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Minister responds to GST budget amendment

09 November 2010

The Treasury Minister is stressing the need to take action now to balance Jersey’s budget by 2013, without dipping further into the Island’s savings. Deputy Geoff Southern is proposing using £26 million from the Strategic Reserve to delay the 2% increase in GST until June 2012.

However, Senator Philip Ozouf says “By the end of next year we will have already spent £158 million of our reserves on supporting the economy, maintaining key services and keeping people in work through the Fiscal Stimulus programme.

“As difficult as the economic downturn has been, Jersey is not facing a major structural decline in its economy, and it would neither be responsible nor effective to spend even more savings to fund consumption. This is the kind of fiscal ill-discipline which has caused many of the problems faced in other jurisdictions.”

In its most recent report on Jersey’s strategy to deal with the deficit, the Fiscal Policy Panel said “This projected path for medium-term fiscal tightening is broadly appropriate”.  All economic forecasts suggest the economy should see moderate growth next year and Senator Ozouf says the States will continue to support the economy in the early stages of recovery.

However, he adds “We cannot hide our heads in the sand and delay the necessary action when we have an ongoing gap between income and expenditure. Using interest from the strategic reserve now is against the States agreed policy of saving it for major structural decline. It is also unsustainable. It is not free money and would need to be paid back - suggesting even higher taxes in the future. It is not responsible to pass the buck to future tax payers in this fashion.

“We are already expecting to run a deficit of £55 million next year and £18 million in 2012. We are using reserves to fund this shortfall, giving the economy time to return to growth before taking action to balance the budget by 2013.

“I have already said that if economic growth does not materialise in the next few years, it might be time to consider using more of our savings – as the situation could then be described as a serious decline in the economy. Using the Strategic Reserve now would put us in a worse position if the expected economic growth does not materialise.”

Senator Ozouf says it is important to view all the tax measures proposed in the 2011 Budget as part of a package that is both fair and supportive of the economy. “The tax measures proposed by the Council of Ministers must be looked at as a whole. There is a myth perpetuated by Deputy Southern that GST is highly regressive.

“In fact, the Institute for Fiscal Studies has concluded that VAT is progressive. If we assess GST in the same way, it comes closer to being proportional, not highly regressive. Nonetheless, we will be enhancing the measures to protect people on low incomes from the full impact of GST. 

“Together with the proposal to increase Social Security contributions by 2% above the cap, the package proposed by the Council of Ministers is progressive – affecting higher earners more than the less well-off.”

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