21 November 2008
The Fiscal Policy Panel has published an update to the annual report they released in September 2008. The report contained advice and recommendations on tax and spending policy for the Treasury and Resources Minister and the States.
The Treasury and Resources Minister and the Panel felt that an update was appropriate ahead of the Budget in the light of the upheavals in the world economy, that will inevitably have an effect on the Jersey economy and the amendments made to the annual Business Plan.
The Panel’s key recommendations are:-
The modest surplus expected for 2009 is broadly appropriate.
There should be no further withdrawals from the Consolidated Fund to fund discretionary spending increases or tax reductions until the extent of the economic slowdown and the underlying strength of the States’ finances is clearer.
The Panel recommends that a majority of the Consolidated Fund balance is transferred to the Stabilisation Fund to allow it to grow to a size that would be useful in the event of a severe or long-lasting downturn.
The Panel’s previous recommendation that there should be no additions to, or withdrawals from, the Strategic Reserve remains.
Given the uncertainties facing the economy and States’ finances in the medium-term, the Treasury and Resources Minister and Council of Ministers should draw up contingency plans for each of the following eventualities: - a recurring shortfall in public finances in future years; and
- a slowdown that justifies changes to tax and spending measures.
The Panel believes the economy should slow in 2008 and continue to do so in 2009 and that the risks to this outlook are stacked on the downside. Inflation will fall in Jersey but wage pressures in the economy are still present.
The Chairman of the Panel, Joly Dixon, said: “Until now Jersey’s economy has been resilient in these challenging times. However, the Island will not be immune from the effects of the sharp downturn in the UK and wider global economies. This may have implications for tax and spending in the future and it is with this in mind that we recommend that the majority of the States available balance in the Consolidated Fund is transferred into the Stabilisation Fund .
Panel member Marian Bell also commented: “There is currently insufficient evidence to justify a withdrawal from the Stabilisation Fund at this time, especially given the amendments to the Business Plan, significant reduction in interest rates and the decline in Sterling already in train. However, it is right that the Council of Ministers should plan ahead and consider how they will act in the face of a sharper or more protracted slowdown.”
The Report also highlights an alternative scenario should tax and revenue forecasts not turn out to be as expected. Mr Dixon added: “Although tax revenue is expected to be higher than at the time of our last report, there is a strong possibility that this will not be sustained should expenditure also increase beyond that currently expected. Together with the other risks this suggests that States finances could deteriorate significantly in the medium-term.”
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