05 September 2008
The Fiscal Policy Panel has published its first annual report. The panel was set up to give independent advice on the Island ’s fiscal policy and its report contains advice and recommendations on tax and spending policy for the Treasury and Resources Minister and the States.
The Panel’s key recommendations are that:
- No further transfers to or from the Stabilisation Fund or Strategic Reserve should be planned for this year or next;
- The modest financial surpluses planned in the current business plan for 2008 and 2009 are appropriate given the Panel’s expectation of a significant slowdown in economic growth;
- The States should not approve decisions as part of the Business Plan or Budget that undermine tax revenue or commit to greater spending growth;
- The States should not allocate the balance in the Consolidated fund at the moment.
- In the event of a sharper and more drawn out slowdown than currently expected, States finances should be allowed to adjust with the course of the economy before changes to tax and spending are considered.
- If the introduction of GST and higher food and fuel prices sets off a wage-price spiral then fiscal policy should be tightened to contain inflation and restore competitiveness.
The Chairman of the Panel, Joly Dixon, said: “The States has acted prudently in recent years but the slowdown the Island economy is now experiencing, as a result of the global credit crunch, presents a new challenge. In addition, Islander’s are facing a significant squeeze on their incomes from GST and higher food and fuel prices. It is important that as the economy slows, the States does not make decisions that will undermine the tax base or result in significantly higher spending.
The Island should be preparing for a significant weakening in the economy. At this stage the Panel does not believe that economic conditions merit taking specific actions to cushion the economy from the slowdown. By maintaining current tax and spending profiles, the States will accumulate significant funds. Care needs to be taken to ensure that this happens and that the funds are not allocated unless the economy starts to slow more sharply.”
The Report also highlights a number of alternative scenarios should tax and revenue forecasts not turn out as currently forecast. Mr Dixon added: “Our analysis of future trends in tax and spending highlight that there is a real risk that States finances could deteriorate significantly in the medium-term and this should be at the forefront of States members’ minds when they debate the 2009 Business Plan”.
Notes to Editors:
1) The three members of the panel are available for interview after the media briefing which starts at 11:00 on Friday 5 September 2008 at St Paul ’s Centre.
2) The Fiscal Policy Panel is a group of three independent professional economists with extensive experience in policy making. The Panel is part of the new Fiscal Framework agreed by the States in October 2006. Other key elements of the framework include the setting up of a Stabilisation Fund to smooth expenditure and promote growth through stability.
3) The brief for the Panel as set out in the States new Fiscal Framework was to:
examines the strength of the Jersey economy and the position in the economic cycle;
comments on the appropriateness of the States financial position/forecasts given the above; and
makes recommendations for fiscal policy, including the use of the Stabilisation Fund.
4) The three members of the Fiscal Policy Panel are Joly Dixon CMG (Chairman), Christopher Allsopp CBE and Marian Bell CBE .
Joly Dixon CMG, worked for nearly 30 years at the European Commission, holding a variety of senior posts. He was Director for International Economic Affairs in the Directorate General for Economic and Financial Affairs from 1992 to 2003. For the previous five and a half years, he was a member of the cabinet of President Jacques Delors, concentrating on economic and monetary issues.
Christopher Allsopp CBE is Director of the Oxford Institute for Energy Studies. He is a Fellow of New College and Reader in Economic Policy at the University of Oxford . He has recently completed a Review of Statistics for Economic Policymaking (the 'Allsopp Review'). He is a former Member of the Monetary Policy Committee (2000-2003) and of the Court of Directors of the Bank of England (1997-2000). He is the Editor of the Oxford Review of Economic Policy and a Director of Oxford Economic Forecasting.
From June 2002 to June 2005, Marian Bell CBE was an external Member of the Monetary Policy Committee of the Bank of England, appointed by the Chancellor of the Exchequer, to set interest rates to meet the UK Government’s inflation target. Prior to that, Marian held posts at The Royal Bank of Scotland where her roles included managing the Treasury and Capital Markets Research function, and at HM Treasury where she worked on modelling and forecasting the UK economy for fiscal policy purposes. She set up Alpha Economics in September 2000 to undertake independent research and consultancy.
5) For further information please contact:
Cathy Keir on 440430