Thursday, 28 June 2012

Chamber Lunch - Plans for Tax and Spending

Philip Ozouf was the speaker at the Chamber Lunch speaking on taxation and the state of Jersey's finances.

An opening introduction by David Warr put the very good point that what sound finances look like from within government may look very different from the private sector. An increase in GST may ensure that the States spending is kept in the black, but on the high street, may lead to reduced revenues, reduced spending by employees, a slow down in the economy, and hence less revenue. It's a good example of what Popper noted in "The Poverty of Historicism" - how planning can have unforeseen side effects that were not planned.

The general presentation by Philip Ozouf was how good the States finances were in, considering the global economy, and the way in which most countries in the Eurozone had deficits. He didn't see that we were out of the woods yet, because the markets are still volatile and fragile.

"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."

One notable element is that the budget is now being drawn up on a three year basis with States spending organised looking from 2013 to 2015, so that it is a longer term, rather than year by year. The proposals are being released in July, much as previous years, but this time the debate will take place in November, rather than when the States resume sitting on September, so that there will be more time for questions and conferring.

I have always considered the previous arrangements, when the information was handed out just before the summer recess, as one of the worst decisions, as it meant an extremely short time, with States members often away and unavailable, during the time it was supposed to be considered.

In the first episode of "Better Steps to Better Management", which I have just been watching, the case is considered of a boss who had a practice of handing out pay slips with rises and bonuses just before his holidays, so that no discussion could take place. That's old style management, which the series suggests is not good practice - and the States tended towards that in previous years.

This also means that a new States, either in 2014 or 2015 - if the term is made 4 years, or kept at 3 years - would not arrive and have to decide on the budget measures and amendments; they'd have a year to decide which way the States would go. It also means there shouldn't be a repeat of the disgraceful position where the budget was rushed though by the old States and the time between elections and the new States being sworn in was increased to 4 weeks - a decision which has still to be reversed, as it forms part of the States of Jersey Law. A back-bench proposition may be needed.

"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."
Of course, the trouble with longer term plans comes when the unexpected pops up and derails matters, but it does mean that spending can be allocated over longer terms, which will hopefully prevent the old-fashioned mentality which seeks to use an annual budget in case next years is reduced. A higher one off cost occurring one year can be spread over a larger period.

The prudential planning for the deficits by way of the Stability Fund meant the States could put money into the economy during the worst of the recession, bringing forward capital projects. What Philip Ozouf didn't mention was that the Stability fund tended to be focused on helping the building trade, rather than the high street, and that States departments were also able to make their own bids for tenders on projects, thus gaining extra funding surplus to their budgets.

"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 3 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 subject of pensions was skated over, with Philip saying that the changes for old age regarding health care and home security ("the core scheme") were deferred to 2015 because of the weight of taxes on the individuals with GST and 20-20. He didn't address the matter in detail of final salary pensions in the public sector, and whether they were sustainable in the long run, but Jersey seems to be keeping an eye on the UK regarding this one, to follow where they go. There is a pre-1987 debt, relating to the restructuring of the Public Employees (Contributory Retirement Scheme):

"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."

For someone who says we don't borrow, a debt repayable over 82 years seems a little inconsistent, and shows a talent for creative accountancy!

There was a lot of the usual kind of vague talk about digital Jersey being the way forward for Jersey to move its economy, but that was rather spoilt by a later answer to questions on the high cost of broadband - the reply was that Jersey couldn't compete with subsidies on the cost of Jersey Telecoms broadband compared with larger jurisdictions.

"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."

In Question Time, David Warr asked on behalf of a member what was being done to help the high street, and received very little in the way of answers, just a repeat of the mantra that "Our new Economic Growth and Diversity Strategy makes it clear that we are committed to supporting existing businesses, like those of Chamber members". There was also a bit of praise for Alan Maclean: "The 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." And there was also this wonderful piece of a vague Yes Minister Statement: "We in Government can help by removing red tape."

There's not a huge amount of fine detail here, and the empty shops in the high street suggest that the next level may well be bankruptcy or liquidation for a number of retailers.

What red tape is going to be removed is not at all clear, and there's also no mention of the failure of Alan Maclean and EDD to act proactively to negotiate with the UK rather than burying their heads in the sand over the fulfilment industry - a settlement might have been negotiated to allow locally produced fulfilment goods, such as flowers, to continue, if only too little had not been done too late.

Other questions seemed to come from disgruntled developers, fed up with delays in the Planning Department. Quite what they had to do with tax and spending is debatable, and at times, as question followed question, it seemed that Rob Duhamel was coming in for a bashing, and wasn't really defended at all by Philip Ozouf at all. All the developers wanted was a free hand to get on with making new homes. And there was also a gripe about having to provide social housing as part of the deal.

It sounds as if they were being held up unfairly by some of that red tape, but they didn't mention, of course, the need for a timescale so that members of the public could review plans and lodge any objections; to hear them speak, you would have thought there were no problems at all with developments.

What also hasn't been considered is how far without States projects the current number of builders is sustainable with a downturn in the economy, and a slump in private property sales.

There is a promise of no more taxes, but of course we all know that "charges", otherwise known as "stealth taxes", under the guise of "users pays" are increasing and rising. To claw back money from the public directly rather than be funded indirectly by taxation - which is supposed to be for those services anyway - is likely to be the next trend as departments seek to balance their budgets. But a user pays charge, like a poll tax, payable by someone who uses a stretch of road, is still effectively a tax - it's more targeted at particular groups, which may or may not be fair. A debate on the principles of when user pays is fair, or excessive, or should not be in place, is long overdue.

It was an interesting talk, with pie charts and figures along the way, but it did suffer from time to time - despite all those figures - from an underlying vagueness and tendency to cliché. Here are some of the better ones:

"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."

What in heaven's name is a "normalised mixture" in this context? Looking it up, it seems the first time a politician has used this term, and way outside its technical context in statistics.

And here is "maximise", "potential", "opportunities", and the old favourite "world beating".  These are examples of vagueness, lack of precision,  blurred meaning:

"This fund will offer businesses - both new and existing ones - the chance to maximise their potential."

"Jersey has strong public finances and we are well placed to maximise the coming opportunities for growth."

"Fibre optic technology is the future and will put Jersey in a world beating position."

1 comment:

Darius Pearce said...

So Tony was Ozouf basically saying that the downturn was over?

"We then managed the 3 years of deficit by using The Stabilisation Fund and at the same time delivering savings"

I thought it was still very much ongoing and getting worse... planning for a future which won't happen again.