Ozouf Defends Jersey Budget

by Amanda Banks, Tax-News.com, London

29 November 2010

Phillip Ozouf, Jersey's Treasury Minister, has criticized 12 proposed amendments to the 2011 Budget he delivered on October 22, warning that, if passed, they will put at jeopardy government efforts to balance Jersey's budgets by 2013.

In a statement posted on the government website, Ozouf in particular warns against plans to amend the budget to defer or reduce the proposed increase to the island's 3% Goods and Services Tax (GST) rate, which he recommended should be hiked to 5%. The government said prior to the delivery of the budget that a package of both tax increases and public sector retrenchment would be necessary to ensure that Jersey can balance its books within the next three years.

The 2011 Budget - as delivered by Ozouf - provides for annual savings of GBP100m. As a result of these measures it is anticipated that Jersey will run a deficit of GBP55m in 2011, of GBP18m in 2012, and then achieve a surplus by 2013.

Warning of the dangers of mitigating the fiscal impact of the budget, Ozouf states:

“Fiscal stability provides the certainty that islanders and businesses need for future economic success. We are seeing the consequences for countries which have not been fiscally responsible and failed to act quickly. The package of measures in the 2011 Budget achieves an appropriate balance. GST raises money from a broad base of taxpayers – including finance firms through a rise in ISE fees - without adversely affecting the economy. The proposal to increase social security contributions primarily affects higher-paid islanders and their employers.”

“I agree with those who say savings first, taxes second: that is why the Council of Ministers increased the savings target from GBP50m to GBP65m. The Deputy of St Mary’s amendment to reduce our savings target to GBP32m is unrealistic. I have made it clear that 2013 is not the end point of the Comprehensive Spending Review. We will continue the process until we are providing essential services as efficiently and effectively as possible. I will be setting out in my budget speech clear and detailed plans for how we intend to make these savings.”

“We must safeguard Jersey’s future by securing the long-term viability of the economy. A 2% rise in GST raises GBP30m per year: a 1% rise leaves an annual shortfall of GBP15m, which must be found elsewhere. Additionally, if approved, it leaves a real risk that we will be overcommitted in 2011. If we do not take the difficult decisions now, those decisions will simply be deferred to a later date, when the situation could be worse.”

“Deeper, faster cuts could have the result we have been trying to avoid – a significant drop in services for vulnerable people. The spending review is on track to meet the challenging savings target agreed by ministers. Alternative tax increases would be more damaging to the economy and pose greater risks to the recovery because they increase costs to businesses, which drive the island’s economic success. This would eventually lead to higher taxes for everyone.”

“I understand the economic downturn has been difficult for every industry, but we have already spent GBP158m of our savings and we are not facing a serious decline in the island’s economy. It would be irresponsible to spend even more of our savings to fund consumption. It was right to use our savings to shelter islanders from the worst of the global recession, but we cannot live beyond our means indefinitely.”

“If economic growth does not materialize in the next few years, it may then be time to consider using more of our savings. But we are already anticipating running deficits in 2011 and 2012; further delay has no economic merit and is unsustainable.”

“The same argument applies to borrowing, with the added concern that the loan would need to be repaid, with interest, by future taxpayers, reducing the amount available to spend on essential services in coming years.”

Concluding, Ozouf stated:

“This budget closes the deficits in a fair and progressive way, while minimizing the impact on our economy. It includes measures to protect people on low incomes from the increase in GST. The proposal for an increase in social security contributions primarily affects the better off. This budget puts in place a sound, credible and deliverable plan to restore sound public finances by 2013.”

Jersey's Council of Ministers is due to the discuss the budget amendments this week.

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