Guernsey on unsustainable financial path - panel

An expert panel has warned of Guernsey's unsustainable financial path

Guernsey is on an "unsustainable" financial path, an expert panel has warned.

Tasked with reviewing the States' financial strategy, economists have said it has "insufficient revenues" and "declining government assets".

And, with a "low tax system", cuts may be harder to achieve, they said.

But the authority's funding and investment plan from September "goes a considerable distance toward rectifying the situation", their report added.

The panel said this meant "further adjustments may be relatively small" - but warned the "less aggressive fiscal action is now, the more costly it will become in the future".

"Financial reserves are on a downward path, investment in the capital stock is very low by international standards and the substantial shortfall in revenues has recently grown," the panel added.

'External economic shocks'

Highlighting the government's historically-strong financial reserves, it said, like many other developed economies, the population was ageing, creating financial pressure on paying pensions and healthcare.

It said the most significant fiscal problem was the "low level of public investment and the longer-term implications this has for public infrastructure".

Analysis by Euan Duncan

This report is effectively telling Guernsey's government to act now or pay the price for it later.

The panel said the States was falling behind similar countries in terms of investment in public infrastructure and think they should triple their current spending.

But to do that, it will need to borrow money or find new ways of bringing it in through migration or new taxes.

The States has the chance to make that choice in a week's time, when it discusses plans for a GST and tax reform.

The report described Guernsey as a "small undiversified economy" with an over-reliance on the finance sector.

As a result, it has been more vulnerable to "external economic shocks".

"In finance, this can happen for several reasons such as technological or regulatory changes, or excess leverage," it said.

Falling credit ratings

Guernsey has already taken steps to manage its dependency on taxpayers, by increasing the pension age to 70 by 2049, and agreeing in principle to increasing social security contributions.

But the panel warned any further action should be taken in good time.

It said that although full consequences of fiscal erosion take "many years" to come through, returning to sustainability early was preferable to waiting for "second round" effects.

The effects, it noted, could include slower growth due to declining public infrastructure, worsening credit conditions as a result of falling credit ratings and a declining tax base "as citizens become increasingly aware of fiscal deterioration".

The report said an "ageing population will be a negative fiscal influence for decades to come".

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