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2022 Budget: Economy outperforms COVID forecasts but challenges remain

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Tuesday 05 October 2021

Today the Policy & Resources Committee is publishing the 2022 Budget, following an extraordinary year which has continued to see the pandemic affect many aspects of Island life and the economy.

However, the latest figures indicate that Guernsey's economy has weathered the predicted impacts, and quickly set about a very strong recovery.  Forecasts last year estimated a contraction in Gross Value Added (GVA) of 6% to 8% in 2020.  But the expectation now is that the contraction was less than 5%, and 2021 is forecast to see all of that recovered.  Other indicators also point to a strong economy with the housing market continuing to see very high demand and unemployment currently at pre-COVID levels of less than 2%.

This extraordinary performance is in large part down to a very successful COVID response by the whole community, which allowed much of the economy to continue functioning fully for much of the last 18 months, unlike many other jurisdictions.  The second lockdown in early 2021 was also shorter and less restrictive than the first.  This meant the cost of emergency measures such as business support in 2021 could be more targeted, and was less overall, compared to 2020.  In 2021 the estimated cost of business support is expected to be just £25m compared to £51m in 2020.  All of this together has resulted in a significant reduction in the forecast deficit for 2021.

There are other economic risks highlighted in the 2022 Budget: the strength of the housing market means housing is less affordable which can create challenges for economic growth, particularly in Guernsey where there is already a shrinking workforce.  There is also uncertainty over the future for corporate tax rates internationally, which remain under scrutiny, and what impact that will have locally.

Against this backdrop, the States' General Revenue position is expected to return to surplus in 2022.  However longer-term fiscal issues remain which have been highlighted in recent days during the Tax Review debate.

Deputy Mark Helyar, Treasury lead for the Policy & Resources Committee said:

 "I am delighted that accelerated recovery has led to increased revenues in 2021. This has absorbed the unanticipated additional expenditure as a result of the second lockdown, including increased losses for both Aurigny and Guernsey Ports, at the same time as reducing the deficit by £17m against our budget.

"This is welcome news and it speaks to how well as a community we worked together to respond to pandemic.  It has been an extraordinary challenge and Islanders have been incredible in how we all stepped up to meet it.   However, when it comes to the Island's public finances, the strong results in 2021 will not all translate into our baseline and we must not forget that we are facing economic headwinds and have pent up demand in the system creating cost pressures."

Earlier this year the States Assembly agreed the Government Work Plan resolutions which directed the Policy & Resources Committee to raise an additional £1m per year in real terms.

To do this, Policy & Resources Committee is proposing that the excise duties on Alcohol and Motor Fuel; and Tax on Real Property (TRP) tariffs in 2021 are increased by 4% which comprises 2.5% as the amount necessary to maintain their value in real-terms, and 1.5% to raise additional revenues:

The other budget measures proposed are:

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