Monday 03 October 2022
The 2023 Budget is published today which includes measures to address the rising cost of living and the ongoing housing crisis.
The measures to support those affected by the rising cost of living are:
- A 7% increase in Personal Income Tax Allowances, increasing an individual's allowance by £850 to £13,025.
- No increase in domestic TRP tariffs for properties with a TRP rating under 200
- A one year pause in the planned phasing out of mortgage interest relief in recognition of the rising interest rate environment
The Committee is proposing measures through TRP, excise duties, income tax and first registration duty raising a total of £1.7m above inflation to largely offset the cost of this package.
The proposals designed to contribute to the achievement of the Government Work Plan priority on housing are:
- Phasing out of interest relief on Domestic Let properties.
- Introduction of a time-limited scheme of a reduction in document duty to encourage down-sizing.
- Introduction of enhanced rates of document duty on all residential property purchases which are not an individual's Principal Private Residence.
- Plans for new penal rates, through the TRP system, to encourage development and the use of empty properties.
The Budget also provides for a significant increase in overall expenditure in order to meet the cost of the current provision of public services and the priorities of the Government Work Plan. This will mean an increase in expenditure of £48m (9%). The area seeing the single biggest increase in its cash limit is Health & Social Care - an increase of £24million (12.7%) compared to the previous Budget which reflects a combination of rising demand, increased costs and service developments.
While the 2023 Budget projects a revenue surplus (i.e. the income raised will cover the day to day expenditure required to deliver services), it is not sufficient to also meet the necessary expenditure on assets (i.e. the cost of new buildings, vehicles, investing in infrastructure or replacing medical equipment). Once this capital expenditure target is factored in, the position is one of a £43million deficit which is structural in nature.
There is currently no agreed solution to this structural deficit. In January the States will be asked to debate the Tax Review to agree measures for raising additional revenue to continue to fund public services. If additional revenue cannot be raised it is likely the 2024 Budget will need to include major reductions in expenditure (possibly up to 10%) resulting in significant cuts to existing services.
Deputy Mark Helyar, Treasury Lead for the Policy & Resources Committee said:
"I hope some of the measures we're proposing to help Islanders cope with rising cost of living, and especially the cost of housing, are supported by States Members when the Budget is debated. Many people are going through increasingly difficult times, even if Guernsey is that bit more insulated from the full impact of the international economic instability compared to other places. But this budget also underlines the deficit we are already running, which is worsening each year. We face a growing structural deficit and if it is not addressed, next year's Budget could see some very big cuts to budgets."
Deputy Peter Ferbrache, President of the Policy & Resources Committee said:
"This Budget paints a stark picture of how fast the cost of providing our existing services is rising. These are services people rely on, and we need to face the very serious problem of how we fund them in the future. If we're not prepared to do that, we must make the even more difficult decision of which ones we will stop. It's a choice we cannot avoid as funding will simply start to run out. So we need to have a grown-up conversation and have the courage to make what may be unpopular decisions very soon."
