Tuesday 08 March 2016
The following statement on the overall year-end financial position for 2015 was delivered by the Minister for Treasury & Resources, Deputy Gavin St Pier, to the States of Deliberation on Tuesday 8 March 2016.
**CHECK AGAINST DELIVERY**
Sir, thank you for the opportunity to make a statement this morning to update the Assembly on the overall year-end financial position for 2015. In addition, I would like to comment on the steps being taken by my Department to ensure that a balanced financial position can be achieved in 2016 and beyond.
The Annual Budget for the States for 2016 stated our expectation that the projected revenue surplus for 2015 would decrease from the original budget by £21m to £19m. After accounting for capital allocations and appropriations, an overall deficit of £20m was predicted.
The anticipated deterioration was entirely due to income being lower than expected, largely through income tax, but also because of lower document duty receipts and the removal of the £4m relating to the Vehicle First Registration Duty which had originally been budgeted.
Now that the preliminary year end results are available (which, to be clear, are still subject to final adjustments and audit) I am disappointed to have to advise that the overall deficit is now likely to be £23m. The shortfalls predicted at budget time have proven to be reasonably accurate. However, the further £3m deterioration is due to a combination of: a worsening in receipts from excise duties which had previously been forecast to exceed budget, but which have ended the year in line with the original budget; and lower investment returns over the year than anticipated due to the volatility in world markets during 2015.
At this time last year, I was able to report an overall 3% real terms, like for like, increase in our revenue income which was welcome news given the muted growth in revenues over recent years.
Overall, our general revenue income for 2015 totalled £382m which is a nominal decrease of £1m, or 0.3%, on the 2014 position and a 1.3% real terms decrease despite revenue raising budget measures, including a further extension of the 10% company income tax rate.
This worsening position in our revenue receipts reinforces the gap between the performance in the economy and our tax receipts - and the need to address this pressure on our revenue base as a matter of priority.
This Assembly made some important decisions this time last year surrounding the Personal Tax, Pensions and Benefits review. 23 actions or programmes of work are now being progressed by my Department and the Social Security Department as a result of resolutions made following the debate on those proposals. The completion of these important actions will help deliver a robust and sustainable personal tax base for the next decade and beyond. These include matters such as: secondary pensions, regarding which decisions have already been made; the withdrawal of income tax allowances for higher earners, which my Department is working on and on which we are expecting proposals in the 2017 Budget; and a policy regarding the future uplift in the old age pension, which was agreed last November.
Only one of the projects directed by the Assembly has yet to be initiated, which concerns the introduction of environmental taxes. This had a direction to report back to the Assembly by March 2016. I apologise to the Assembly, Sir, for our failure to adhere to that direction. However, the progression of this work has been hampered by a lack of resources; but it is our intention that this should be progressed sufficiently that a report on the matter is able to be included in the 2017 Budget. The joint Boards of Social Security and Treasury and Resources recently met to review progress on all actions and it is our intention to circulate an update to all States Members within the next week.
In addition to the work emanating from the Personal Tax, Pensions and Benefits Review, whilst ensuring our tax regime remains stable and competitive, my Department continues to progress other projects which seek to increase the tax contribution from the corporate sector as a means of producing a balanced and sustainable budget for presentation in November this year. A number of options and opportunities are being progressed, in consultation with industry and other jurisdictions as appropriate. Following a very clear decision from this Assembly desist further consideration of a goods and services tax, my Department's aim is to continue to seek to adjust and exploit opportunities within our current tax framework that will be internationally acceptable whilst ensuring that our economy remains internationally competitive.
Finally with regard to revenue, my Department continues to explore options for improving the efficiency of our trading assets in order to ensure that taxpayers receive a fair return on their capital investment. My Department's Supervisory Sub Committee has continued to work closely with the incorporated companies to explore return opportunities, both capital and revenue. In that context, I believe that the receipts from them, budgeted to be £10m in 2016 remain attainable. I hope and believe that the States Trading Supervisory Board will be able to continue this work and to explore further the opportunities across the unincorporated trading assets.
Turning now to expenditure, the end of year outturn was £365m against an authorised budget of £366m, compared to forecasts of year end outturn published as part of the 2016 Budget Report of £366m. In other words, £1m better than budget. It is encouraging that the States' track record over a number of years in ensuring that expenditure overall remains within budget has continued in 2015.
The majority of Departments and Committees have spent in line with, or somewhat less than, their authorised budgets. However, the Health and Social Services Department, consistent with predictions notified to this Assembly by both the Minister for Health and Social Services and myself since this time last year, has overspent its authorised budget. This overspend, which amounts to £2m, is after the significant increase to budget approved by the Assembly in July last year and has come about through a combination of factors, but heavily impacted as a result of significant increases in agency staff expenditure during the year. This problem is, of course, not remotely unique to Guernsey.
It is clear to me that unless we deliver the fundamental transformation promised through Public Service Reform, expenditure on Health and Social Services in the Bailiwick will be unsustainable. As I said, the challenges being faced locally are not unique and issues such as recruiting qualified staff are widely reported elsewhere. However, Guernsey does have a unique opportunity in the transformation of services (and not only health services) given our size and scale - an opportunity which should be enhanced by the changes in political responsibility for public services following the election. It is vital that this opportunity is embraced and that the next Assembly continues to make difficult decisions regarding the delivery of sustainable public services.
That is why the recently approved and funded Public Service Reform is so important. We are all aware of the significant spending pressures which are mounting as a result of changing demographics and the consequential demand; as well as the numerous requests for additional funding which have been considered by this Assembly in the recent past - with more due to be considered in this sitting. There will therefore be an ongoing need for continuous improvement and efficiency in the future to ensure that these unavoidable pressures can be mitigated and sustainably delivered. It is also essential that the next States grapples with the challenges of prioritising public services in order to ensure they are delivered within the finite funding available.
Managing public finances and delivering a balanced budget requires an equilibrium between the revenues we collect from our community and the funding of the public services we deliver. In order to protect our ability to deliver those public services in the long term, it is therefore vitally important to ensure that the tax base is as resilient as possible to economic pressures in the future.
Sir, I have made it a priority over this term to ensure that Members have been regularly updated about our financial position. I hope that the series of measures in relation to both income and expenditure which I have outlined today, show that our ongoing resolve to deliver balanced and sustainable public finances in the short, medium and long term.