This Assembly has already discussed the impact of the global economic climate on our financial forecasts, so today I want to concentrate on the issues and measures in this year’s Budget.
It is worth noting that Jersey is rare in having an independent panel of eminent, highly regarded economists whose role it is to review budget proposals and to advise this Assembly. The Fiscal Policy Panel (FPP) have endorsed this Budget's proposals to invest in the economy to support the recovery.
The FPP advise that lower tax forecasts should not deflect the Assembly from this focus, and they support the approach of using savings and reserves to fund possible shortfalls in 2014 and 2015.
Budget 2015 proposes a number of measures to deal with the possible shortfalls:
- use available balances in other funds including stabilisation fund, dwelling houses loan fund and insurance fund
- redeem preference shares from Jersey Water
- ask for extra dividends from Jersey Telecom and Jersey Post
- rephase existing capital budgets to the year in which the funding is actually needed
- use funds from unspent contingencies and from the restructuring budget
- reduce the budget allocated to the 2015 pay award from 2.5% to 1.5%
- require departments to find savings of 2%. This will also help our financial position in future years
We are not borrowing, we are not increasing taxes and we are not reducing our capital spending to maintain our spending commitments.
The public finances law does not allow a budget without sufficient unallocated resources in the consolidated fund. If approved, these proposals will see a balance of £3.2 million in the fund at the end of 2015. We will also have maintained our important programme of supporting the economy, investing in Digital Jersey, Jersey Business, Highlands College, Jersey Finance, Back to Work, Trackers, other apprenticeship schemes and employment initiatives.
We have funded £222 million of capital projects over the period of this medium term financial plan, which is almost £80 million more than over the previous three years. I hope members feel a sense of pride in the way this Assembly has invested in important infrastructure. Infrastructure that provides jobs and facilities that improve Islanders’ lives.
It is also worth noting that we have introduced the long term care scheme without taking money out of people’s pockets to fund it. We are paying for it from the underspends of the Social Security Department. We have been able to do this because of the underlying strength of our public finances, the result of many years of prudent States decisions.
We need to continue supporting the economy until it recovers. We should not shelve expenditure or raise revenue, just when the impact on the economy would be the most damaging.
Our key consideration in developing this budget has been to support the economic recovery. I am proposing to:
- maintain the marginal tax rate at 26%, putting money into people’s pockets, looking to reduce the rate further to 25%
- increase income tax exemption thresholds by 1.7%
- freeze tax allowances
- cap mortgage interest tax relief at £15,000, sending a signal that we need to look at this relief
- remove mortgage stamp duty on first £300,000 of debt and apply lower rate of 0.25% on any borrowing up to £400,000
- increase stamp duty on properties over £1million as follows:
- 4% on properties from £1m to £1.5 million
- 5% at £1.5 million on properties valued at £1.5m to £2 million
- 6% on between £2 million and £3 million
- 7% above £3 million
These increases are designed to raise approximately £850,000, and even with these changes Jersey’s stamp duty rates will remain significantly below those in the UK and other countries.
I will also ensure that oil supplying companies pay 20% tax on their profits, marginal rate taxpayers get the same double tax credit that others already receive and people returning to the island pay income tax on a current year basis.
This Budget also contains a significant reform of our pension system, giving flexibility to people coming to the end of their working lives and and who may need to access pensions in more flexible way. This is a huge reform of pensions and I hope the fact that these measures have been unamended shows members’ support for these exciting changes which create a modern regime and recognise the changing nature of retirement in the 21st century.
Confidence is returning to the local economy, but it continues to need our support. Included in the capital programme are the second phases of additional primary school accommodation, the infrastructure for the sports strategy, the second phases of the Future Hospital project and the liquid waste strategy.
Securing capital projects now delivers better value for money, while also providing work for Islanders.
Turning to impôts, I am proposing to:
- freeze the duty on normal strength beer
- increase spirits, wine and strong beer by 1.7%, consistent with RPI
- align cider duties with those for beer, simplifying the impots regime
- increase the duty on tobacco by 4.7% - that’s 22.4 pence on a pack of 20 king size cigarettes
- place a penny on a litre of fuel
- increase VED by 1.7%
I have previously committed to confirming the definition of the capital value of the strategic reserve and how it should be managed. I am proposing that the balance of just over £651 million as at 31 December 2012 be defined as its capital value.
In future years that capital value should be maintained in real terms using Jersey’s RPI (Y) for the inflation factor.
Long term planning
This Budget is the conclusion of our first three-year plan, and the Treasury has issued a number of reports that set out the challenges and opportunity facing the next Assembly.
Long term planning has been one of the main priorities of this Council of Ministers. We have been extending the planning and information horizons much further than ever before.
We have published alongside this Budget a progress report on our long term revenue planning. We have been looking at our income projections and working with departments to identify their needs. We have reviewed what we will require to replace and refurbish our capital assets over the next 25 years, and how this might be funded.
That work has been behind the proposals in the last two budgets for the three major projects for the hospital, liquid waste and social housing. We are also developing our fiscal options and have published a long term tax policy discussion paper and a consultation on property taxes.
This work is intended to inform the work for the next Council of Ministers and to develop the next medium term financial plan.
A report on our fiscal framework was lodged alongside Budget 2015, highlighting further possible improvements. Jersey has significantly improved its framework in the recent years. We have created the stabilisation fund and the fiscal policy panel, and we have moved from annual business plans to longer term financial planning through the medium term financial plan.
We have established a clearly defined purpose for the strategic reserve and we have placed the fiscal policy panel and their reporting procedures on a statutory basis.
This Budget strengthens the framework further by defining the capital value of the strategic reserve and the rules covering the stabilisation fund and housing development fund.
However, we should go further and ensure we have the most suitable framework for the next States Assembly to make medium and long-term fiscal decisions.
I would like to thank the corporate services scrutiny panel for its report on this year’s Budget and also for the considerable work they and their officers have done on the medium term financial plan and on earlier budgets.
While I may not always agree with the panel, it is essential to have that constructive review of our proposals.
We have shared large volumes of information with them and I would particularly like to thank the scrutiny officers who work cooperatively and diligently with Treasury officials to make this process as efficient and effective as possible.
There has been some vigorous and valuable debate on Budget 2015 and I hope Members in our final States sitting will be supportive of this Budget.
Members have taken some important and courageous decisions to secure Jersey’s long term future. This budget is the last decision this Assembly will take to deliver the objectives in the strategic plan.
It is a plan that is working. Despite this extraordinary period in our economic history, Jersey’s finances have been steered through, maybe a little bruised, but ready to be take advantage of the recovery when it is in full swing.
This Budget tackles the after-effects of a global downturn that no-one could have predicted would be so deep or so long-lasting. It puts money into the economy, keeping local firms busy and providing more jobs for islanders. The bold decisions this Assembly has made mean we can look to the future with confidence.
We have the opportunity for 2015 to be a turning point. If we stick to our plans, it will be a year of investment, of growth and of celebration of everything that is great in Jersey.
Budget 2015 is the right Budget for Jersey at this time. Our experts have endorsed it. I hope Members will too.