What this little nation has done is remain devoid of any central bank and allow the govt to issue currency without selling interest bearing bonds or any other instrument that attached debt to currency. For example if the govt wants to build a new wharf at a cost of $1 million they do not borrow the money nor do they issue bonds that would require a payback greater than $1 million. What they do is print and issue $1 million and then spend it on the project. This has allowed them to maintain a high standard of living while accumulating absolutely NO national debt. They in fact have a huge surplus reserve of funds available and will not likely have to borrow money in the foreseeable future.
This system has recently been under much pressure from the EU, OECD, world bank and IMF to change to a debt based currency which is obviously self-serving to these organizations as they are not getting any income from the country as it owes nothing to anyone.
They have a reasonable tax system with all residents paying about 20% regardless of income and some of the best corporate rates in the world.
Guernsey Personal Taxation
In Guernsey there is no general capital gains tax, inheritance tax or estate duty, purchase or sales tax, VAT or capital transfer tax. The main taxes are income tax at one rate of 20%; and social security contributions are payable. Property owners and occupiers may be liable for small parish taxes.
In July, 2006, Guernsey's parliament passed a set of economic and taxation changes that includes the zero rate of corporate tax and the capping of personal tax at GBP250,000. The new tax system went into force on January 1, 2008.
The package of measures includes:
A zero rate of income tax on company profits, except for specific banking activities which are taxed at 10%;
Guernsey residents continue to pay tax at 20% on assessable income;
Personal tax capped at GBP250,000 on non-Guernsey income and investment income;
Taxation of Guernsey-resident shareholders on distributed company profits only; and
Wealth taxes such as inheritance tax and capital gains tax will not be introduced.