Tax rises or spending cuts may be necessary, say economic experts
Friday 25 July 2014
Islanders might have to pay more in tax or see services cut to fill a new "black hole" in public finances, according to a report out this morning.
Just a week after the Treasury department confirmed that the economy had failed to match their growth forecasts leaving a three-year £95 million shortfall in public finances, the Fiscal Policy Panel has issued a gloomy report about the Island’s economy.
They say that they have downgraded their forecasts for the Island’s economic performance in 2013 and 2014, although they say that some improvement is forecast for 2015.
They have also raised concerns over whether the Island’s construction industry has the capacity to carry out the £420 million worth of States capital projects that the government has planned for the next two years, or whether the huge spending will lead to bottlenecks and disruption.
Most importantly, the panel say that they cannot tell whether there is a structural deficit in States finances.
Chairman Joly Dixon – a former top EU adviser – said that once the economic recovery begins, the States must start to look at whether the current deficits are temporary, or whether they are permanent, and require rebalancing the relationship between taxation and spending.
He said: “At this stage, the panel cannot rule out that there is a structural deficit in States finances but the States should plan to address this once the economic recovery in Jersey is more firmly underway.
“Although the outlook is somewhat uncertain this could mean it is appropriate to make a permanent change to income and/or expenditure to correct for this over the next MTFP period.
“The structural challenges that States finances may face in the medium term highlight how important it is to raise the underlying performance of the Jersey economy and in particular raise productivity.”
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