh, finding a more sustainable model of health and social care hasn't happened. Um, and obviously, we know that's a super priority of the States, so it will happen, and we are hoping that that will, uh, move the dial. It also doesn't take into account things that at this point in time are not certain, but we will have more clarity on, uh, by then. So, for example, um, the extent of efficiencies and savings that we will have, uh, undertaken, the effect in these numbers. No, no, um, there's only an element of efficiencies that is modeled. It doesn't take into account further efficiencies that might be found. Um, and it also, uh, doesn't take into account, um, the, uh, potential, um, upside if Pillar 2 receipts are higher than we are currently modeling. Uh, it also doesn't take into account, for example, any potential revenue, um, from offshore wind. Now, uh, it also doesn't take into account any impact, positive or negative, of AI, and these are all things where, uh, we will have more certainty in a few years' time, and it does make sense, um, to, to, uh, take that review, and actually the figures that you've cited, you're right about the core assumptions, that's what you're quoting. But also, we do have an adverse and a favorable, um, scenario parameter, and obviously that can be expressed, uh, that's a greater range of assumption, well, uh, that's a greater range of assumptions and potential outcomes. Um, so actually, if, for example, Pillar 2 receipts, uh, are higher than anticipated, if the economic growth strategies are underway, for example, the finance sector growth initiative, is, is successful, um, then, uh, we are going to be looking more towards the, the top end, more towards the favorable scenario, um, uh, and the top end of those parameters. So it does make sense to review where we're at in a few years' time, so that all of those factors, on which we will have more up-to-date information at that stage, can be taken into account, because I'm sure you will know as an economist, um, it's important to, uh, check, you know, how your model is playing out against reality, and if the facts change, then so should, that should inform the modeling, and it's really an opportunity to do more accurate, um, uh, modeling, taking into account, uh, the information that we will have more clarity on at that point in time. And these are things that obviously we don't yet know how the finance, uh, sector growth, um, strategy 2035 is, uh, is, is how effective that might be. Um, we don't yet know what the actual Pillar 2 receipts will be, etc. So these are the kinds of considerations that, uh, should be taken into account in 2030.
Okay, so you're happy to accept that you don't actually solve the problem that you're purporting to set out?
>> No, you don't.
Then it's central.
>> There is a—
So after 20 years of proposals, you're not solving the problem.
>> Well, it could, and there are some, there are—
>> No, you have to make a central assumption, Deputy, to some, and work around your central assumption. Not ifs and buts. It's prudent policy to make it to work around your central assumption. From your central assumption, you don't solve the issue. And in, in, in 10 years' time, driven presumably by the demographics, it is the same size as it is today. That does not make sense to me, which is why I believe this package is put together just to sell GST.
Okay, let's come to the, let's to sell GST. Um, you referred to Deputy St. Pierre's article in the press, I think it was. Um, and of course, Deputy St. Pierre was, um, attempted to introduce GST, um, as a standalone tax in 2015 as part of the pensions tax and benefits review, I think it was called, or all of those words, possibly in a different order. But, um, that, that didn't go forward because although it, that particular package wasn't designed to raise any money, it was very regressive in terms of GST being simply a standalone tax within that, um, package. And you, as why we settled on GST at all. And I, well, you, you did, you said you've obviously brought GST, and why have you done it? It's only 3%. So I think, I think the reason—
>> When did I say that?
>> In your, um, opening salvo, I think. I won't, well, I won't refer to it if you, if you don't want me to comment on that, that's not a problem. Um, but I thought you wanted to know why we, why we put GST into the package at all. Um, because you questioned whether it was the purpose of it was to just get it on the table. So, okay, I'll carry on. Um, so in that case, we looked at different scenarios. We've, um, what Deputy Dam has just said, and we felt that at the, at this time, with pressures on inflation, with, uh, pressures on households, everything else, we felt that it was perfectly prudent to bring this in to raise, in round terms, £40 million pounds a year without looking at efficiencies, um, which is going to make, there's no, no way anyone can argue that £40 million pounds is not going to make a significant difference. First of all, it's going to stop reserves running out by 2031. That is a huge difference in itself. And in fact, if you go back to the, uh, fiscal policy framework, when I think you were possibly involved in it, I think that now, there, there was a part which I'm not sure was actually in writing, but I think it was an understanding that our reserves would be kept, um, our general reserve would be kept at a figure equivalent to one year's revenue expenditure. So we would have been at that time looking at about £600 million pounds, and you know, we've not been close to that for many, many years. Now, I'm not suggesting at all that the purpose of this package is to replenish the reserves because it's clearly not going to do that, but it addresses the issue with the reserves of them, um, decreasing. And I think this, this committee is also understands fully the value of diversifying the tax base. It's something that has been needed to have been done for a long time, and it starts to do that, not just by a 3% GST, but also by the, um, hand-in-hand cuts in income tax. So it moves it away from income tax.
Okay, I'll stop with the Deputy Bur. Two things, obviously, you talked about diversification of the tax base. We'll come on to that. I've got one final point to make before Deputy McKenna has some questions about GST per se. The reason I stopped you, I didn't mention the 3% rate. I just said GST. I didn't say, and I think that I think that betrays our thinking that the 3% that you were, you were defending the 3% level, not the introduction of GST. Now, actually, this probably doesn't work, but when you say you raised £40 million through GST, let's look at cameras. I'm not entirely sure, but this is from Charles, from Deputy Parkinson's article on the 9th, 15th of June, where if you see on [clears throat] the income tax packages over here, you effectively have net on individuals, nothing more than £4 million. Net, net from individuals when you change the GST. Okay. Now, £44 million pounds in terms of the share of revenue of social security and income tax raised off individuals, what do we think that might be?
>> Roughly?
>> I've got, I've got the—
>> Trivial, isn't it? It's less than 1%. It's around, it's not even a rounding error.
>> Right. And my again, my contention is, having gone through all of this to introduce GST, and then for there to be no change, it's a huge change in the system, not to raise the revenue that has been raised elsewhere, isn't? The revenue is being raised from companies, tourists, and employers.
>> Well, the majority of it is not from GST, though, is it?
>> Uh, a lot of it is from GST, and the, uh, the fee that will be paid by companies in the financial services sector to be exempt from GST, which will raise £11 million.
>> But, but, but Charles is absolutely right. From, uh, businesses and tourists, that's where 80% of all the revenue is going to come from.
>> Of the net GST revenues. There's still social insurance, these, and all the other motor tax, which is nothing to do with your assumption that households in Guernsey are protected.
>> The aim is to is to aim it predominantly from—
>> Exactly. What portion of that though comes from measures that are reliant upon GST being introduced?
>> Well, the, the, well, well, no, it isn't—
>> Why?
>> It isn't because the ISC charge could is is fairly equivalent to the corporate levy that was suggested under the tax review subcommittee, that the tourism amount is just as well, is just over double what, what an extent resolution to look into a visitor levy. So there are other means to raise those—
>> Of course, there are other ways of taxing companies, but this is one of them. What it does is make, because there would would be a system of GST, finance sector companies would pay a fee to be exempt from it. You don't get the ISC without the GSC.
>> No, but you could get a levy without the—
>> Of course you could.
>> Yeah.
>> But, but, you know, the consultation was fairly positive. So it's the risk is low.
>> So to the point that misses out everything else, though, that's the—
>> Misses out what?
>> Well, the other, that's exactly the question. What does it miss out? I would like to really ask. So, so, so the central premise of this, we're talking about central premises. The central premise is that our tax system at the moment is far too predicated to be have a sustain- a sustainable ongoing, uh, tax base. We need to be more broadly based in our tax. And so your—
>> Corporate levy would achieve which, a visitor levy, so part of it would, part of it would, but undoubtedly introducing a goods and service tax, as, as have been done in, in 95% of all economies around the world, enables us to move forward. It moves us to enables us to move forward in a, a far more sustainable way than we have at the moment, where we've got a very, very narrow tax base that risks changes, uh, that are brought to us either internally in our economy or externally.
>> Well, I, I'd go along with that if only you, if everybody was paying GST, but only 15% are paying net more. So that doesn't, that doesn't hold water. We'll come to that in a minute. Now, that's my contention for all of those five different reasons that it feels like it's a repository letter, anything to get GST in.
>> Yeah. No.
>> And I'd asked FG McKenna to ask his—
I'd like, can I just pick up on your, um, your nice little poster? Sadly, I'm at an age where I—
>> Sorry, that my little poster was from the article from—
>> Yeah, but I, I'm at an age where I can't actually read it, but what I could do, and possibly other people in the room won't have been able to read it. But, um, what I can do, and just, I really want to, um, come back on the point that GST doesn't really raise anything. GST raises £55 million. That, that is a fact. £41 million. I, I'll walk you through the figures. £41 million.
>> Now, I get that the GST raised it. My, my point was the net change [clears throat] on individuals in Guernsey was £4 million. Now, I know, and you're saying that's, that is one of its beautiful attributes. We've managed to introduce GST and not impact anybody. Why would you do that unless it was to raise it in the future?
>> That's not what you're saying. That's not what you're saying.
>> That is what I'm saying. And, and it's not true either, because the, uh, net £4 million from, I mean, there's another £4 million from motoring taxes, which, yeah, third, but the net £4 million from on individuals is, is, is skewed so that actually the, the top quartile of individuals will be paying more tax, and the, uh, bottom half, bottom quarters in the income scale—
>> That £4 million is just going on those individuals. Yeah. 15%. Can we just let finish, maybe?
>> Yeah. So the, the £41 million on households, um, of GST, but those households are, and this comes to your point, they're getting £36 million back. I know that.
>> But the point I want to make, £28 million of that is income tax. So what this is doing is is diversifying the tax base, which I think is, is an argument you have made in the past of the importance of—
>> If I was to diversify the tax base, I would truly diversify the tax base. This is not really truly diversifying tax. It brings it down. Only 15% of people pay in.
>> So you're absolutely right. So, so this is an iterative, iterative, both process.
>> It is an iterative process. Tax, tax reform, tax reform.
>> It will be more in the future.
>> Tax reform always. % we absolutely don't know. But what we do know, you must—
>> No, no, let me finish. Let me finish. What we do know is trying to achieve the art of the perfect has failed us for many, many years. I, I've been a bystander to this, watching countless States Assemblies try to achieve the art of the perfect, and they haven't been able to. They've either been ruled out or they haven't been able to make their case. This enables us, by broadening our tax base and by coming in at a, at a potentially iterative process, it enables us to to achieve that because, as, as Lindsay quite rightly said, we don't, we don't know exactly what Pillar 2 revenue is going to look like. It's, it's, it's far more favorable, it seems now, by, by the accruals that we're seeing than [laughter] than we predicted three years ago, but we don't know how sticky it's going to be. And so for us to try and achieve something that's absolutely perfect, nailed on, going to be there for 40 years, is absolutely the wrong thing to do. And, and also, it's going to ask me about it. I've hugged the limelight for too long. Deputy Sloan, could I just come in? Um, your contention that our starting point was to bring in GST. If you look at the people around the P&R table and our track record as far as GST goes, I think that shows that that wasn't our predisposition by any means. We were hoping that the corporate tax, um, review subcommittee would bring us some good news. The outcome of that was disappointing. We had to then look at how else we would address an issue so that we wouldn't blindly, uh, reduce the general revenue reserve without any effort. We could, the easiest thing of all would be just to turn our back on, on the, uh, the issues that are coming down the road. That's not what we felt we were able to, we should be doing as the, uh, senior committee charged with, um, resolving the sustainability issue. So our starting point was certainly not GST. Um, we've then looked at how, given that GST is likely to be a feature, uh, going forward for all the reasons that we've already discussed so far this morning, um, about how we could best, um, compensate those less well-off for, um, for the additional cost of living and to, and to minimize inflation. And that's how we've ended up with the package that you have before you. Again, you're talking about issues about why five went to three, not why GST was introduced. To answer your question, Deputy Fer, Liam has three questions that he'd like to ask.
Okay.
>> Yes. Good morning. I, I'll probably only make it one or two just to move, move things on a little bit. And, um, you know, the, the theory of what £40 million will bring, but the reality is the pain that it will cause the community. And Deputy Parkinson, you know, we've, we've said this in there. We've had two videos that went viral. We did a night at St. Pierre Park where we were saying what we thought GST would bring to the community. Um, as well as a rally where, um, Mr. Vaudin, Mr. Dyke, many others were here on the rally. It was over 5,000 through St. Peterport. I remember standing at the Albert Pier and looking back to the North Beach, and it was eight, nine deep, thousands of people. So there's so many members of our community are leaving. And one of our favorite lines that, uh, Bey Park, but you cannot tax a generation that's no longer here. So in your projection of what it's going to bring in, well, you're you're forgetting the amount of people that are leaving because they cannot afford to live.
>> I might like to respond to that actually.
>> Well, you, you'll have, you'll obviously, I'll give you a chance. It's more, it's just more a preamble of of why I'd be against, um, the GST and where I've said, you know, again, we should reform our corporate tax system, and I would oppose the introduction or increases to taxes. Um, and I'd like to ensure that companies, um, doing business on Guernsey pay their fair share. That's why I was opposed to GST, and that Guernsey's financial position is stronger than many would, um, believe. We have a balance sheet with significant assets and a minimal amount of borrowing, but more importantly, our revenue account is in better shape than most people think. Actually, that, that wasn't my manifesto. My apologies. That was yours, Deputy Parkinson. So, if you could explain to me why when we spent five years talking about no GST, that you actually said to me that if P&R lose their flagship policy, they should resign. And here you are today putting your flagship policy letter. And if GST doesn't go through, one of the questions I ask is why have you done the U-turn? Will you resign, or will it call for a vote of no confidence in the committee, um, through not resigning?
My, um, uh, intention as expressed in my manifesto was that we would try and reform the corporate tax system before we brought in any new taxes on the resident population. Now, I had the privilege of chairing a subcommittee of P&R that looked into corporate tax reform, and that's what we did for six months. There were three very distinguished, um, experts on the, um, uh, panel alongside Deputy St. Pierre and myself. And regrettably, from my point of view, the experts were firmly of the view that, uh, it would be unwise to reform the corporate tax system beyond certain measures which are in the package, which raised £6 million, which without going with Jersey and the Isle of Man. That was their opinion. So I found myself as a bit of a minority on my own subcommittee. But that was the, if you, if you employ experts to give you advice, then you, you've basically reflected their advice. Now, uh, of course, I don't want to put any more taxes on the local population until the corporate sector are paying their fair share. But I think that this package does precisely that because almost all of the money, in fact, is coming from companies, employers, and tourists, and the, as Deputy Sloan has said, there's only a net £4 million coming from the local population. So this is not what I wanted. This is for me, second best. We didn't get the fundamental corporate tax reform that I wanted. But this, I, if I can't get, um, money off the corporate sector the way I wanted to get it, then I'll get the money off the corporate sector this way.
Deputy Parkinson, if I can ask a question. So I think it was, sorry, Deputy Niles, he said he stood as an outsider to this debacle, or this debate, whatever we want to call it, for the last 20 years, and nothing had been done. Now, quite similarly, as an outsider, there have clearly been, uh, repeat taxation review processes. The latest was Ernst & Young, and and that clearly came up with very similar findings to, to this tax review subcommittee. So why was it that this tax review subcommittee was suddenly going to find some, you know, some sort of, you know, the golden bullet to corporate tax, where it wasn't there before?
Well, I thought the 2022 Ernst & Young report was very defective because it didn't, for example, place any weight on the issue of creditability of taxes. In other words, that corporate taxes in Guernsey are often creditable in the hands of the shareholders of the Guernsey company. That's true for every company that's owned by Guernsey residents.
>> And, and yet the, and yet the fundamental findings of the report are similar.
>> Well, they may have got to a similar conclusion, but I don't, I didn't think the, um, argument was very strong because they ignored the fundamental issue of creditability of taxes. And, um, so I believed, and I still believe actually, that, um, a, a, a fundamental reform of our corporate tax system is going to be become necessary. But if you're in a situation that I was in, that your own subcommittee is with lots of distinguished experts on it, is saying you can't go further than this without Jersey and the Isle of Man, and all the signs are that Jersey and the Isle of Man don't want to play, then you've got to think of another solution. You know, the reality is I was between a rock and a hard place.
>> And it seems to me it's more a case of, of, of expecting different results from the same process. They, the, the question is, they fundamentally come up with the same conclusions about the same taxation system against the same global backdrop. So what was going to be different? Well, my opinion is not the same as the, the opinion of the majority of the subcommittee, but the majority of the subcommittee reached similar conclusions to Ernst & Young, but they did take into account the issue of creditability of tax, which is, uh, something I was very arguing very strongly about. I think there's also a political angle to this, uh, Deputy Camp, because at the election just a year ago, you'll remember that, um, Deputy Parkinson, and indeed Deputy McKenna, and, um, quite a few others who were subsequently elected, were standing on this platform of looking through the whole corporate thing to actually see what could be done, because there are a lot of people who understandably feel that when we changed things back in 2008-ish, that, um, a burden was shifted, did, in fact, I mean, they don't just feel it, it was a fact, a burden was shifted from the corporate sector onto the population of this island. Now, what gets lost a little bit is that in the intervening years, there have been numerous iterative changes which have pulled back nearly all of that, but not all of it. But this package actually goes to helping to rebalance that where the balance has now gone back, that sort of £100 million at the time, whatever it is inflated to today, has actually shifted back with together with the iterative changes. But the points I really would like to respond to are in, um, Deputy McKenna's, uh, preamble. Thank you. And he's absolutely right. People on, in, on this island on low and middle incomes are really suffering. And we, we as a committee are very keen, and you'll see it in a lot of the other policies that we have put forward. We are very keen to assist young people in particular in staying on this island. That's, you know, I hope that'll be possible for, you know, one day for my son will come down and come back, and I know for lots and lots of families on this island, that that's also their wish, that, um, young people will stay. But so therefore, you're kind of arguing at odds a little bit to, uh, Deputy Sloan, because he was making the point that of the £55 million GST, only a net £4 million, and I stress the word net, um, I mean, I have, it's £5 million, but we're not going to argue over that now, but between four and £5 million is actually going to be drawn from households, and that is coming from the higher earning households. But we're also giving back £28 million in income tax cuts. So the new basic rate of income tax is going to be 15%. We're giving back £8 million in social security changes. And so, um, that, and that comes from a new personal allowance which has never existed before. So your first £11,122, you will no longer have to pay social insurance contributions on. That's going to make a huge difference, and proportionately, that's going to make a huge difference to help lower and middle income households. And as it goes up the scale, that, that new allowance will be clawed back from £85,000. So it's not as if we're giving that to people who are high earners. So this is really a way of diversifying the tax base [laughter] without harming the people that we all care about. And just, just to that point, because I think what Deputy McKenna said would hold more water if what we were proposing was simply GST. But what has really fascinated me about his comments and, and the comments of, um, some of the discussion, some of the people, um, uh, uh, on online, for example, is that there seems to be no awareness of the fact that this package, uh, delivers a, a really quite significant tax break, effectively, in the way that Deputy Berford has just described, to the people that Deputy McKenna is quite right, absolutely struggling with a very high cost of living in this bailiwick, and they, other people that we are so determined to help. So if we were just talking about GST, then those comments are fair enough. But the whole point is we're not. It's a much, uh, wider package than that. Um, and it does, exactly, it addresses the exact problems that Deputy Malla has been right to raise. But I, it's, it's just extraordinary. One of my big concerns is the younger generations. And we know that the status quo is putting a greater and greater, and a more and more unfair burden, actually, on the younger generations, and they're the ones that will, you know, will be perfectly capable of walking if they think that tax burden becomes unbearable. And Deputy McKenna is nodding his head quite rightly. They will go, and that is the exact problem that we are trying to address with this package. And I feel so strongly, and I so agree with him. And if we were just, uh, proposing a, a GST, then his arguments would hold water. But we're not. It has to be looked at in the round, and we have to remember that actually, um, for someone who is on, uh, you know, for example, a wage of £30,000, then they will be taxed £1,375 less than they are today. So that makes a difference, something along the lines of, uh, their take-home pay is something like £24,790 or something. That will jump up to £26,400. I can't remember the exact, the exact sums, but it makes a big difference, actually, £26,100 and something, um, and that means they will have more disposable income, and that will help them deal with the cost of living, and that's even net of any increase in prices as a result of the GST. So that is why this, that is, sorry—
>> Even net of any of the price, I don't think the modeling's been done on—
>> No, it has been, it has, well, I can, I can walk you through it.
>> But let me ask you a different question, because actually, what we're doing, we're into sort of like silo-quizzing at the moment. So can I ask you a question? Was there ever, in the last 11 months, of turning over every stone, a, a time when the GST was not on the table? Did you, did you model a package that didn't have GST?
>> Corporate tax, the tax review subcommittee.
>> Mhm.
>> Uh, didn't have a mandate to look at GST. It's simply—
>> Well, no, but obviously the corporate tax, I'm talking about the central package. Was there any time over the last seven months where the central package did not include GST?
>> Yes. Yeah, absolutely.
>> And what changed?
>> Well, what changed basically was the tax review subcommittee. It did not recommend a fundamental reform of the corporate tax.
>> All right. So the only time that GST wasn't on the table was if the corporate tax review provided—
>> To a whole range of options we looked.
>> So what was it? Let's just put this, the top tax review to one side. Deputy Parkinson, the central package. Was there ever a time when GST wasn't on the table?
>> Yes, because it was, it was an evolutionary process because this, this committee, because we still have the resolution, um, from 2024, um, which we are discharging by bringing a policy letter, um, and I think that's quite important to clarify that, having taken advice on that, um, were this policy letter just simply to be voted down and no amendments to go through, it does not mean that we're left with the 2024 package. If somebody, if that's the package that a member of the States wants, they need to bring an amendment to that effect.
>> Because your States resolution is to bring a package of GST of 5%, isn't it? That's the—
>> Yeah. Well, and it, but it's to go through it all and come back with proposals, which is what we're doing.
>> So, when was it in the last 11 months that GST wasn't part of the central, because it was on the, in, in the 24th of November States resolution.
>> Yes. But so it's always on the package.
>> Yeah. It's been there.
>> No. No. Not in our package.
>> Three of you campaigned. You could have brought a resolution and said, "Actually, I'm going to bring, I'm going to bring a resolution say we're going to do a different tax package and rescind that."
>> Well, we could, but that would have taken a whole load of extra time. And part of the problem has been—
>> Well, you said you had extra time on, on the Facebook the other week, in your Facebook Live, you said you got extra time this, you've got extra time because of the States accounts in 2025. And I verbatim—
>> You said you had some extra time because of financial—
>> Oh, I thought you meant extra time to bring. Well, you do mean extra. Well, no, because I think it's really important that one of the reasons that tax packages have failed in the past, 2015, um, I'm, I'm not sure in the middle term, but also in the last term, is because the people charged with bringing them have finally got round to bringing them after sort of dragging their feet for three years and bringing them in the last year or so of the term. And they have a history of, there is a history of States members not wishing to approve tax packages and tax reform, which is what this essentially is. That's why it's entitled tax reform, um, in the last year of a States term. But we also didn't want to be dragging our heels about things because the capital portfolio is dependent to a degree on this package. So, you know, these things need to be done, um, swiftly but properly, and that's what we believe we've done. But I think it's really important to explain that the subcommittee work was what we were waiting for the outcome of before we actually started finalizing what the package was. In the meantime, we had, we had a whole load of work streams. So, we had workstream one, workstream two was that, that one. There were various work streams, and it was only once we'd had the results of the workstream two that we started pulling the different threads. We looked at all sorts of different iterative things that could be done.
>> GST was never off the table.
>> No, but it, like what you—
>> Nothing was off, nothing was off the table. Can—
>> I just, I'm slightly confused in, in that the last assembly successfully, uh, requested or—
>> But no States can bind a future States.
>> No, no, no. But, but, but there was an, there was an outstanding, there was there was an outstanding resolution—
>> To bring back and to bring back the implementation—
>> GST was always part of the package.
>> No, look how, what do you mean?
>> Designed a package that gets over the line.
>> As a, as a committee, we spent many months looking into different options. There were a number of different work streams, as Deputy Berford has described, and so we didn't have a sort of working set of proposals until later on in that process because we were in the exploratory stage. Now, to go back to the question that you asked about how do the sums add up, and this really addresses the central point, one of the central points that was, um, uh, Deputy McKenna, Deputy McKenna solid sort of touched on, was actually one of the reasons this is so much fairer as a package is because wealthy residents, um, especially those, and we have some.
In the island, who, who are very wealthy, but who have arranged their tax affairs in such a way that they don't contribute much, if any, income tax. Individuals are economic models dependent upon.
"Will be." "Yes. Yes. Exactly. But they're not making, they're not making, uh, as much of a contribution, um, as they might. And so, actually, this captures revenue that wouldn't otherwise be captured. And it really comes down to an issue of proportionality because if you are spending an awful lot of money in the island, then actually the contribution that you are making through a 3% uh, you know, GST is going to be substantively more than, uh, people's contribution, um, if they are spending, uh, relatively much less than that. And it's that asymmetry that actually helps us, um, uh, fund effectively the tax breaks for people on average and lower incomes. So that's how the, the sums add up. This is actually because people who have got more [clears throat] spending power, uh, are spending more, uh, we can actually generate more, uh, contributions which then help, um, a greater proportion of people, a greater number of people to.
So, can I, can I ask, therefore, if, if you're, you're talking about fairness and, and all these sort of things? So why is it that the people of Guernsey don't believe what you're saying? Because it's a really difficult message to get across. And actually, quite often, when people email me, if you can just let me ask, why don't they believe that? Well, so, uh, when, when people email me or message me or whatever, I often say, "Look, just give me a call." And I haven't yet had a phone call where by the end of that conversation, people understand it. And their one message to me is to say, "Well, you know, I'm, sometimes they say, well, you know, I still can't get that excited about it, but I certainly understand why you're doing it now." And my one request, and I get this so many times when I have this conversation, my one request is, please, please go and communicate that better because now I understand it. I'm much more supportive of it than I was before.
Hold on to ask you the question. So why is that? So what, why aren't, why can't you bring the public along if this is simple? You will be better off. Well, first of all, I think, sorry, >> can I, can I just >> can, can we all have a go at [laughter] answering because we're not really. Yeah, this is part of the part of the thing. Like we have, I think there is a, a sort of baseline, um, misconception, uh, which was actually quite well articulated by Deputy McKenna, that all we're doing is introducing, uh, a GST and those other bits don't really, um, stack up. So to Deputy Sloan's question, >> it's this time around, I think is the point. >> Yes. The reason why people don't believe it is because this time around, it's 3% now. Over line, it's 5% in 2030. It's 10% by 2030. No, >> that's what the numbers say. >> No, that's that's not that's not at all what the numbers say. >> No, it's, it's really not. >> Your own central, your own central proposition. You don't solve the funding shortfall by your definition by 2030. And by your definition, by 2035, the gap is as big as it was today. We're not trying, we're not trying to solve all things to all people today because we >> had 20 years. Which you said 20 years. I certainly, I, I certainly haven't had 20 years. But what this fundamentally does, this is the biggest shift in tax reform that we've had in, in possibly 80 years. So, so for the first, let me finish. For the first time, we've addressed the real core issue. And the core issue is all of our tax is being concentrated in the working man and working woman of Guernsey. And that's not sustainable. That shouldn't be right. We need to shift that so that people who can afford it more pay more. And so for the first time, we've dropped the, the rate, the standard rate of income tax from 20% to 15%. 15% is a big difference. And, and that hasn't happened since the 1940s. And that enables us to ensure that the people at the bottom end of the.
You smile, Deputy, uh, Deputy Camp. It's not a smiling matter because there, there has, you ask a question about why we haven't been able to take people with us. Well, there's a huge megaphone on social media that that blasts this and doesn't get into the granularity of what this package actually does. This package, in, in terms of progressing our tax to enable people to do better, is the first time that we really address. >> I smile because you refer to the 1940s and yet the taxation background has changed a heck of a lot. There are property taxes, there are fuel taxes, there are all sorts of taxes since then. So it isn't just a case of we've gone from a base 20%. But now we're making. Let me address that. That's why I smile. To, to address 77% of all of our taxation is driven by income tax at the standard rate of 20%. And so it's that 77% of people who work hard every day out there that we want to try and address. And to Deputy McKenna's case, it's absolutely them that we're thinking of. And that's, that's why we've designed it. >> Deputy Ns, you, you yourself called it an iterative process. >> Yes. And so would you agree that perhaps that, that is where a lot of the unrest is coming from because this does, this does risk looking like GST by stealth. >> So, so I, I don't know if, if that is the case. So, so life is, it's iterative. Tax reform certainly is. But introducing it at 3% now ensures that we can introduce it at an assumed inflation rate of about 1.9%, which is significantly better than, uh, introducing at 5% where we saw a 3% uh, 3.2% change in, in inflation. So, so the shock that we're bringing to our own, um, jurisdiction is lessened by doing it this way. So, so we thought. >> But there will need to be a further shock to. >> We honestly, we honestly don't know. So, so can I just finish? So, we, we don't know. So, so we don't know the extent of political revenue and the stickiness of it. Well, what, what, what I did refer to earlier is that the accruals that we're seeing from businesses are, are really favorable, but we don't know exactly what it is. And the tax review committee said that we shouldn't bank everything on on those dollars. And so this enables us to look at it at a, we think, at sensible levels. But when I came into P&R, uh, a little over a month ago, a little over a month ago, I, I really looked at it and it had changed. The proposition had changed. And I, and I sat down with our chief economist and I chat, sat down with our, uh, revenue services, and I, I thought this was a fair package to, to introduce it. It, I, I did say to them that I thought that there were, were going to be people out there who would want to buy t-shirts saying, "Bring back 5%." But hey, I, I, I think 3%'s reasonable. >> Yeah, 3%'s the art of the possible, which is what Deputy Sier said his main. Now, let me finish to answer Deputy N's point, which is, I think you have, I think P&R, you've got a Nobel Prize in economics in, in the office because I have never known consumption taxes being sold as a redistributive measure. >> Well, well, it's not, is it? It's not. It's impressive stuff. So, so dropping my point is all of these changes at 3%. >> Right. And I've heard you say, Deputy Sierre, well, we did 3% for now. It might be 5% by 2030. Can I ask what the mitigating measures will cost next time around? >> But, but why are you assuming that it's that rate that would go up? There are so many other >> Because you said that on >> No, there are so. No, the whole point, we are not. We have been really >> mentioned it was iterative earlier. >> We have been. Yes. But when he says iterative, we are. We have been. >> So why would you go through all of these? Just let me finish a sentence. Um, we have been really clear that we are not going to preempt the 2030 review. Now, at that point, they'll be able to take into account a whole, you know, a range of different, um, uh, considerations. We'll have more clarity on some of the issues I mentioned earlier, but it's not like there's only one option at that point. So, first of all, the core assumptions that, that black line on the chart that concerns you, that actually, we, I, I think it's reasonable that that baseline will have shifted upwards because we have got. Hold on. We've got policy decisions in the offing that I think are likely. >> No, you can't have that. You can't say it's going to move. It's your policy letter. That's where we're using the policy letter. >> So this is how you say I prefer somewhere else. This is how modeling works. And you put in a range of assumptions. And yes, there is a core assumption. And the core assumption at the moment, um, uh, is based on no policy changes. Now, there will be policy changes, but we can't preempt those. So it wouldn't be sensible to model those as core assumptions. However, when it comes to the 2030 review, first of all, they will be able to take into account all the, all the, um, greater clarity on on issues like Pillar 2 and economic growth and offshore wind and and AI and all of that. But also, it's not like they will only have one option available to them. They will have the full suite of options available to them. And again, it's not our job to preempt that report or preempt a future decision, but they might change, um, social security rates. They might change the income tax, um, rate. They might make a whole, um, you know, they might, uh, look at, um, property taxes in a different way. Uh, there are a whole range of options available to them. Um, so it's not as though we're going to get to 2030 and, uh, even if the, um, assessments at that point show that, uh, the funding gap hasn't quite been closed, it's not like they've only got one option. But also to your point of protections, um, that's something that we have been, uh, really clear about, that the relative value of those should not be eroded. So what we don't want is to introduce protections for the people that Deputy McKenna and myself are concerned about, the people who are struggling with the cost of living. We don't want those to be eroded over time, whether that's through inflation or any rate changes or anything else. Um, and just to quickly explain a point about how. >> Deputy Summers, you cannot guarantee that those protections won't be eroded. >> No, we can put, we can, we can guarantee, we can guarantee that we will put them in legislation because actually that's what the States has already agreed to do. >> And are they all legislative? Because my understanding is our policy decisions request of employ wasn't included in the policy letter that detail. >> Okay. Well, is really happy to discuss that, but there are ways that you can legislate for that. And actually, uh, we, yeah, I think part of the debate comes up next week. You just said all options will be available to people in the future. So the change in the legislation is available. >> Yes, they could, of course, yes. And that was the point about the sort of supermajority that had been recommended. First off, was that actually the supermajority was recommended against because you, one, you, you start to, to distort the, the potential opportunities of of tax, but also it is defeatable fairly easily. >> But can I make, can I make a really key point here? I think that, and that is that everybody is worried about the rate of GST going up. But income tax can go up. Social security can go up. TRP, the government can put any tax up at any time. So to try and say, well, we shouldn't have GST because it could go up means we better get rid of income tax and everything else that can go up. But I think also in terms of, um, your question about why haven't you been able to sell this to the public? The first, the first answer is, I don't, I don't think that premise is entirely true outside of Facebook. I tend to see an awful, and speak to an awful lot of people who are saying, no, we completely understand this, and we've looked at it, and we're very happy you've done the calculator, etc. So I think that it's not true to say it is not cutting into the, to the whole community. But also the, the point, the f, my final point, you're saying 3%, 5%, 10%. But you talked at the beginning about the long-term projections that we were putting in the policy letter, and there is no projection that this committee has done that goes anywhere near the requirement for a 10% rate of GST. I, it just, it just isn't the case. I mean, that would raise a sub, a substantial amount, but it isn't the case. I can understand why people, you know, on social media are saying. >> Perfect. Sorry, you only model out to 2035 in the policy letter, and you're 50 million short then. So that's. I don't know. >> Then. Well, there's a range of, range of assumptions. >> Well, 3% raises 55 million, doesn't it? >> So 6% then by 2035, but you've only modeled to 2035. >> But, but what that doesn't take into account of any other changes. >> Let's talk about modeling because you did mention modeling, and my watch has just told me it's time to stand up. >> Hang on. We'll stop now. We will stop now. >> There's there's 20,000 of our community waiting on their taxes. And then we've also got a situation where the community is looking at the tens of millions that we've lost on MOV, the 130 million we've lost on Agillysis, the trouble we're having with the electronic patient record system. Um, John Fernandez said there's something else. So what I'm saying is, where is the confidence for the community to say this is the time to raise taxes? So the 20,000 of the community that are waiting on their taxes, do I owe them? Do they owe me? Do you not think we should sort that out first? And do you not think we should also, do you think we should give the. >> I think it's a very long answer and perhaps we can do it after everyone's had a break that Deputy Sloan was proposing because it's going to take us well into the next half. >> And having sat in his seat before. >> But we'll come back and we'll, we'll calm it down a little bit. Maybe I was a bit tired for [laughter] watching the football, probably not such a good idea. Um, and we'll, we'll start, we'll talk about the modeling and we'll talk about the sensitivity now. So, we'll talk some, some drier topics. So, actually get into some of the and try and kick the tires of some of this stuff. So I'll have a 10-minute break and reconvene in, I don't know, seven or eight minutes, something like that. Thank you.
Okay, welcome back for the second half. Only 50 minutes to go and it's spring, beautiful summer's morning. England won last night, so all is good with the world. Um, and I'm just going to take a breather and ask Haley to ask a few questions. Thank you. Um, so I see in the press today that there's, you know, obviously a request to talk about this package factually, and I think that's a completely appropriate request. Um, almost every headline figure in the report is presented as a, a point estimate. What confidence intervals exist around the principal assumptions? Um, well, one thing, um, one thing that I think is quite a strong validation of the modeling is that, uh, when it comes to estimating the actual revenues from income tax and social security, it's accurate to within about 1%. So actually, I think that is quite, uh, quite a strong validation of the modeling. But I mean, economic modeling, you have to take, uh, uh, assumptions. That's, that's just how modeling is done. Um, and it's all about, it's not trying to account for every single hypothetical scenario. It's about reasonable cases. And so, as I mentioned before, there's an adverse case and, uh, a favorable case and the parameter, uh, that's, that sort of shapes the parameter, if you like. But I think the fact that the modeling has, um, proved itself accurate to within 1% in terms of actual revenues is, is quite, uh. >> Sorry, could you explain that to me please? >> Yeah. So, so the modeling has to take into account, um, you know, the modeling takes into account various assumptions, but it, it then, it has produced and so. >> How it, how it works. >> How do you know it's accurate to a for a 1%? >> Because, because, because when you apply it, um, uh, to to revenues that we actually have solid, solid numbers on in terms of revenues that have already been generated. So it's not just about the data. There are a whole range of data sets. Um, and there's a bit of an odd misconception that the data is 10 years old. That's just not the case. Um, so we provided some rule 14 answers which clarify that. Um, I don't know. >> But is that the revenue? Sorry. Because I think you started saying it was social security revenue. So you, you're not talking 1% accuracy on on everything you've modeled. >> No, on the actual revenues. So that is it. So part. >> Including income tax. >> So yes. So. >> Where, where clearly we've seen in year vast differences on occasion. >> So, right, you use certain data sets. This is how the assumptions, um, are, are, you know, based. Obviously, all the modeling requires some assumptions, um, and, uh, it's not just about the raw data sets that go into that. So there are a range of different data sets that have been used, and we've set those out in the answers to some rule 14 questions recently. I don't know if you've had a chance to look at them. I'd really encourage you to do that. >> Um, so it, it, uh, explains, um, uh, which data sets, um, have informed the modeling, and then it's not just about that either. There is some validation that happens, and what I've been talking about is a validation. Um, so the modeling has been used hypothetically to assess what, uh, the income tax and social security revenues would have been, and it, and it's a factual thing. So we can tell that they, they. >> And how has that been adjusted? So where you are using things like, uh, your income revenues are coming from 2022, but household expenditure is coming from a period that's earlier and predates quite a lot of, um, you know, global shocks in terms of inflation and cost price. >> How do you then model that into the assumption? Is it straight line, or have you modeled it in a different way? >> So it's all been validated for 2026 terms. So it's quite a complex thing. We didn't get any pre-warning of this question where we could have come prepared with some really specific answers had we got any pre-warning of this question. >> But this is the kind of, because these are these are your assumptions and your modeling, and we don't have access to this in the policy. >> We know you have because we've set out assumptions. >> The results of your assumptions. You haven't given us that how you've arrived at this. >> No, we have set out all the assumptions in appendix to the policy letter. >> No, I don't. No, I don't believe that's the case. No, we have. >> It's an appendix nine, I think. >> Uh, okay. >> Yeah. So, we've set out the assumptions. We wanted to show, we, well, we wanted to show all our workings. So, actually, we have included, um, an appendix which sets out in some detail the assumptions that we have used. Um, those are the assumptions that we have, um, you know, discussed in committee. We've challenged some of them, um, uh, etc. And we were very clear that we wanted to show our workings. We wanted those workings to be really transparent, and that's why we did actually set out those assumptions in an appendix to the policy letter itself. >> Of those assumptions, which would you say have the greatest influence on the projected funding gap? >> What do you mean? Like, it's, it's a big range. Shall I get the? I'll get the policy. >> Yeah. What I mean, I suppose, what we're asking is, when you've modeled this, what, what moves the dial the greatest in terms of the funding gap? Well, it's, it's about, it's about a blend of different measures, isn't it? So, I think it would be a bit of a false binary to try and pick one single element out because it is actually about, uh, quite a wide range of different elements that come together to help, uh, raise revenue, for example. So, I, I think it would be a false binary to pick out a single element that we thought, um, was more important than any others. This is, it really has been constructed to the points that we were, you know, speaking to earlier in response to Deputy McKenna. Um, it really has been constructed as a holistic package, not as a single measure, you know, that it really is about how it's been constructed. >> And when you've ranked those assumptions, have I suppose the question first off, have you ranked those assumptions in terms of those which have, um, you know, a high risk of not proving, uh, as you have modeled them? >> Have you sort of done a risk assessment of your own modeling assumptions to understand which, which seem sound and which seem less sound? >> Yeah. So, so when you're doing, when you're, when you're working with assumptions, as I said earlier, there's a whole range of potential hypothetical scenarios that you could model, um, but it quickly becomes very impractical to try to include in your analysis, um, uh, every single hypothetical example. You could, for example, model on a deep recession or, uh, massive economic growth, and those two things will create quite different outcomes. You could, um, you know, you could model for, um, really high inflation or, or really flat inflation, and again, those will produce different ranges. So what you do, it's about sensitivity analysis. You take a reasonable, uh, range of assumptions, and that's how it works. So it's not about including every possible, uh, scenario. It is really about, um, finding a range of reasonable, uh, um, uh, assumptions. And, uh, you know, I know there's been a lot of, um, talk about assumptions. I haven't yet found, you know, anyone that has come forward with an assumption they think is unreasonable. And so, you know, that. >> Well, I mean, I mean, I, I suppose there has been challenge, and your opinion is that that there hasn't been any reasonable challenge to the assumptions, and I suppose that's that sort of comes back to the first point, is can an assembly have a debate on the facts when actually this package is based upon assumptions, forecasts, there aren't facts? This is your request that there's. >> Always going to be assumptions. >> Yes. Thank you. >> Well, yeah, and that's that's the way of, you know, every single modeling exercise is underpinned by assumptions. Every single budget is underpinned by assumptions. So the question is not, are there assumptions? Of course there are assumptions. The questions, it, the question is, are those assumptions reasonable? And we haven't yet, um, been challenged by by anyone who's come forward to say, I think this, this assumption is unreasonable. When you've done the work, uh, looking at historic budgets and accounts, have you, have you, uh, been, uh, satisfied that those have been accurate over the medium and long term in order to support your future looking assessments? >> Well, I think, I think you're talking about a slightly different thing, aren't you? >> Well, I suppose it's, well, I suppose it's, it's, it's how you've used the history of past performance in order to determine whether your forecasts and predictions and assumptions will hold weight. >> Yeah. So to give you an example, um, uh, inflation has been very variable in in recent history for understandable reasons. Um, but when you look at it over a longer term, there does seem to be a more reasonable, um, average. And so that has helped to inform some of the assumptions. Now, that's exactly the kind of thing that you would look again and really test in the 2030 review because actually, if inflation has been significantly higher or significantly lower than the assumptions that we can make at this, reasonably make at this point in time, then that's exactly the kind of thing that would inform any modeling and any projections and any and and inform any decisions going forward as to what measures would be needed in order to adjust for that. You see, I think, Dep, I mean, I think we might be slightly cross purposes here. I think what you've done is state some static analysis. >> We've done sensitivity analysis. >> Well, if there was some sensitivity analysis, there'd be some sensitivity in the central projection around that. That you've got two different scenarios. Listen, in your, you got three lines, central and scenario A, scenario B. You haven't got any sensitivity analysis of the central projection. Please don't tell me that you have because you haven't. What. >> My question would be in terms of when we're talking about modeling. >> What impacts of behavioral change have you factored in in terms of people's decision making, okay? >> Because it's not in the appendix, and please don't tell me it is. >> Yeah, no, no, I can do that. Okay. So the, the whole point of introducing, um, a low rate of GST. >> No, and if you're going to tell me about inflation, I get it. 3% GST will be a two, 1.9%. No, I get that bit. No, that's not what I'm, that's not what I'm saying. The whole point of having a low rate is to minimize, uh, the impact on consumer behavior. We understand that when you make policy decisions around taxes, whether they're direct taxes or consumption taxes or what, they are going to, in all likelihood, affect consumer behavior. Now, you will get a very big difference in consumer behavior if you introduce, uh, a consumption tax at 15 or 20% compared with, uh, um, the, the change in consumer behavior at 3%. And again, it's important to go back to that fact that this is designed as a package. It's not just about consumption tax. We are actually giving people more disposable income in those lower and average income. I'm just, I'm just trying to explain the point. Yes. So the point is that we have assumed, and it is a pretty conservative assumption, that, uh, the effects of, we've got two opposing forces in terms of potential consumer behavior. On the one hand, um, a consumption tax, even a low one, might be expected to reduce consumption. So that is one modeling assumption that you could reasonably take. I mean, the fact that it is 3% and it's, it doesn't apply to some big ticket items like rents and healthcare, etc., is, is another factor. Um, however, by reducing, uh, income tax and social security and therefore giving people dis, especially disproportionately, um, towards the lower and average, um, uh, parts of the income spectrum, by giving them more spending power, and that's what we're doing, reasonably, there is a reasonable assumption to say that actually consumption could go up. Now, I've got some stats. So, so analysis. The assumption is, so the assumption is that those two forces cancel each other out. However, if we were actually to look at this in more detail, I think actually we can see that that is quite a conservative assumption. So if we take the example of someone who earns about 30,000. >> I want to hear about the modeling. >> Exactly. This speaks to the modeling. It doesn't. >> So it does. So if we take someone who earns about £30,000, they will have £1,375 more in their take-home pay than they do now. Now, £1,375 is the equivalent, if you're looking at that in terms of what's that equivalent in GST at 3%, it's the equivalent of spending of £46,000, which is obviously more than their gross earnings. And let's not forget that GST wouldn't be applied to rent, to mortgage repayments, to healthcare, to childcare. So actually, that is why people, um, have will have, this is why most households are actually better off, and this is why people will actually have more spending power. Uh, uh, it will over, um, outweigh the effect of a 3% GST. That actually logic dictates that we should be modeling for an increase in consumption, especially on low value goods, especially on the everyday things, and these people are more likely to spend in the domestic economy rather than, you know, swanning off a. >> Just summary. That's a very interesting point, and actually, as an economist, I might be minded to agree with you on some of those points, but it's not in the policy paper. You're just. >> You're just saying it out loud. >> Well, you've asked a question. What I'm saying out loud. >> What is I think I was politely, think we all, we all struggle with these assumptions you've made because they're, they're sort of like, we've got little, I suppose, anecdotal stories, and the story is that a person with 42,000 can be 1,250 better off. I think that's one of the ones that's out there. It's actually very, very difficult to work out how that's worked out. And by putting a lot of different variables into the calculator, you can't, it's very hard to get to that result. >> No, that one's really easy. So, so I suppose the question we're asking is, why is this modeling not available? Because why questions have been asked is it, it comes back to, you know, the, the spending power question. I think is an interesting one because there is no modeling, I think, that that actually demonstrates your point that there's greater spending power. There might be nominal more money in someone's pocket, but if, but if we're b. Yes, but this, this is the challenge, isn't it? Where is the real terms modeling? Because we, all we seem to be talking about nominal amounts all the time. >> So, so, so I think that we possibly can, uh, share some underlying sensitivity testing and some of the modeling that was done because of course, we're, we're working as we said, as we. >> Share it, or will you just share it? >> Yeah, I'm not sure I'm not sure I can commit on behalf of the committee now, but but I absolutely look at that, just purely because the, the, we're working to an extent resolution that was that was agreed last term. Now, that that was based upon very, very detailed sensitivity modeling that was commissioned. We commissioned it, uh, by Deloitte, that that looked at the sensitivity and the, the change in behavior, uh, with the introduction of GST. So, so there has been very extensive work which. >> I think there's an abstract report that talked about that, whether it was modeled on the actual numbers, I dispute. >> Okay. And in terms of sensitivity analysis, when it's sensitivity, you've got a Monte Carlo analysis, you get lots of different outcomes. I'm struggling to understand that we have a 1% accurate forecast when our forecasts year in year out of a budget are out by the best part of 5 to 6%. >> Okay. Well, so, so that is verific volatile. >> Very volatile. >> But the taxes and social security contributions paid by individuals are really, really quite predictable. >> Yeah. So, so, so to come to your point, you, you did, you did talk about the. >> Volatility, no change, Deputy Parkinson. >> Well, the, the, the assumption is that 3% GST would produce very little change, and what, and it would be counteracted by the fact people have more money in their pocket. This is, this is, I mean, you're using the word modeling, but when it comes to the amount that people will be taxed less and have social, you know, the contributions that, you know, the States will take from them essentially, that's not about modeling, that's just fact. That is what it says in the policy. So we know that the, the personal rate of income tax will go up to 15,800. So there's no income tax liability on that amount. We know that it will be a 15% income tax rate between that limit and 28,000. We know that beyond that, it will be 28, uh, 20, 20% income tax. And we also know on the social security side that we're introducing, uh, the equivalent of the, the in, you know, the personal allowance, um, up to a level of 11,100, 11,122. So there's no social security, uh, contributions liable on that. And we also know what the rate will be above that. So you can pick any income point on that spectrum and you can work out how much better off people will be. And that's what I've done. >> Deputy S, I, that's not, we're not disputing that. We're talking about the modeling of the package at the macro level of the impact on the economy and the revenues and the second round and the third round effects. I'll give you an example. It's been publicized, not by me, but I've seen people comment about the lack of accepting of a second round impact on the public sector wage bill. >> Right. And look, be absolutely, it's just a pure multiplier through, and you've got to net it off. >> No, no, no, no. It doesn't work like that. >> Please tell me that your assumption is is that that will not be recouped by the public sector. >> So, okay. So that's a really. So in our answers to the rule 14 questions, which I thoroughly recommend everyone please read them, please. So at the end, >> at the end, there are a range of different tables which go through each pay group, um, where the, uh, for States employees, and you will notice it goes back, I think the data goes back about 10 years or so, or actually possibly even longer. And you'll notice there are many occasions within that where the pays that have been, um, agreed, negotiated, have been less than the rate of inflation. So it's not just about inflation. When pay is negotiated, there are a whole range of considerations that are taken into account. And yes, the rate of inflation is one of them because obviously that's what affects the cost of living. But it's by no means the only factor that is taken to into account in those pay negotiations, as evidenced by the fact that historically, on many occasions, as our rule 14 answers show, um, pay awards have actually tracked under, uh, inflation. Um, and so in this case, one of the considerations that will certainly be taken into account is the fact that there are compensatory measures, or more than compensatory measures, in terms of people's disposable income. And so, in to some, uh, for for many pay groups, that will mean that actually, um, they are getting more in their take-home pay than they will be expected to, uh, expend on a 3% GST. And again, even those elements are not the full range of of considerations that would be taken into account for pay negotiations, but they are very salient facts. Um, so I think that helps explain why it's not simply a case of finding the RPIX figure and applying it to public sector, public sector pay. It just doesn't work like that. And the historical data asserts exactly that. >> Well, since 2020, pay has kept abreast with inflation. >> Yeah. The latest trend does not match the historical trend, does it? >> Oh, there are. No, there are. It's quite a varied piece, actually. >> Can I pick up on a point that Deputy Camp made about the tax calculator because you said you couldn't get, um, it to match when you, you had a look and put in various scenarios. I think what you were missing in your analysis, but please do correct me if I'm wrong, is that if we take this hypothetical person on the 42,60 or 42,600, um, of the median earnings, just working in a wage job for that. Um, it is a fact that they will pay less income tax and social insurance, um, by a figure of £1,249. Now, of that £42,600 that they're earning, we take £1,249 less from in in those two taxes, but they will spend a proportion of their income on non-GSTable stuff, which is rent, which will take up a chunk obviously, or mortgage, um, possibly, you know, healthcare, um, some travel, possibly. They, I mean, I would include savings in that, except I fully understand that somebody on that earning is earnings is not going to be in a position to save very much, if anything at all. But those are all things which do not attract GST. So what they've got left, and let's say it's £20,000 for example, that is spent in the local economy on things that can attract GST. That will cost them £600 in GST at 3% of £20,000. So you've got the £1,249. You have to take away the £600, which is what the calculator does, and that will leave you with £649. So the, the net figure you're looking for. >> Do you think the public understand that when you're putting out headline figures, pointing them to your calculator, and they don't actually, they don't get the same kind of result, do they? >> They do because all of that is taken into account into the. >> Headline. This is what you say. Detailed breakdown is if you go through the calculator, all that's why it asks about. >> Aren't looking at detailed breakdowns. They're looking on their personal at your at your headline slides that you put out into the public. If you go on the calculator, you are asked to put in all these different factors. We've kept it as simple as we can. >> Yes. So, what I'm asking. >> Yes. No, I appreciate that. But when you put out a slide that says X, and actually that can never come out of a calculator. >> Where is the slide that says X? >> You, I think it's in one of your Facebook things you put out in the days following the. I took a picture of it, so it captured it entirely. But, um, and, and it, it all, it all, it says is you earn 42,000, you'll be 1,250 better off. >> I, I think what it makes. >> I think the problem is is that the, and this is what I'm trying to say, is how can the people make the causal link between what you're stating and what the calculator states when I couldn't, I found that very difficult myself. I think what that slide, I, well, first of all, I don't recall the slide, but if it is as you say, and I have no reason to, you know, dispute that, what I think it is likely to say is, this is how much less tax and social insurance you will pay. Clearly, there will be an amount of GST you will pay because it's GST that we're proposing. Ah. >> Well, of course, but that, but okay. >> No, sorry. I, I didn't bother to go on. I just assumed it would factor in the GST. >> It does. It does. It asks you how much you spend on rent. It asks you how much your savings are. This is how it works. So, basically, it assumes because it's a broad-based tax, it assumes that anything you're not spending on rent, remortgage, uh, uh, uh, mortgage repayments, healthcare, childcare, travel, savings. Everything else is likely to be GST liable. GST. >> It's a really simple model, but, um, I'm. >> Sure it is. >> It is. And, and, and so, and so it, it just assumes it just assumes that people will will put into into the model whatever they spend, uh, on their monthly, and whatever's left, that they will spend on consumption, and that consumption will be at 3%, and that's where they. >> If anything is over. So let's move on. Modeling, we've done it to death, I think. Should we move on to say? >> So, can I just, can I just correct Deputy Camp said that the recent trends, um, have public sector pay attracted inflation? I've got the rule 14 questions up right here in front of me, and there are many in, in the mo, last handful of years where they've been below. >> Well, I've got the public sector pay since 2020 has kept abreast with inflation. >> Sorry. >> I've got since 2020, public sector pay has kept abreast of inflation. And that's the last six years. That'll do for me. >> Yeah. When you look at the individual pay groups, there are many, many examples of pay groups where they have, um, their pay awards have been under inflation, including in the last few years. I really would recommend that people go and look at those answers. >> I did the analysis. I've got for 2020. I think if you grouped all the pay groups together, but as you know, there was a, a standout thing of where, um, nurses pay was, you know, but the agenda for change of predominantly nurses was different. But if you look at the individual pay groups, there are many examples of individual pay groups, which is how the States negotiates with the different unions, where they were under. >> Well, good luck to negotiate with the unions on that one. You're not having that 2% pay rise because of the inflation. >> See how that works out. Anyway, Haley, should we move on to, um, spending? >> Yep. Happy to. Um, so yes, so the report concludes efficiencies alone can't solve the problem. Uh, so what larger spending reductions were considered and rejected? >> Well, we, we were, in terms of the efficiencies, we, we're again, we're working from a, a States resolution to to incorporate a 1% uh, efficiency savings across, across the board. >> Yes, but that's that's obviously external to this policy proposal, isn't it? >> So, what, what did, what did P&R in considering this package, you know, considering, you know, 1% is 1%, but what, what other efficiencies, what spending reductions were considered and rejected? You know, >> What do you mean about rejected? I don't think we've rejected. >> Well, if you, well, well, that's that's a question to you. Did you consider any? Because if you considered none, you rejected none. If you considered some and didn't do them, you rejected them. So, so there are all kinds of things. I think basically the, the point is that you need to consider these things very carefully. So I will give you a hypothetical example, and I do stress it is hypothetical. >> Um, there is a lot of formula expenditure, um, which, uh, um, you know, is formula, so it is what it is, but actually the formula itself could reasonably, you know, when those, when those rates are uprated, um, there is a policy decision underpinning what that actual formula is. So, uh, I know that we, when we had a discussion with members of, um, ESS, uh, we discussed, um, the potential for changing some of the formulas underpinning, um, quite a significant chunk of States expenditure. It wouldn't be right to make any decisions without fully understanding the consequences of that, which is why we haven't preempted the more detailed work that needs to be done, um, because we didn't think it was, uh, right to make a sort of arbitrary decision, um, in lieu of the more, uh, nuanced work that would actually make sure that that work was done in a way that didn't create unintended consequences. So, um, it's not a case of rejecting them. It's just a case that the work is still at a point, much of the work that will, will potentially deliver the most meaningful savings is not yet at a point where those, um, sponsoring committees can have confidence, uh, in those recommendations, and we think it is reasonable to let that work take place in a way that the full suite of considerations can be taken into proper account. Um, in looking for efficiencies. Uh, why was priority-based budgeting preferred over zero-based budgeting? Because in, um, in the public sector, we are statutorily obliged, um, to provide certain services. So you just can't start at zero. Um, it's a fact. You know, in a, in a business, you can reasonably say, well, we will start at the presumption that we are not providing this product or whatever. In public sector, we can't do that. You know, we have got a legal obligation to provide, for example. Budgeting doesn't assume statutory duties disappear. It just requires every activity, cost, and staffing level to be justified from first principles when those legal obligations. >> In that case, we are, we are dancing on the head of a pin because that is what our priority-based budgeting is doing. Um, so I think you should be quite reassured by that. But if you look at our individual utility companies, for example, so, so I, I sit as the vice president of, uh, the STSB, and, and we have incorporated now, as, as their objectives, to to introduce a 1%.
efficiency budgeting across their the utilities. I I sit as the vice chair of Gernzi Water and last week we had a a board meeting that looked extensively at where they were introducing cuts and anything from the chemicals that we put in our water to ensure that they it meets satisfactory levels to how we how we collect ces how we collect and empty ces bits.
Uh it at every one of those board meetings now a central objective is how do we incorporate the efficiencies that we as politicians have have >> but is not necessarily relevant to general government though is it >> yeah I I >> it's not because you're they're paid out of my >> I I think I think if people don't understand that at all of our utility levels that we're not looking at those efficiencies then I I I think we we need to incorporate that that that logic and that thinking doesn't impact that logic.
It's very good for SDSB to do that, but it doesn't actually impact our revenue our tax debate, does it? >> Well, it's about public expenditure, isn't it? And the degree to which uh you know there might have to be any support from general revenue.
>> But fund fundamentally the policy letter as it's titled is a tax reform policy letter. And I think that's important. But we have also highlighted the fact that of the Humphre amendment, I think it was Humphre um and the 1% peranom. So a total of 3% reduction that committees really need to start looking at because a lot of this under our system of government just like Andy has just said sits with the committees and it is for the committees to do that but it's also for us as policy and resources to be forensically examining this as part of the budget process and that's where it properly sits.
But I would say that this is a tax reform policy letter. It's about broadening the tax base. It's about addressing future spending on health on capital infrastructure and and that that is the fundamental purpose of the policy. On that basis, why is PNR relying upon an extent resolution as part of its sort of headline figures when it gets well when it does it the ladder diagram which which adds up to 62 million includes savings a third if you look at the [laughter] a third of the headline amount that is being the policy letter is savings >> the policy letter is quite clear it raises 39.5 million we have if you look at that ladder diagram >> I add with 20 No, it's not.
>> To your point, if it's a tax reform, why are we why are we adding >> We're not adding it in because I I think >> Well, you are. No, no, I'd really like >> if if it was absent, if it was absent, >> our population would say, why haven't you highlighted that you should be making efficiencies in your underlying uh business? and and that that's all we've done in your head. So, so, so, so Deputy Cam, it's great. If you, but but if you look at it, if you look at it, the the bottom line will be the total improvement, not the total tax rate, the total improvement.
>> Yeah, it's it's >> which which does incorporate >> that it's an extent resolution. I mean, we we have no control over that of that 20 million so far as the states have already decided it. Our package is 39.5 million. We make that quite clear. It adds up to 42, but there's 2.5 million of expenses. So it's a net of 39.5 but it will improve.
>> I I I could accept the point had because the presentation you gave to states deputies made exactly that point. It it included the 20 million but not as part of a net 42. Yes. >> The policy letter has has but if you look at has headline added it back in which is which headlines are what people look at right? You know >> if you look at if you look at the phrasing on each of them those two diagrams which are similar that it is different. And so if you read the whole context of it when you compare those two diagrams it is different because it makes it shows that in one it is the amount which if those if that previous resolution is met that finances will improved by but on the other one it shows quite clearly that the amount that comes from tax reform is £39.5 million.
>> Okay. Can sorry just as an aside then I mean I hear what you're saying about the 20 million is is it included? Is it not included? My my concern is more the the the thinking the thought process that's implied within this. I think it's like I think what deputy camp is saying it's like it's 1% efficiency savings but no more and if you I think no no I think that's what her question is implying and if you go to page 29 of the policy letter >> uh and you've already said this deputy talk about future work streams of saving money that you know it's it's wrong to be prejudging that already because you know that would be unturning every stone wouldn't it? So you're saying as such these work streams can't contribute to addressing the state's funding gap at the current time. So all these things are too terribly difficult for us to do at this present time. And then you say in summary in 5.23 um it's important that the work is carefully considered so as to avoid unintended negative consequences and it says all grants and subsidies have been challenged but there is little scope for cuts without creating a false economy. I think there is on grants and >> subsidies of thinking subsidies that sort of thinking implies that it's all too difficult.
No, I think that's true on grants subsidies because I mean one of the recurring themes that we get and I think it might even form part of deputy camp's amendment um although I haven't got to reading them all in detail yet is the idea about outsourcing where it can be um you know a saving to do the same work but more efficiently better by perhaps third sector organizations and this is what happens an awful lot on the grants and subsidies. is work that over the years has been determined that it can be better delivered by the third sector and those things are consistently reviewed to see that they are still delivering that value for money and the view is that on the grants and subsidies there is a limit to what is available in terms of savings.
>> Okay. Well, in that case I'll leave it for another time because I don't think we're going to be able to have the answer for this today. But what I'm going to suggest is if you can find out how much spending on grants and subsidies went up between 2019 and 2023 when public expenditure increased by a third in real terms. We'll we'll see if that was a false.
>> They might it may well be um it's not like ones will have come in, ones will have left. But but to come back to the headline savings because I think I think like it or not, people are seeing a 62 million figure and and you know I think we can we can talk about semantics of reading the small print but the large print is quite clear. It's 62 million a third of which is savings.
>> How much of that 20 million of savings has been identified at this point? So as I I think I said to you, every committee certainly that I sit on is going through a granular analysis.
>> So at this point, none.
>> No.
>> Well, we haven't got to we haven't got to a budget process yet where 1% >> I mean we are mandated to include that. Um that that is the target for the 2027 budget, the 2028 budget, and the 2029 budget.
>> And you're banking a target. Well, this everything I see every single ladder diagram you've put out thanks to the 20 million.
>> We haven't put out savings there and I think it says will I think one of the slides says we will [clears throat] have 20 million of savings. So that is that is banking. I think that's what we're all trying that's what we're directing to aspiration and and very different until you actually until you actually sit on on committees and and you do drive that change it won't happen of course but but but I I will I will look at the 2023 uh fiscal policy panel who who did make the case and we're we're going to address this and we are going to uh try to achieve what they said was going to be difficult was was when we tax and when we spend at the level that we do in as a function of GDP in our economy because that the the amounts are relatively small to other economies efficiencies are difficult.
>> Well actually if you that's one of those misnomers numerator denominator issues which actually yes I I know the chart you're talking about and I will use deputy Parkinson's sort of argument that I was on a minority of that panel. Um [laughter] if you if you look at shares of GDP Yeah. But but you've got to appreciate that our our profits our great operating surplus is around 44% of GDP and typically for a large economy such as the UK it' be 15 to 17% of GDP. So if you equivalized or make a comparable effect of taxable GDP that our actual spending is around 35 to 38% of GDP of taxable GDP. It is it's artificially skewed low because of a large share of corporate profits. So I really don't like that comparison. Let's move on because >> but that is a fact that we are dealing with facts.
>> Yeah. >> But yeah but facts is that we spend more in cash turns per capita than the southeast of England. So I'm sorry. But I mean there not just tell me that we're a low spending area country because we're not >> as a [laughter] function but as a function of our GDP. Can I just come? It's just it's just just from your own post that you put out 1% peranom inefficiencies in public sector expenditure for the next three years which will reduce expenditure by 20 million per year by 2029. That's there's no there's no room for doubt in that. So what happens when what what happens when those savings are not achieved? Well, it's our collective job as an assembly to deliver them. That's we are under resolution to do that. I voted for that amendment with the full intent on delivering on it. I don't know what other members do.
>> So resolutions are are frequently not met or delivered, aren't they? This is in the hands through a document hundreds of extent.
>> It's incumbent and none of them were amended.
>> It's incumbent upon every deputy. It's incumbent upon every deputy in our assembly to be able to deliver those. We we all have an input in this. But PNR have chosen the you the word will committee chosen can I can I can I please address can I address that it says that if we do achieve 1% it will >> that's what it says can you read it back can you read it back out again >> it says 1% peranom inefficiencies in public sector expenditure for the next three years which will reduce expenditure >> which will exactly right it's not that's exactly It's not an if we do it, it will. That is a categorical fact.
>> Okay. I I >> It doesn't say if. I'm going to wish us all the best of success in that because if we were as successful as when we determined to freeze revenue expenditure from 20 2009 to 2014 which we did then that's so that is that would be my preference to freeze revenue expenditure for a period of 3 to four years to get us back into balance and that would effectively not >> so we can do that but that will impact >> we have well we real impact >> we did it very well didn't we so I we've got 10 minutes left questions. I want to talk about a few about the mitigating measures and some of the other impacted in terms of families. I noticed that families or people with children tend to be the highest impacted and I made that point in 21 or 22 whenever it was and it was mentioned earlier this year and nothing is still the same. So was there no no possibility of why is it that families people with children are hit the hardest?
Well, this is exactly I mean this speaks to the sort of intergenerational um fairness thing and it's a it's a point I feel very strongly about as well. Um we have seen if you look at the historic trends um we have seen an increasing and and in my view increasingly unfair burden falling on younger cohorts compared with older cohorts.
>> Right? Straight straight answers to a straight question. Why families why people with children get hit hardest? Well, do they because the the size >> if you look at the look at the distribution analysis back in the appendix, it's there on the right hand side harder than >> equivalized children equivalized household income accounts for the fact that if you have children, you will need more. So, and I don't I don't know the exact numbers off the top of my head because we haven't been warned uh about any specific questions in the policy letter,
>> but exactly. So I'm explaining that when we do the modeling we use we don't use household income we use equivalized household income and what that means is it adjusts for the fact that if you are a household with children you are going to need more income in order to achieve the same quality of life as a household without income. So that is actually already factored in to the household equivalized income. That is how the modeling is done. it already takes account of that.
>> Okay, it's page 91 and it's or if you're looking at the documents, it's page 91. If you look at uh one adult 16 to 40 with children, yeah, it's equivalized. And you look at the percentages, it's the heat map, they're red. The heat map, the one adult with children is red compared to the one adult with one adult on their own. And the two adults with children, they're also more than the two adults. So the heat map shows you that people with children are impacted more.
>> Yeah, I really and I encourage you to to act as well. >> You've just said that you really you denied it. >> No, not there is a heat map. >> I said that the equival household equivalized income takes this variance into account. >> No, it doesn't. >> It does. Household equivalence does. It does. It really does. So I'm telling you as a mother of four children, yes it is blooming expensive raising a family in you cannot argue that black is white. Your chart shows you there than a heat map that with children are impacted more.
>> I'm telling you as a mother of four children this is an issue I >> father of two children. Let's not argue about how many children we've got.
>> Yeah. I'm saying that it is a really expensive place to bring up children. Absolutely. And that's why it's important that's why it's important that we can give some relief to families, especially those >> You're not giving relief to families. You're hitting them harder than people without >> giving relief to households with >> Please do not argue black is white.
>> So So what what are you suggesting that a family allowance should go up disproportionately? I'd be I'd be interested in exploring that.
>> But can you accept that the package as is presented in the policy paper hits people with children harder? It's about well >> can you just accept that that's it's it's factual >> the the cost of living >> it's factual can you just answer a factual question yes or no >> no because I think it's the wrong premise >> no you cannot not accept the premise of the question I am asking the question >> no and I am challenging the premise of the question you cannot >> I can answer the question >> I can challenge the premise of the question because I believe it is flawed so um the >> unbelievable >> well no I you have you have made an assert assertion and I don't think that assertion is accurate because um you are suggesting in the phrasing of that question that families now so people with children would be worse off effectively than they um uh under the proposals than they are now and that is not the case. They might be slightly less better off than their equivalent um with >> no not true.
>> Look at the look at the table on page 912 and we'll stop there. I'm not arguing in this fantasy land if like you've got to look at your own policy letter. You've got to look at the top >> deputy Sloan. The the heat map absolutely does say what you are saying. >> Thank you. >> For for those households who are earning at the top >> cile of earnings. >> Oh, I see. >> So, so absolutely we've said all the way along that the package tries to protect those people who are earning less. So for the people who are earning £100,000 then their their their household absolutely will be adversely affected.
>> Yeah. Okay. Except accept that deputy NS if you're in the income percentile from 40 to 44. Uh if you don't have any children you'll be better off by 1.5% or 1 point and if you have children you'll be worse off by.1% and that's a 1.6 percentage point difference.
>> [clears throat] >> I'm ever so sorry, but somebody in the 40 to 44th percentile is not in the upper income distribution.
>> So 60 to >> So let's move on. Can I ask one more question because we are literally out of time. Can I ask the question of the um extension of the welfare state by introducing a new tax and the rationale behind that? Why is that a jolly good idea?
>> I don't think we are extending the welfare. There are swings and roundabouts here because actually the increase in people's take-home pay will lift some people out of the bracket of income support.
>> But you're creating a new benefit for those people that aren't in income support.
>> No. Well, I Well, yes, that's Yeah, but they would many of them would be um eligible for income support anyway.
>> So, why are you creating a new payment?
>> Because they don't they're not in receipt of it.
>> So, you are extending the welfare state >> if they if they if they choose to. that you know there is >> and your and your argument only holds true for as long as those mitigations remain >> which we are which we are putting in legislation >> we've discussed before but that's actually incredibly difficult to safeguard for future so it's so they do only last as long as those mitigations >> but I mean legislation is a pretty reasonable mitigation I mean there are all sorts of things that we could change we could decide to abolish legislation against you know murder or whatever but I think [laughter] you know we're unlikely to uh you know the fact that something is find that internationally a lot harder than changing [laughter] our tax our taxition. Frankly,
>> and that wasn't that wasn't that wasn't a serious suggestion. But but the whole point is that you're absolutely right that we cannot uh we we cannot but this is true of absolutely everything. That's the point I was really trying to make is it is true to say of absolutely everything that the states does that we today cannot bind a future states but we can make things more likely. we can't add in attrition to changing them. So actually by committing to putting um certain um uh aspects into legislation um that is making it much harder I think for um even just in terms of that social contract with the community for a future states to run roughshod over them and that's really what we're doing. uh we are it it is basically underscoring that social contract that we were also concerned. This was one of the big um uh issues that um united the committee when we were first talking uh about this was we were really concerned that the mitigations might be eroded in terms of their relative value over time. And that's why we had a think about what we could do to protect the relative value of those mitigations. And um one of the things that we certainly can do is to put them into legislation and it's not completely bulletproof but I think it does go a long way and it certainly underscores the social contract uh between government and the the community because there is then no doubt that that is the original intention of those protections and that the relative value should be maintained.
>> Um so uh >> oh I was going to end it there but if you're still going on go ahead. So, um Oh, what do you want to do?
>> No, okay. Yeah. Um we did have um >> So, yeah. No, it is it's it's really it's it's a sort of finer it's it's quite complicated. It's a finer point on on children and I think it's something I really would like to um pick up with you afterwards. Um but uh yeah the the um yeah I think it's a bit too complicated to get into now.
>> Okay. Well, thank you all very much. U look forward to the debate next week if there is a debate but we shall see. Um I'm looking forward to it. But um again I I must admit after all of this time and I I have had the sort of the advantage or disadvantage of being a bystander and or participant in parts of this over the last 18 years. it and I am in favor of consumption taxes because an economist consumption taxes are efficient you know and you some people have wealth most of us have income but everyone consumes which is broadening the tax base is the purpose of a consumption tax not having less people pay more tax which is a perverse answer to the question of we needed to raise more revenue but on that one we shall come back to that debate next week and thank you all very much thank you very much deputy Parkinson deputy ns Deputy Sum Bford Deputy Eal and my colleagues Deputy Camp and Deputy McKenna. Thank you.
>> Thank you very much.