THE Treasury will probably have to find new income streams from 2022 onwards, the government’s independent economic advisers have concluded.

The Fiscal Policy Panel has advised the government that revenue-raising will form a ‘key element’ of the strategy to pay for the £800 million cost of the Covid-19 pandemic.

Yesterday, the panel released its annual report, making a number of recommendations on how Jersey tackles the economic impact of the coronavirus.

When the new Government Plan was released earlier this month, it was revealed that the outbreak was expected to cost £400 million in spending in 2020 and 2021, while £400 million of tax revenue was expected to be lost between 2020 and 2023.

The FPP has previously called for the government to balance its books by 2024 and clear the ‘structural deficit’ [long-term gap in finances] that the economic downturn caused by the pandemic will cause.

Yesterday the panel outlined that, while it thinks tax rises during 2021 would damage the economic recovery, new or increased revenue streams were likely to be required at some stage.

The first recommendation in the report says: ‘It is appropriate that the Government Plan does not propose significant new or increased revenue streams in 2021, as large increases in revenue may undermine the economy recovery.

‘However, it is important that Government considers its options for revenue-raising in the future, which is likely to be a key element of any plan to close the structural deficit.’ What shape future revenue-raising may take remains uncertain, particularly after the Treasury climbed down over proposals to raise £330 million to pay for the crisis by reforming the Island’s taxation system.

It was hoped that the money could be raised by moving the 45,000 taxpayers who pay tax on previous-year earnings to current-year basis. Those affected would have had their 2019 liability suspended and then repaid over a five-to-ten-year period.

Following public pressure, however, the government reformed its proposed repayment options for the move so that the tax would not have to be repaid until retirement and therefore recouped years later.

Chief Minister John Le Fondré has indicated that if the Treasury’s initial plans were not passed, GST could be raised to 7% or 8% or other permanent tax rises could be introduced.

The government press office was contacted yesterday for comment on how Treasury now intends to recover money to pay for the Covid-19 crisis. At the time of going to print, no response had been received.

Other recommendations in yesterday’s report included: 
•The government produces a clear estimate of the structural deficit by next year’s Government Plan.

•Capital spending should be managed to help boost the economy, but without putting too much pressure on the capacity of the construction industry to do work.

•The Strategic Reserve [rainy day fund] must not be drawn upon too heavily, and the government should seek to increase its size in the longer term.

•The government should consider ‘alternative measures’ if it does not meet its ‘rebalancing’ savings target of £120 million by 2024.

Dame Kate Barker, the panel’s chairwoman, said that the current climate was a ‘very challenging time’ to set out taxation and spending plans for a four-year period.

‘The coronavirus pandemic has resulted in a global recession and put considerable strain on public finances for governments around the world,’ she said.

‘This has also been the case in Jersey with the pandemic estimated to result in budgetary pressures of over £800m.

The panel’s forecast is for the economy to shrink by 7.6% this year, with only a partial recovery next year.’ She added: ‘Some of the impact on the economy seems likely to be permanent and therefore Jersey’s economy will be smaller in the long term than previously expected.

‘The extent of this structural damage will become clearer as the global pandemic is brought under control, enabling economic recovery.’