Tax change plans 'just a subsidy'

The States plans to scrap corporation tax in 2008

An offshore tax observer has described Guernsey's future tax plans as a subsidy for what he says is an already very rich industry.

In 2008, corporation tax will be scrapped and the States will rely on finance industry growth to help make up a projected £50m shortfall.

Richard Murphy, of the Tax Justice Network, said he believes the move is a "strange economic policy".

Treasury Minister Lyndon Trott said the move was in the island's best interest.

I'm not absolutely certain whether it will be a resounding success or not, because nobody can be Lyndon Trott

Under the corporation tax plans, the tax will be scrapped for many businesses and only 10% charged for some companies in an attempt to make the island more competitive as an off-shore banking centre.

Mr Murphy said: "It is probably the largest state subsidy that has been created by any territory in the world for a particular industry.

"To spend £50m to basically subsidise the banking industry and its already very rich clients - let's be candid, that's what they are - is a very strange economic policy."

One deputy also fears the decision by Guernsey States to press ahead with the strategy has left many islanders feeling betrayed.

Deputy David De Lisle said he believed that the move was one that taxpayers would not forgive or forget.

But Treasury and Resources Minister Lyndon Trott said the Policy Council's package should be painless for most taxpayers.

'Best chance'

He urged people to rally behind the measures as they were in the best interests of the island.

He said: "I'm not absolutely certain whether it will be a resounding success or not, because nobody can be.

"But I'm convinced that with the set of measures we've got, we have the very best chance of the economy performing well, and that is to everybody's benefit."

The Tax Justice Network is a non-profit organisation made up of researchers and activists concerned about the harmful impacts of tax avoidance, tax competition and tax havens.