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The economic experts responsible for advising Jersey's Government have given their latest assessment of the island's economic health – predicting a fall in the island's economic and revenue growth over the coming years.
The Fiscal Policy Panel has today published its latest annual report, intended to help inform politicians ahead of the Budget debate in November.
The Government's spending plans were announced last month and include aspirations to boost personal wealth by upping tax allowances and implementing the Living Wage – as well and putting £710 million toward commencing the long-awaited new hospital project.
The FPP's Chair, Sir Jon Cunliffe, explained that the group had "assessed" the Budget as part of their advisory responsibilities.
Pictured: Sir Jon Cunliffe is chair of the Fiscal Policy Panel that advises the government on public finances.
Sir Cunliffe said: “I welcome the opportunity to chair the Fiscal Policy Panel which was set up by the States of Jersey to provide advice on economic environment and fiscal position.
"The Panel is required to advise on the medium-term and long-term sustainability of the States' finances and financial assets and liabilities and the advisability of transfers to or from the Strategic Reserve or Stabilisation Fund."
The Panel noted that Jersey’s economic growth over the past two years has been "exceptionally strong", driven by strong profit growth in the banking sector as a result of increases in global interest rates.
It continued: "However, economic growth in the rest of the economy is likely to have been weak.
"Going forwards, overall economic growth is expected to fall back to much more moderate levels."
It added: "Jersey’s revenue growth has been exceptionally strong driven by the increase in banking profits.
"Revenue growth is also forecast to fall back, in line with economic growth, in the coming years, although the introduction of OECD Pillar 2 is likely to produce boost tax receipts."
Pictured: The FPP said that Jersey’s revenue growth has been "exceptionally strong" but predicted that it will "fall back".
Commenting on the proposed Budget, the Panel said it recognised the government faces "difficult choices" between day-to-day spending, investment in productive capacity and addressing the depletion of the island’s reserves.
"The strong increase in government revenues since 2022 has funded a substantial increase in day-to-day expenditure, the majority of which is health related. This trend is continued in Budget 2025," it added.
"Government income is rising less quickly than expenditure and as a result the near-term fiscal position has deteriorated with an increased operating deficit."
Pictured: "The strong increase in government revenues since 2022 has funded a substantial increase in day-to-day expenditure"
Last year the FPP raised concerns about the Island’s Strategic Reserve, known as the rainy day fund, which it argued was “unlikely to be sufficient to meet a major crisis” as well as the Stabilisation Fund.
Expanding on their concerns, the Panel said: "The strong revenue growth in recent years has not been used to reinforce the funds which are below the FPP’s recommended levels.
"The Panel’s view is that fiscal policy needs to give greater emphasis to at these medium-term challenges."
The FPP notes that inflation has come down and is forecast to fall further, but said there are "some indications that it might be stickier than previously forecast".
"The island’s economy is still effectively at full capacity and there is a risk that the increase in current expenditure in Budget 2025 will lead to greater persistence in inflationary pressure," it continued.
"Budget 2025 includes substantial funding for capital investment in the New Hospital Facility. It also included reductions in departmental capital budgets to reflect historic under-spending and that these savings have been used to fund day to day spending.
"The panel notes that Jersey will need to invest more in productive capacity to meet future challenges."
More analysis to follow...
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