Credit agency notes Guernsey's 'growing structural deficit'

A credit rating agency noted Guernsey's repeated failure to introduce a goods and services tax

A credit rating agency has said a series of measures taken by the States of Guernsey "should help prevent a more significant fiscal deterioration".

S&P Global confirmed the island's latest rating as A+/A-1 - with a stable outlook.

The consultancy firm looked at the impact of Guernsey's failed attempts to introduce a Goods and Services Tax.

Chief Minister deputy Lyndon Trott said he was "very pleased" Guernsey had been recognised as "somewhere to invest".

S&P Global began its report by saying the States of Guernsey had "failed to pass a substantive fiscal package that would resolutely address its growing structural deficit".

However it said cutting back on capital expenditure and increasing tax revenue "should help prevent a more significant fiscal deterioration".

It said the "highly politically contentious" Goods and Services Tax (GST) plans were central to "a substantive tax package that would concretely address longer-term fiscal pressures".

'Shrinking workforce'

The report said: "The tax would have broadened Guernsey's tax base, which is highly concentrated in personal income taxes.

"This exposes the government to the impact of the jurisdiction's aging and shrinking workforce."

S&P said other measures, such as cancelling a major school rebuilding plan, increasing social security contributions and "hiking motor taxes" should "help avoid a more serious fiscal deterioration".

The report also said Guernsey's economy was "heavily concentrated in financial services".

It said: "This is still significantly more skewed than larger and therefore more-diversified peers, and could expose Guernsey more to idiosyncratic shocks."

'Structural deficit'

S&P said a positive assessment in April 2024 by Moneyval - the Council of Europe body that examines a country's actions to combat money laundering and terrorist financing - was "crucial for maintaining the jurisdiction's clean reputation".

S&P Global's ratings are used by prospective lenders and businesses to help assess the level of risk associated with investing in a jurisdiction.

Mr Trott said: "S&P recognises the important steps we have taken to prevent the structural deficit from significant deterioration.

"That said, it is also quick to highlight the need for us to continue to prioritise sustainable public finances and I know our community also appreciates how important this is.

"The current direction, with some limited revenue raising and a significant curtailing of the capital programme, is a temporary solution which allows us some more time and space to look for a genuinely sustainable long-term solution that is right for Guernsey."

S&P Global is typically commissioned to provide a credit rating assessment about once every six months.

Mr Trott said Guernsey must continue its work, "even if ultimate decisions were made by the next Assembly".

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