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Minister concerned by budget amendments

25 November 2010

12 amendments to the 2011 Budget have been lodged with the States, leading the Treasury Minister to be concerned that a number of them, if approved, would jeopardise efforts to balance Jersey’s budgets by 2013.

Senator Philip Ozouf says amendments to defer or reduce any increase in GST do not recognise the importance of making the right economic decisions now to balance budgets and deliver economic growth.
He said “Fiscal stability provides the certainty that Islanders and businesses need for future economic success. We are seeing the consequences for countries which have not been fiscally responsible and failed to act quickly. The package of measures in the 2011 Budget achieves an appropriate balance. GST raises money from a broad base of taxpayers – including finance firms through a rise in ISE fees - without adversely affecting the economy. The proposal to increase social security contributions primarily affects higher-paid islanders and their employers.

“I agree with those who say savings first, taxes second: that is why the Council of Ministers increased the savings target from £50 million to £65 million. The Deputy of St Mary’s amendment to reduce our savings target to £32 million is unrealistic. I have made it clear that 2013 is not the end point of the Comprehensive Spending Review. We will continue the process until we are providing essential services as efficiently and effectively as possible. I will be setting out in my budget speech clear and detailed plans for how we intend to make these savings.”

Senator Ozouf believes returning to a balanced budget within 3 years is the responsible thing to do. “We must safeguard Jersey’s future by securing the long term viability of the economy. A 2% rise in GST raises £30 million per year: a 1% rise leaves an annual shortfall of £15 million, which must be found elsewhere. Additionally, if approved, it leaves a real risk that we will be overcommitted in 2011. If we do not take the difficult decisions now, those decisions will simply be deferred to a later date, when the situation could be worse.

“Deeper, faster cuts could have the result we have been trying to avoid – a significant drop in services for vulnerable people. The spending review is on track to meet the challenging savings target agreed by ministers. Alternative tax increases would be more damaging to the economy and pose greater risks to the recovery because they increase costs to businesses, which drive the island’s economic success. This would eventually lead to higher taxes for everyone.

“I understand the economic downturn has been difficult for every industry, but we have already spent £158 million of our savings and we are not facing a serious decline in the Island’s economy. It would be irresponsible to spend even more of our savings to fund consumption. It was right to use our savings to shelter islanders from the worst of the global recession, but we cannot live beyond our means indefinitely.

“If economic growth does not materialise in the next few years, it may then be time to consider using more of our savings. But we are already anticipating running deficits in 2011 and 2012; further delay has no economic merit and is unsustainable.

“The same argument applies to borrowing, with the added concern that the loan would need to be repaid, with interest, by future taxpayers, reducing the amount available to spend on essential services in coming years.

“This budget closes the deficits in a fair and progressive way, while minimising the impact on our economy. It includes measures to protect people on low incomes from the increase in GST. The proposal for an increase in social security contributions primarily affects the better off. This budget puts in place a sound, credible and deliverable plan to restore sound public finances by 2013.”

The Council of Ministers is due to discuss the budget amendments and detailed comments will be lodged next week.

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