Budget: economy to contract by 6-8%

DESPITE the massive cost of the pandemic and the economic contraction, the authorities are not proposing any significant measures or policy changes in next year’s Budget.

President of P&R Deputy Peter Ferbrache and treasury lead on P&R Deputy Mark Helyar talk through the budget report at a press conference last night. (Picture by Sophie Rabey, 28917705)
President of P&R Deputy Peter Ferbrache and treasury lead on P&R Deputy Mark Helyar talk through the budget report at a press conference last night. (Picture by Sophie Rabey, 28917705)

The price tag of the pandemic for the States has been estimated at more than £120m. this year.

The Budget contains some glimmers of hope for the future.

For instance, it cites how unemployment has fallen from 5.2% in late May this year, to 1.8% by the end of October.

Certain parts of the economy have thrived as restrictions have been lifted.

Renumerations data for the third quarter shows that sectors such as construction, IT, professional services, and real estate paid more in total wages than during the equivalent period in 2019.

The housing market has also bounced back strongly with high levels of demand putting upward pressure on house prices and a combination of increases in prices and in the volume of conveyances has resulted in estimated document duty receipts for 2020 being 15% higher than in 2019.

Overall, GVA, a measure of the size of Guernsey’s economy, is due to contract by between 6 and 8% – when the 2020 Budget was prepared it was estimated to grow by up to 1.5%.

Under the Budget proposals, £82m. from the Core Investment and General Reserves will be used to fund the 2020 and 2021 deficits and no transfers will be made to the Capital Reserve, which would otherwise have totalled £89m. over the two years.

However, the Policy & Resources Committee said it was ‘extremely mindful’ that this approach was a part-time solution for the coming year and ‘major challenges’ were ahead, particularly as it still not known for how long and how severe the impact of Covid-19 ultimately will be.

States committee spending in 2020 was £433m, in line with budget, but there was £52m. in Covid-19 specific spending.

Income was down on a budget of £348m. to £313m.

Key to the future is something called the ‘fiscal review’, which was set up pre-Covid, when there were already major challenges in the funding of public services.

This was down to the rising cost of existing public services forecast because of the island’s ageing population, coupled with the cost of several new services agreed by previous States Assemblies.

Long-term government expenditure needs were already estimated at an additional £80m.-£130m. per annum.

That review was meant to report back early next year, but because of Covid the timescale has slipped. It is described by the new P&R committee as a ‘key priority’.

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