The Chamber of Commerce is supporting the States' plans for coping with reduced funds when corporation tax is abolished in 2008.

The Treasury and Resource Department plans to use Guernsey's so-called "rainy day" fund for up to four years to offset the expected �70m shortfall.

Chamber president Mark Trenchard described the decision as a brave move.

He said it would focus States members' minds on the need to cut spending.

Mr Trenchard also believes the States is right to expect increased profits in the finance industry to fill the deficit in the long term.

He said the 4% growth target set by the States was ambitious but achievable.

Guernsey could lose up to �80m if corporation tax is scrapped, according to an independent report.

The study was carried out by a panel consisting of a former States member, an economist and an independent economic consultancy group.

The report concluded the "zero-ten" tax model proposed by the Policy Council was the only viable option.

A "zero-ten" system means some companies would pay 0% tax, while others would be taxed at 10%.

Predicted deficit

The panel, which ruled out a "zero-twenty" alternative as "too risky", said retaining the finance industry in the island was vital.

The Isle of Man announced in its budget in February that it would introduce the "zero-ten" system.

It is one of Guernsey's main rivals in the finance industry and Jersey has decided to adopt a similar arrangement.

The independent report has also estimated the States could suffer a loss of income between �50m and �80m, depending on what measures were introduced, and how islanders responded to them.

The island's government has been preparing for a predicted �48m budget deficit when corporation tax is abolished in 2008.