JERSEY’S economy is set to bounce back from the pandemic stronger than expected and the government should consider using the extra revenue to help Islanders suffering amid the cost-of-living crisis, a panel of independent advisers have said.
In a new report, the Fiscal Policy Panel has forecast the economy to grow by 4.1% in 2022 owing to a robust Covid recovery and rises in interest rates, which are increasing profits for finance firms and generating additional tax revenue for the government.
But the panel has warned that many households are facing ‘genuine hardship’ as inflation continues to leap ahead of wage increases.
It has also noted that the dramatic rise in house prices may be damaging Jersey’s economy by making it difficult to attract workers to the Island.
It has issued a range of recommendations to the government, including that:
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Some of the projected surpluses could be used to provide ‘targeted support’ to help households facing ‘considerable constraints due to rising inflation’, which is expected to peak at 9.2% later this year.
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The rising cost of housing risks ‘becoming a drag on economic growth’ and ‘should be addressed as a priority’.
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The Climate Emergency Fund will not be sufficient to finance the transition to net zero and the government should consider the strategy for funding this ambition.
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The economy is currently strong with historically low levels of unemployment. This, they say, is not the time for significant across the board additional spending or tax cuts which would cause further inflationary pressures.
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And in the longer term the balances of the government’s Stabilisation Fund and the Strategic Reserve should be increased.
Dame Kate Barker, the panel’s chair, said: ‘Jersey is in an unusual situation as the current round of interest-rate rises will be of overall considerable benefit through increased financial-sector profitability and consequently higher tax revenues.
‘At the same time, there will be genuine hardship for some households as inflation outstrips wages.
‘However, given the significant capacity constraints in the economy, the next government should be cautious so as not to add further inflationary pressure through looser fiscal policy while still providing some targeted support to those affected most by the rising cost of living.
‘Given the expected increased tax revenue that the government is due to receive, this should be seen as a good time to pay off Covid debt, rebuild the Stabilisation Fund balance, which is negligible after being used to support the economy during the pandemic, and to increase contributions to the Strategic Reserve, which we project to be too small to deal with a major crisis across the long-term horizon.’
Despite having a positive outlook for Jersey’s economy this year, the panel has slightly downgraded its trend forecast for GVA – or economic output – from 0.6% to 0.45%.
The trend forecast, which is the rate of growth once cyclical factors such as recessions and booms are removed, has dipped owing to a downward revision in the panel’s estimate of Jersey’s working-age population.
The panel re-evaluated the number of working-age individuals based on the recent proposals in the Common Population Policy to reduce inward migration, and taking into account figures in the recent Census, which showed Jersey’s population was smaller than anticipated.
Dame Kate said: ‘Migration policy will be an important area for the new government to consider where Island constraints, particularly housing, will need to be managed against sustaining current lifestyles.
‘These issues will be exacerbated by an ageing population.’
Treasury Minister Ian Gorst said that the report would be taken into account while developing the next Government Plan.
He added: ‘One issue they highlight is the immediate inflationary pressures being experienced by many households in Jersey and we are working with the Chief Minister and her Council of Ministers to bring a mini-budget to the Assembly in September to address this.’
