Mr President, Ladies and Gentlemen 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. Locally, on top of a £100 million pounds tax loss, as a result of zero/ten. We were facing a further £100 million pound deficit in Jersey ’s public finances by 2013. This was due to the effect of the global economic downturn and also 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.
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
This graph shows that the predicted deficit of £100 million associated with zero/ten did happen and…………..
… . 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 actual expenditure was above our income for the three years between 2010 and 2012.
In the years in which we had a budget surplus we built up a reserve in the form of a Stabilisation Fund. The green bars show the years in which we had a surplus and the red bars show the years in which we had a deficit. We then managed the three years of deficit by using The Stabilisation Fund and at the same time delivering savings so as to balance the budget for the longer term.
The Stabilisation Fund has been vital in funding the deficit to protect Islanders from the full effects of the downturn. The task of increasing taxes, cutting spending, and at the same time supporting the economy has been an enormous challenge. Having said that, I do not for a moment underestimate the impact that 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 deficit have made it very difficult for their countries to recover from the downturn. Governments that have 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. Turni
Two 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 pounds the actual was £12 million pounds. This was largely because of higher revenue from personal Tax of £19 million pounds and Company Tax of £10 million pounds. In addition, Departments carried forward £27 million pounds and there were unapplied contingencies of £14 million pounds.
From a Government perspective we have now got 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 Government have an inherited mountain of debt. The UK itself is projected to have debt levels of almost 100% of GDP by next year. Jersey ’s GVA is about £3 billion pounds. In contrast to most jurisdictions we’ve got assets in excess of its GVA rather than liabilities.
Net Assets of £3.7 bn comprise: £2.9 bn of Tangible Fixed Assets such as land and property. Last year we invested a further £64 million pounds 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 bn of Financial Assets including Holdings in Utilities valued at £326 million pounds, £47 million pounds in the Consolidated Fund, and £594m in the Strategic Reserve. If you would like more detail, our Accounts are very clear and easy to follow – they are available on our website if you would like to see them, We are also preparing a summary set for public consumption. Now looking ahead to the next 3 years.
The Chief Minister addressed Chamber recently on the Strategic Plan. We are pleased that 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 to work, as well as 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. A new Police Station. Improvements to social housing with an extra £27 million pounds being made available. 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 planning the cash limits for the next 3 years. Whilst we are cautious, based upon our future income projections, we plan to allocate some growth so as to deliver against our priorities in the Strategic Plan. On 20 th July I will be announcing the full details of all budget settlements of the MTFP in advance of lodging with the States on the 23 rd July. If we are going to reform health and get people into work and grow the economy there has to be investment. I look forward to sharing these plans with Chamber next month Because we have already taken the tough decisions, we can now give some assurances about tax. 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.
In addition to departmental settlements we are also planning our capital programme for the next three years. This is aimed 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 two entirely separate issues however that we have to tackle. Firstly 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. Secondly we need to change the employee pension schemes so as to make the schemes affordable, fair and sustainable for the long term. We are likely to follow the UK and move to a CARE scheme by January 2015.
Despite uncertain global economic conditions, we have the capacity to invest in projects that support economic growth. We are looking at innovative ways to find these resources to invest in Jersey – our Balance Sheet clearly provides some potential opportunity to do this. 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 – which 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 EDD 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 attract new businesses at a time when job creation is one of our most important tasks. It 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. And bringing more people into the island can only help boost retail and hospitality sectors I hope the wider availability of grants will see the seeds of new ideas 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 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 thank you for taking the time to listen to me today.
PLANS FOR TAX AND SPENDING Senator Philip Ozouf Minister for Treasury and Resources 1
We were facing £100 million deficitThe three part plan:- 1. Raising £35 million more from taxation measures 2. Finding savings of £65 million by 2013 3. Promoting economic growth 2
Stabilisation Fund End Year Balance and Transfers2009 - 2012 140 120 100 80 60 Transfers In 40 £m Transfers Out 20 Y/E Balance - (20) 10 11 12 09 20 20 20 20 (40) (60) (80) Year 8
High Level Summary – 2011Financial Results at a GlanceActual Budget/ Final Actual2010 Business Plan Approvals 2011 2011 2011 546 General Revenue Income 565 568 587(599) Departments Net Revenue Expenditure (616) (640) (599) (53) Operating Deficit (51) (72) (12) (17) Trading Operations (3) (4) 1 (70) Deficit adjusted for Trading Ops (54) (76) (11)(167) GAAP Adjustments (37) (37) (40) 22 Other Income 17(215) Gross Accounting Deficit (91) (113) (34) (14) Consolidation Adjustments (1)(229) Net Accounting Deficit (35) 9
High Level Summary – 2011Income General Revenue Income Other General Income Tax Revenues - £27m Island Rate - £11m Salary and Wage Stamp duty - £23m Earners - £284m Impôts - £51m Other Self Employed and Investment Holders - £50m GST - £66m Companies - £75m 10
High Level Summary – 2011Balance SheetThe States has a healthy Balance Sheet 2010 2011 £m £m Tangible Fixed Assets 2,769 2,922 Financial Assets 1,183 1,250 Net Current Assets/(Liabilities) 21 (21) Long Term Liabilities (411) (414) Net Assets 3,562 3,737 11
MTFP Proposals 2013 to 2015 Allocation of 2013-15 Long Term Capital Plan Forecast Amounts per DepartmentsRounding Applied Long Term Capital Plan Forecast 2013-2015 £278.8m 13
MTFP ProposalsManaging the Balance Sheet as well as Balancing the Budget• Investment Strategy• Pensions Policy• Pre 1987 debt, early repayment• Optimising shareholder returns• Policy on Reserves and Provisions 14
Next Steps – Update• 20th July - MTFP Public Presentations• 23rd July - Lodging MTFP 23rd July• 6th November - Debate MTFP• 20th November - Budget Debate 15