27 June 2012
When I last spoke to Chamber I said that unfortunately my arrival at the Treasury had coincided with one of the greatest periods of uncertainty of modern times. I was not exaggerating. We were looking at the sharpest fall in global economic output for 60 years. Here in Jersey, that was on top of a £100 million tax loss as a result of zero/ten.
We were facing a further £100 million deficit in Jersey’s public finances by 2013. This was due to the effect of the global economic downturn and unavoidable increases in demand for services, particularly health. There was also a need for some contingency funding.
We had to take action. We took proper independent advice and we faced up to dealing with our deficit.
Three part plan
Together we resolved to tackle the projected deficit with a three part plan:
- Raising taxes by £35 million pounds to close the gap
- Cutting spending by 10% within 3 years
- Boosting growth through a fiscal stimulus package
Did the predicted fall in income from zero/ten happen? Yes. Was the economic downturn bad? Yes. But was it as bad as we had planned for? No. Have we implemented the tax measures? Yes. Have we delivered all the savings? Partially.
The predicted deficit of £100 million associated with zero/ten did happen. The actual shortfall in income was very close to the budgeted level and we did feel the effects of the economic downturn. Thankfully our forecasts proved to be on the cautious side and our actual income has been better. As predicted, our expenditure was above our income for the 3 years between 2010 and 2012.
In the years of budget surplus we built up a reserve in the form of a Stabilisation Fund. We managed the 3 years of deficit by using the Stabilisation Fund, while at the same time delivering savings to balance the budget for the longer term.
This Fund has been vital in funding the deficit and in protecting Islanders from the full effects of the downturn. The task of increasing taxes and cutting spending, while also supporting the economy has been an enormous challenge.
I do not for a moment underestimate the impact this has had on local people and their businesses. But together we have succeeded. We were right to deal with our problems head-on. Treasury Ministers who did not deal with their deficits have made it very difficult for their countries to recover from the downturn.
Governments that borrowed to fund expenditure now have a legacy of excessive debt. Financial markets are asking not just about solvency of banks but also the solvency of governments themselves. Jersey has managed its finances and stayed solvent.
States Accounts 2011
2 weeks ago we published our audited Accounts for last year. They show that the States has a strong balance sheet and we have closed the funding gap faster than expected.
Instead of a budgeted operating deficit of £72 million, the actual figure was £12 million. This was largely because of higher revenue from personal tax of £19 million and Company Tax of £10 million. In addition, departments carried forward £27 million and there were unused contingencies of £14 million.
From a government perspective, we now have a more normalised mixture of funding sources from income tax, company tax, consumption tax and duties. This is much more sustainable for the future.
Turning now to the balance sheet. Most governments have an inherited mountain of debt. The UK is projected to have debt levels of almost 100% of GDP by next year. Jersey’s GVA is about £3 billion and in contrast to most jurisdictions we’ve got assets in excess of our GVA rather than liabilities.
Net Assets of £3.7 billion comprise £2.9 billion of Tangible Fixed Assets such as land and property. Last year we invested a further £64 million on projects including the Energy from Waste plant, more and better social housing for local people, improvements to the prison, and the Town Park - all funded from cash.
We also have £1.2 billion of financial assets including holdings in Utilities valued at £326 million, £47 million in the Consolidated Fund, and £594 million in the Strategic Reserve.
If you would like more detail, our Accounts are very clear and easy to follow and are available on our website. We are also preparing a summary of the accounts for public consumption.
The next 3 years
The Chief Minister addressed Chamber recently on the Strategic Plan. We are pleased the Plan was approved by the States and that our priorities have now been agreed. They are:
- developing a strong, sustainable economy
- improving health care and housing
- getting people into work
- public sector reform
Building on our successful programme of Fiscal Stimulus projects we have brought forward more infrastructure projects to boost the construction industry. These projects include:
- St Martin’s School
- new police station
- improvements to social housing - an extra £27 million made available
Medium Term Financial Plan
So, how are we going to fund these priorities? One of the most important reforms that we have put in place is to move to a 3 year planning framework. For the first time we will be setting budgets for all States Departments 3 years ahead, moving away from short term decisions.
With the flexibility of 3 year budgets comes the responsibility of delivering the savings programme. I believe this is a huge step forward in delivering efficiencies and moving to longer term planning for the benefit of the Island. The hard work is underway and we are now in the final stages of setting the cash limits for the next 3 years.
Based on our future income projections we plan to allocate some growth to achieve our priorities in the Strategic Plan. On 20 July I will be announcing the details of all budget settlements of the MTFP, before lodging with the States on 23 July.
If we are going to reform health, get people into work and grow the economy there has to be investment. I look forward to sharing these plans with Chamber next month.
Over the next 3 years we will be balancing our budgets and we will not be moving from our current system of taxation. Zero/ten will remain and GST will stay at 5%. There will be no substantial changes. I am committed to low taxation, broadly based and levied in a sustainable way. That is the Jersey system and will remain so.
We are also planning our capital programme for the next three years. This aims to provide more stimulus to our local economy at the same time as delivering improvements to our services, including health, physical environment and infrastructure.
Now that we have moved to medium term financial planning, we will also be focussing on managing our Balance Sheet. One of the areas for review is pensions. We are already in a stronger position than most jurisdictions, with funded schemes not just for our employees but for old age pensions too.
There are, though, two entirely separate issues that we have to tackle:
- the historic issue of the pre-1987 debt - an agreement was reached to repay it over 82 years, we now plan to repay it faster and reduce the long term financing cost
- we need to change the employee pension schemes to make the schemes affordable, fair and sustainable - we are likely to follow the UK and move to a CARE scheme by January 2015
Economic Growth and Diversity Strategy
Despite uncertain global economic conditions, we have the capacity to invest in projects that support economic growth. Our new Economic Growth and Diversity Strategy makes it clear that we are committed to supporting existing businesses, like those of Chamber members.
We know that businesses commonly under-invest in innovation, which means they fail to reach their potential. That is why I am committed to allocating the full £10m to the new Innovation Fund. This fund will offer businesses – both new and existing ones – the chance to maximise their potential.
The Economic Development Minister’s new organisation, Jersey Business, will support the development of new and existing businesses. This is a great example of a private/public partnership which will take support for local business to the next level. Confident businesses with good ideas are at the heart of our ability to grow the economy. We in Government can help by removing red tape.
Our plan to roll out super fast broadband across the Island is also critical. Fibre optic technology is the future and will put Jersey in a world beating position, a position from which we can all benefit, not just ICT businesses.
And the new body, Digital Jersey, which we have funded, will help to create jobs, get our economy moving and provide an environment that’s one of the best in the world for new enterprises.
Tourism remains an important part of our economy. I have released additional money for the Tourism Development Fund and proposed that the Minister for Economic Development should be able to give grants to private sector businesses with good ideas that support the development of the tourism.
We can already see how successful event led tourism has been - events like Jersey Live and Branchage Film Festival demonstrate the scope of what can be achieved. Bringing more people into the Island can only help boost retail and hospitality sectors. I hope the wider availability of these grants will sow the seeds of new ideas so they can grow to become part of our tourism calendar.
We have been through 3 very tough years and have made some difficult decisions on tax and spending. Jersey now has strong public finances and we are well placed to maximise the coming opportunities for growth. In the coming months we will be settling the budgets for departments, releasing and debating our first Medium Term Financial Plan.
The next 3 years will be about developing our economy, building employment for Islanders and sustaining the investment necessary to keep Jersey special. I would urge Chamber to provide me with feedback and comments on the Medium Term Financial Plan and I would like to thank you for taking the time to listen to me today.
Senator Philip Ozouf's presentation to the Chamber of Commerce on 27 June 2012 (on slideshare website)