The panel set up to give independent advice on Jersey’s fiscal policy has published its first report, which contains advice and recommendations on tax and spending policy for the Treasury and Resources Minister and the States.
Among the panel’s key recommendations are that no further transfers to or from the Stabilisation Fund or Strategic Reserve should be planned for this year or next, and that the modest financial surpluses planned in the current business plan for 2008 and 2009 are appropriate given the panel’s expectation of a significant slowdown in economic growth.
The report calls on the States not to approve decisions as part of the Business Plan or Budget that undermine tax revenue or commit to greater spending growth.
In the event of a sharper and more drawn out slowdown than currently expected, the government's finances should be allowed to adjust with the course of the economy before changes to tax and spending are considered, the report recommended.
In addition, the report stated that if the introduction of GST and higher food and fuel prices sets off a wage-price spiral then fiscal policy should be tightened to contain inflation and restore competitiveness.
The Chairman of the Panel, Joly Dixon, commented:
“The States has acted prudently in recent years but the slowdown the Island economy is now experiencing, as a result of the global credit crunch, presents a new challenge. In addition, Islanders are facing a significant squeeze on their incomes from GST and higher food and fuel prices. It is important that as the economy slows, the States does not make decisions that will undermine the tax base or result in significantly higher spending.
"The Island should be preparing for a significant weakening in the economy. At this stage the panel does not believe that economic conditions merit taking specific actions to cushion the economy from the slowdown. By maintaining current tax and spending profiles, the States will accumulate significant funds. Care needs to be taken to ensure that this happens and that the funds are not allocated unless the economy starts to slow more sharply.”
The report also highlights a number of alternative scenarios should tax and revenue forecasts not turn out as currently forecast.
Mr Dixon added: “Our analysis of future trends in tax and spending highlight that there is a real risk that States finances could deteriorate significantly in the medium-term and this should be at the forefront of States members’ minds when they debate the 2009 Business Plan."
The full text of the Jersey Policy Panel's annual report can be found in the Tax News Resources section.
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