Thank you for inviting me today - your welcome and attendance are greatly appreciated. In the next few minutes, I’d like to cover:
- an update on G8 developments, including those of the last hour or so
- this morning’s publication of the States accounts, and what that means
- and what we need to tackle in the next 18 months
Update on G8
As we sit here, the summit is underway. In the last hour, actions plans on corporate transparency have been published here in Jersey and across all Crown Dependencies and overseas territories. We are expecting the G8 nations themselves to also publish their plans imminently.
So why is all this happening?
As part of the G8 presidency the UK Prime Minister targeted three Ts:
The key issues include advancing global trade, developing new standards for corporate transparency and international cooperation to tackle tax evasion.
Open for growth
Many of you will have heard about the events on Saturday, where our Chief Minister met David Cameron. A great deal of preparation went into the various meetings: detailed work from the Chief Minister's Office, External Affairs and the Treasury, working closely with Jersey Finance.
Our aim was to ensure that the international community and members of the G8 had a better understanding of what Jersey does. We’ve seen a huge amount of press coverage, and I think we can say we are well on the way to explaining what Jersey does.
The unprecedented airtime that the Chief Minister and I managed to achieved for Jersey directly outside the door of Number 10 on Saturday, I think represented a turning point. While we were busy at Number 10 and at Lancaster House, we only learned later that we had managed to achieve almost saturation across all UK and international TV and radio networks and we were the only jurisdiction that was quoted alongside the UK Prime Minister.
This, taken together with last week’s Economist article and yesterday’s Financial Times, seems finally to have got the message across. Jersey is not a tax haven, we are not the problem, in fact we are part of the solution.
Our experience as a small jurisdiction is being used, and can be used more, to help those jurisdictions that are not at the same level on corporate transparency. Building on our good contacts in the OECD and EU we have approached global institutions across the world, including the African Tax Administration Forum, and offered to provide more technical assistance to other countries.
The action plan we have just published contains seven steps, designed to strengthen our position further. I’m sure that any of you who are members of the financial sector will see that there is nothing much new in this plan. We are already doing much of this.
A number of Islanders, and indeed the local media, who I have spoken to in recent days have understandably asked why this matters to ordinary Islanders. My sense is that a view has developed over recent months that our financial services sector was at risk, and could even be in decline.
We in Jersey have faced up to, and dealt with, difficult political challenges. This means, in my opinion, and I know this is shared by the Chief Minister, that we are now the undisputed leader, or as one very senior journalist in the UK dubbed us, the ‘head prefect’ of the offshore world.
We are now ready to reap the benefits of all that we have achieved. While other countries are still concentrating on deficits and debt, we are putting in place strategies for growth. I was at the House of Commons on Tuesday and I heard the Canadian Prime Minister's address to Westminster, where he explained the importance of tax competition and growth, which was absolutely in alignment with David Cameron’s position on the important of low tax delivering growth.
These are positive statements for what we do. In a world where the G8 is emphasising the importance of global trade, and given the certainty of a further step-change in the value of global trade:
- more trade from North America to Europe
- increased trade from Asia to the EU
- trade from China to Africa and vice versa
- and from Latin America into the developed and developing world
As a highly regarded finance centre, we can act as a tax neutral conduit for this business. Our expertise in banking, funds and wealth management means that instead of the fear of decline we should be focused on the significant opportunities that are out there.
Our efforts in government are focused on maximising that potential.
The Jersey Finance / McKinsey Review, which we are now actively deploying, sets out a clear strategy for banking, trusts and funds and is entirely complementary with this global agenda. We know which markets we need to be operating in and I believe we now have the leadership, drive and expertise to get us there.
If I had spoken to you a year ago I would have said there were differences of opinion between industry, the regulator and government. Today, as a result of all the work we have done in recent months, we are now in better alignment and by continuing to work together we can take advantage of this incredibly strong position.
States of Jersey Accounts
If I now can turn to public finances, today is an important day for the Treasury, with the publication of our States Accounts.
They are available online and are some of the most detailed we have ever published and something that will please your accountant president!
They adhere to the highest international reporting standards; the results are of course positive too.
Again people ask me why this matters. This is another differentiator for Jersey, whether in the areas of finance, digital or tourism, the importance of stable public finances cannot be underestimated. The simple message is, that the low tax rates that we have, can continue.
How did we get here?
We have set out what has been achieved:
- moving from one- to three-year planning – the Medium Term Financial Plan, a vital step
- delivering the biggest savings programme ever achieved, with nearly £60 million of recurring savings
- applying fiscal stimulus to help local business and job seekers throughout the financial crisis
- significant reorganisation within the Treasury to improve efficiency and financial management
- recently developing a captive insurance fund
- deploying a huge amount of capital into the economy to invest in infrastructure
The team effort has been enormous. I am delighted that my Treasurer and Assistant Minister are here and I would like to pay tribute to them on delivering this agenda.
Managing the budget
So, what do the accounts show us?
States' income for 2012 was £628 million, compared with £587 million in 2011. This was £15.4 million more than anticipated – I release that there has previously been some scepticism about our income forecasts and I am absolutely confident now that our future forecasts will also be met.
Interestingly, the bottom 40% of earners contributed less than 2% of all income in 2012.
This clearly demonstrates that we have a very progressive tax system, whilst still maintaining our key principles of keeping tax low, broad and simple.
The total net expenditure for 2012 was £601 million. Departments ended the year with an underspend of £28 million against budget. These funds have been carried forward into 2013 to help fund key priorities, including:
building up departmental contingencies
helping deliver future savings
boosting the economy and jobs
raising Jersey’s international profile to secure growth
enabling projects to go ahead that would not be funded
enabling changes in service delivery to achieve long-term savings as well as meeting the cost of the priorities of jobs and boosting growth. For example:
Managing the balance sheet
One of the other big themes that I have set out during my time in office has been managing the balance sheet.
At a time when many countries have debts of more than 100% of their GVA, Jersey’s balance sheet represents a value net assets exceeding 100% of GVA, together with plans for balanced budgets. We are ahead of most other jurisdictions in many ways, including in economic fundamentals.
In terms of managing the balance sheet, Jersey’s investment performance in 2012 was better than that of international, industry standard benchmarks.
The Treasury has worked extremely hard to achieve this, through close collaboration with the Treasury Advisory Panel, to restructure and diversify our investment to reduce risk and improve returns.
Our equity returns were 15% against a benchmark of 11%. And our overall our returns were 9.1% against a benchmark of 8.7%
As a result, this year’s balance sheet remains very strong, with the value of current assets increasing from 2011 by £186 million.
Following an independent valuation of fixed assets, carried out by the Valuation Office Agency, there were also significant increases in the value of the States fixed assets of approximately £300 million. There were high returns for the Common Investment Fund, which increased by £133 million and the Strategic Reserve reached £651 million by the end of 2012.
I’m pleased also to report that these high returns have continued to improve in the first quarter of 2013, with the Strategic Reserve now reaching £700 million.
The Treasury has also operated as an active shareholder with regards to Jersey Post, Jersey Telecom, Jersey Water, Jersey Electricity and States of Jersey Development Company. Together, the four utilities contributed £18 million in dividends to the States in 2012, reducing the need for that funding to be raised by taxes.
Working with Guernsey
I think it was at your last IoD event that my opposite number, Deputy Gavin St Pier, addressed you.
As has been clearly demonstrated by the joined up approach at the pre-G8 meetings, the relationship between the Chief Ministers of Jersey and Guernsey has never been stronger. That is also true of Deputy Gavin St Pier and myself, as you heard at your last lunch.
We are now sharing expertise, consolidating internal data, cutting costs through joint procurement and tackling strategic challenges together. I am determined to continue to collaborate with Guernsey to tackle the big issues facing us, particularly in the area of health care spending.
As Gavin explained to you, there are no boundaries in terms of what we will consider. In this instance, one plus one is significantly greater than the individual component parts and I would like to thank the IoD for helping us to realise that.
So what will the next 18 months bring?
There will be no let up in my drive to deliver more reform and change. In two weeks' time I will be asking the States to approve a further strengthening of our public finance law - putting the roles and responsibilities of the Fiscal Policy Panel onto a statutory basis and further strengthening financial management and governance to increase accountability, with additional powers allocated to the Treasurer.
While the Comprehensive Spending Review will have been delivered by the end of this year, we are now turning our attention to the savings that can be delivered in the next MTFP.
I’ve said before that the Medium Term Financial Plan was put in place to get our budgeting back on track and lay a strong foundation for longer term planning. We’re now looking ahead, and through our Long-Term Revenue planning, income and spending is being estimated until 2020.
This detailed work that we’re actively engaged in will act as a framework for the next States Assembly, which will help us maintain our tax principles as low, broad and simple.
As far as capital and infrastructure plans, we are looking even further out with a 25-year plan. We need to consider how we will meet the infrastructure pressures of social housing, the new hospital and the liquid waste system.
We are considering funding strategies to do this, including potentially cheaper option leverage, by borrowing to invest, particularly where investments, such as housing, produce a return. We are of course also tackling, once and for all, the issue of public sector pensions.
Building international reputation
Ladies and gentleman, I realise that we have been through a very difficult time in the last few years, but the fact is, Jersey has turned the corner. We are well on our way to shaking off the label of Jersey as a tax haven and we have explained that our standards are amongst the best in the world.
As always, we cannot be complacent and we must now ensure that this good work in terms of is continued. Our focus has shifted towards growth.
We need to use every opportunity available, especially the intake of high value business and people to Jersey. We have to take advantage of great potential for growth within the finance industry, and the gains that can be acquired from our significant improvements in alignment between the government, industry and regulator.
I am determined that we can achieve growth, prosperity and success, if we are united. Growth will be the prevailing theme of this year’s budget – and it will also be about giving some money back to those who need it, for example in Education, and investing for the future.
As I’ve explained, there is a pressing need for us to make improvements to our infrastructure:
- the States of Jersey Development Company is making bold investment in a new finance centre
- the housing scheme will take the next steps to improve the availability and quality of social and affordable homes
- the hospital will undergo the much-anticipated changes to improve service efficiencies, including major ward extensions
- the liquid waste strategy will see the complete regeneration of the Bellozanne site
- we are also going to make progress on the office strategy for the States of Jersey
From the Treasury’s perspective, we are pleased about what has been accomplished but just because we are back on our feet again does not mean we can afford to sit on our hands. In the next 18 months, we are going to take our strong public finances to the next level through commitment to even longer term planning in every area.
With the continued and valued support of the Chief Minister, and the rest of the Council of Ministers, we will work with every other department to ensure that their revenue is sustainable; we will begin working on the next MTFP, planning savings and putting money into areas that need it most, such as health.
I hope this has been a useful midterm review and that people increasingly will share our confidence about the positive future for Jersey.
Senator Philip Ozouf