Jersey Fiscal Panel Voices Concerns Over Govt Deficit

by Jason Gorringe, Tax-News.com, London

12 November 2009

Jersey’s Fiscal Policy Panel has asserted that recent spending decisions taken by the States could undermine Jersey’s successful record of good economic management.

In an update to its 2009 Annual Report published on November 11, the Panel notes that “Jersey’s previous prudence ensured that it was well-placed to mitigate very difficult economic circumstances by implementing a significant fiscal stimulus. However, unexpected tax revenues in 2009 are being used for extra spending in 2010 and 2011 rather than being set aside for a 'rainy day', as the Panel had advised.”

“Despite optimism that the US and UK will be out of recession by the end of the year, the Panel continues to believe that the local economy will still experience a significant recession in 2009, which will last into 2010.”

Last spring, the Panel recommended a timely, targeted, and temporary fiscal stimulus, an area commended by the Panel’s annual report. However, it warns that new spending will deplete the Stabilisation Fund, putting at risk Jersey’s ability to counteract further economic weakness, and may reduce the ability of the States to run balanced budgets over the medium-term. “Decisions about spending and revenues are particularly crucial now since an on-going deficit is forecast, and there are significant medium-term pressures as well, such as an ageing population and threats to the 0/10 company tax system,” the report observed.

Chairman of the Panel, Joly Dixon, said: “While we believe that the States needs to be more careful in approving extra expenditure, it is encouraging that significant efforts are being made to strengthen the way that public finances are controlled. The worst of this crisis is hopefully behind us. Now is the time to make sure that the States’ finances are again put on a more secure footing from which to face some potentially difficult challenges in the years ahead.”

In response, the Minister for the Treasury and Public Finances, Philip Ozouf, said: “I share the concerns of the Panel about the structural (permanent) deficit and the importance of planning now to deal with it once the economy recovers. This deficit is manageable and not on the same scale as the deficits faced by many other jurisdictions, but it does need to be tackled. I believe that the Fiscal Strategy Review and the Comprehensive Spending Review are both critical if we are to meet the Panel’s requirements to keep States finances on a sound medium-term footing.”

The Minister has also noted that the Panel supports efforts to inject cash into the local economy in the short-term, given that Jersey is likely to be in recession this year and next.

The Minister added: “The processes we have in place which govern the release of money to stimulate the economy are in line with the Panel’s advice, and meet the twin objectives of helping the economy through the downturn and not adding to the structural problems Jersey faces. At the same time we will be paying close attention to the medium-term challenges and progressing rapidly with work on the Fiscal Strategy Review and Comprehensive Spending Review.”

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