05 November 2013
The States failed to deliver the planned fiscal stimulus in 2012 and early 2013, according to the Fiscal Policy Panel’s sixth annual report.
Panel Chairman Joly Dixon said “It is disappointing that States capital expenditure in 2012 was not able to support the economy to the extent anticipated and this will have contributed in part to the weaker than expected performance in 2012. However, the panel are encouraged to see that the Treasury has made improvements which should allow it to more effectively implement fiscal stimulus for the remainder of this year and in 2014.”
The Panel has revised up its forecasts for growth in 2013 and expects a similar performance in 2014. However, significant spare capacity will remain in the Jersey economy over 2013 and 2014 and the Panel advises that fiscal stimulus could be effective in supporting businesses and employment.
“Recent survey data has been encouraging and Jersey stands to benefit from the improvement in the advanced economies, but the panel does not expect the economy to grow strongly in 2013 or 2014. Significant spare capacity remains and fiscal stimulus is therefore merited to support employment and businesses in a timely, temporary and targeted manner.
“From 2015, however, as spare capacity is eliminated, the economic impact of the large capital programme will need to be carefully managed.”
Fiscal Policy Panel's recommendations
The panel’s eight recommendations are:
- the States should ensure that the planned fiscal stimulus is delivered in 2013 and 2014, and that where possible additional expenditure should be brought forward to compensate for likely delays in other expenditure
- the effectiveness of fiscal stimulus through capital spending depends on bringing forward capital projects and making sure the expenditure takes place on time. The Treasury and Resources department should be proactive in:
- identifying and resolving any bottlenecks and barriers in delivering capital projects
- ensuring there is flexibility to bring forward (and potentially delay) capital projects
- managing the capital programme in a similar way to the £44m fiscal stimulus programme in 2009
- the States should make contingency plans for an improvement in economic conditions and reduction in spare capacity from 2015. This would mean running counter cyclical fiscal policy and topping up the Stabilisation Fund. The plans could include:
- reducing departmental expenditure and/or raising revenue
- changing the profile of spending on the three significant projects or other projects in the capital programme
- changing how key capital projects are delivered to put less strain on local capacity
- the States should clearly define the purpose and optimal size of the Strategic Reserve and set out conditions for its use, including how borrowing from the Reserve would be dealt with. This should be done before deciding whether or not to use the Strategic Reserve to pay for the new hospital or any other capital expenditure.
- in April 2013 the Treasury Minister provided a progress update on the panel’s seven main recommendations. This development is warmly welcomed by the panel. It is recommended that a progress report should be published by the Minister every year.
- every Budget should include:
- a financial forecast for the current and next three years including updated income projections
- proposed movements on the Consolidated Fund, Stabilisation Fund and Strategic Reserve for the current year and next three years
- data which shows what happened to these funds in the previous three years
- a financial forecast showing the surpluses and deficits adjusted to recognise the economic impacts
- the Treasury and Resources Department should identify the maximum buffer that is required in the Consolidated Fund for remaining contingencies in a year. Any funds in excess of that buffer should be transferred to the Stabilisation Fund.
- further work should be undertaken on the nature of the capital programme, in particular distinguishing between spending to maintain and renew existing infrastructure and spending on new or enhanced infrastructure. This would help ascertain whether or not there is an underlying structural deficit.