Wednesday 08 October 2014
Guernsey's Treasury & Resources Board plans a balanced budget ahead of the States Assembly's debate on 29 October 2014.
Deputy Gavin St Pier, the Minister for Treasury & Resources, commented:
"This Budget will do three things:
1. Confirm that our financial house is now finally in order, as we move out of deficit and stop spending more than we earn for the first time in six years;
2. Move us from short-term budgeting to long-term planning; and
3. Enable us to invest in our economy and in our islands' infrastructure.
Sustainability, fairness and efficiency are at the heart of this Budget."
Headlines in the Budget proposals include:
- For the first time since 2008 we plan to move out of deficit
- Government spending is capped - so a 7.2% (£7.6million) increase in funding for HSSD will not increase overall government spending, due to restraint made elsewhere across the States
- This Budget marks the beginning of three-year financial planning and management - ensuring that taxpayers' money will be managed more effectively and carefully in the future
- The establishment of Economic Development Funds for Guernsey and for Alderney to support growth, and of a Transformation and Transition Fund to enable greater value-for-money in the delivery of public services
- The establishment of a Core Investment Reserve for Guernsey's long-term savings, with above inflation investment returns from the reserve being made available for investment in future infrastructure
- The proposed issue of a Guernsey Bond principally to refinance existing public sector borrowings
Deputy Gavin St Pier, the Minister for Treasury & Resources, commented:
"This balanced Budget means that the era of deficit funding, of spending more than we earn, is coming to an end. This new rigour is demonstrated by the fact that we have still managed to accommodate an increase of £7.6million for HSSD, whilst maintaining no real-terms' growth in spending overall.
"Setting up an Economic Development Fund that invests in our future economic growth, and repositioning our reserves in order to increase investment returns to fund future infrastructure, demonstrates that we are now better placed to plan for the future. The proposed bond will take advantage of a unique opportunity to secure for the long-term lower funding costs for public sector trading entities and their customers, ensuring a better deal for taxpayers. All of this is underpinned by our move to three-year indicative budgeting, which will improve future planning.
"The stability and prudence of the past few years, and the necessary continuation of expenditure restraint, means that there are only limited measures proposed to raise additional income, and this means that the burden can be spread more evenly and fairly."
Income proposals
The proposals to raise income total £8.95million, comprising:
Corporate sector (£4.65million)
- Extension of 10% Intermediate Income Tax rate to licensed fund administration businesses (£3million)
- Increase in Exempt Company Fee (£0.5million)
- Commercial Tax on Real Property to increase by 10%, though only 5% for the retail category (£1.15million)
Personal taxes and duties (£3.35million)
- A freeze in personal income tax allowances (£2million)
- A 3% real-terms' increase in the rate of tobacco duty in line with the Tobacco Strategy (£0.2million)
- A 2.5% real-terms' increase in the duty on alcohol - about 2pence a pint (£0.5million)
- Domestic Tax on Real Property Rates to increase by 15% (£0.65million) or 43pence per week for the average householder
Other
- A 3p increase in the duty on a litre of fuel (£0.95million) ensuring no real-terms' increase in the price at the pump
Deputy St Pier commented:
"The Board has strived in its proposals not to add more burden to hard-working families. For example the increase in Domestic TRP will amount, on average, to an increase of just 43pence per week. Basic personal and additional income tax allowances remain at the same level as in 2014, but their wholesale review is being considered as part of a wider range of measures in the Personal Tax, Pensions and Benefits Review, due to be debated in early 2015. Families and households need certainty in their financial planning, just as the States does, and so this year's Budget will not bring them any surprises, either in the headlines or the small print.
"The introduction of a new Bank Interest Income Exemption means that everybody with savings will pay no tax on their first £50 of interest. This will save thousands of Islanders from needing to file tax returns, removing administrative burden from them and the Income Tax Office. It's a common-sense proposal."
Benefits of a balanced Budget
The 2015 cash allocation to the States and its departments means that HSSD can receive 7.2% of additional funding without this increasing overall States' expenditure.
Deputy St Pier commented:
"One of the positive legacies of the Financial Transformation Programme is that it has helped to put in place the tools required for effective financial management across the States. This means that we can now target where in the States additional funding is most
needed. This is good housekeeping of the type that families in Guernsey do every week and every month. We are spending the limited funds available more wisely, not just asking taxpayers for more money to meet government's costs."
The new financial management tools that the States now has means that income and cash limits can be managed on a rolling three-year basis, which will start in 2015.
"Over the past few years the States has become more cost-conscious. Looking at our income and outgoings on a three-year view, means we can go beyond being simply cost conscious. Three-year forecasting is just the first step on the road to developing rigorous medium-term planning."
Investing in our Islands' future
Two of the biggest priorities for the States are fostering growth in the economy and increasing government's efficiency and both require investment, which the proposed Budget will enable through the use of funds drawn from the Contingency Reserve.
Supporting growth
In order to provide further support to drive growth in the economy, a £7million Economic Development Fund will be created to support the Economic Development Strategy. The Economic Development Fund will be for initiatives that demonstrate new or enhanced growth for the economy with evidenced and measurable benefits, and a return on investment by way of additional revenue for the States of Guernsey.
This is further investment in the economy building on the Strategic Development Fund, which was set up in the 2013 Budget, and which has recently, for example, approved funding in principle to the Commerce and Employment Department for the creation of an innovation centre for the creative and digital sectors. It also follows the £900,000 over three years investment in Guernsey Finance's promotional work for the islands' finance sector.
Deputy St Pier commented:
"Building on from previous economic funding initiatives, the success of the Economic Development Strategy will be central to Guernsey's future financial position by growing our tax base and tax receipts. Increasing States' revenue, while reducing expenditure, will result in budget surpluses which can be used to replenish this fund, enabling an ongoing virtuous cycle of investment in the economy's development, and helping to support economic growth."
In addition a £900,000 fund for Economic Development in Alderney will also be established, which reflects the joint approach both islands are taking to boost Alderney's economy.
Increasing government efficiency
Further transformation in the delivery of public services is central to providing better services to Islanders that also enable significant future savings. There is a clear need for continued investment to continue the programme of transformation. For that reason a one-off, long-term Transformation and Transition Fund is being created to invest in the transformation of service delivery.
Deputy St Pier commented:
"The fund will be used for initiatives which demonstrate significant long-term transformation in the delivery of services, which will have measurable benefits, and which will provide a return on investment. The fund will, among many things, enable and support the delivery of a Government Service Plan and support the work of the Chief Executive in his plans for modernisation and greater efficiency in the public service. In short, this is the fund that will underpin the next phase of transformation.
"It will help transition through some of the policy changes required to tackle our demographic challenges in ways which do not add to the Islands' tax burden. An Island with efficient government, strong public services and first-class infrastructure will be competitive in the twenty-first century."
Taking care of the 'family silver'
The need for Guernsey to sweat its assets is clear, and to move away from the notion that the Contingency Reserve is a 'rainy day fund', with our savings sitting, waiting to be spent. For that reason the Contingency Reserve will be re-named the Core Investment Reserve and it will be formally considered as the States' long-term enduring reserve: a place to keep the islands' 'family silver'. The medium-term target will be to bring the value of the reserve back up to its 2006 level, which was 64% of annual expenditure at that time. In addition, any real returns on the fund in excess of inflation will be made available for investment in our islands' infrastructure.
Deputy St Pier commented:
"Thinking in this way will demonstrate a step-change in the way we manage our assets. We need to think of this reserve as our long-term savings account, the core of which is untouchable. If we do this, then four advantages will flow. First, it will inject further discipline into our fiscal planning, because the States will never be able to rely on access to a 'rainy day fund' to supplement everyday spending as an ultimate fall back. Second, we will invest and manage the fund with growth as more important objectives than liquidity, so producing greater returns in the long run. Third, the investment returns, over and above that necessary to preserve the real value of the fund, can then be made available for funding capital investment in the Island. Fourth, there is also a real opportunity for structuring in such a way, as to provide us with an option, for the first time, to be able to invest our own reserves in our own island infrastructure."
Investing in our assets: a 'Guernsey Bond' scheme
In addition, the Budget includes proposals for the issuing of a Guernsey Bond to raise between £250million-£330million. This would extend the work of sweating our Islands' assets - in this case to trading entities such as Guernsey Electricity, the Guernsey Housing Association or Aurigny, for example.
Deputy St Pier commented:
"There is a myth that Guernsey 'doesn't do debt.' The reality is we already have £250m of public sector agency debts or guarantees in place for our trading entities, so we really do have a duty to properly investigate and manage that debt programme in a structured way to ensure that they are financed as cost effectively as possible. Otherwise, as consumers, we will be paying more for services from those public sector agencies than we ought.
"The proposed bond scheme is not about raising money to spend. It is about how we refinance more cost effectively our public sector trading entities, all of which have income streams to support their own borrowings. It is about how we make sure our assets work even better for us - and how we ensure that the borrowing we have is consolidated and done in a way that gets a better deal for the taxpayer.
"For these reasons the Treasury & Resources Department is seeking maximum flexibility within the Fiscal Framework to progress this proposal. That is because there is a unique opportunity to take advantage of record low interest rates and secure the best possible deal for the Island."
ENDS
