The Fiscal Stimulus Oversight Group found that providing another round of government funding now could lead to rising inflation.
In an update report on the progress of the fund, Treasury Minister Susie Pinel has accepted the recommendation that no more money should be injected into the economy from the initial pot of £50 million. In total, £30 million of the fund was used to support various projects this year.
The panel said that the recovery in Jersey had been ‘quite strong’, so there was no case for further stimulus at this time – in line with the recommendations of the Fiscal Policy Panel, which advises the government on economic issues.
The report says: ‘The extension of the co-funded payroll scheme and fixed-cost schemes should continue to support firms affected by [Covid-19] restrictions.
‘However, the economic advice states that it would be prudent to continue to follow the FPP advice to retain flexibility to respond to changes in economic conditions. Therefore, the most appropriate use of the £20 million which could be approved would be to hold that ability in reserve to allow a further round of fiscal stimulus to be implemented quickly later in the year, should economic conditions deteriorate.’
The Fiscal Stimulus Fund was introduced as part of a £100 million package to revive the economy, which included measures such as a temporary 2% cut in social security contributions and the distribution of £100 Spend Local cards to all Islanders.
In June it was announced that the cost of living in Jersey had risen by 3.5% over the past year, amid worldwide concern that increased consumer demand and supply shortages would fuel a spike in inflation.
The report says that additional fiscal-stimulus spending at this time could worsen these existing ‘inflationary pressures’.
‘There has been global discussion about inflationary pressures building up as economies begin to recover and this applies to fiscal stimulus to the extent that investment in specific sectors or projects can have an inflationary impact,’ it says.
‘On the basis of the economic advice, the Fiscal Stimulus Oversight Group recommends that the remaining potentially available funds (£20 million) not be allocated at this stage and be held in reserve to provide flexibility in responding to economic indicators.’
It added that the minister accepted and supported the recommendations of the oversight group.
The fund is due to wind up in December 2022, if it is not used, and the report indicates that any further spending on projects would be likely to need approval by next March. The Fiscal Stimulus Oversight Group is made up of the treasurer of the States, the chief economic adviser, the group director for external relations and two independent members appointed by the Treasury Minister.