Isle of Man Budget 2017

Here’s the text of my Budget speech on the 21st February 2017 – I went off piste a little bit but none of the substantive content changed! 

Thank you Mr President

Firstly I’d like to congratulate the Treasury Minister on his first Budget, and for including such a significant increase in the personal allowance, taking 3,000 people out of tax completely – this is a positive sign that this administration will be working towards improving the circumstances of the lower paid in our community. The Treasury Minister acknowledged in his speech that there are many on this Island who have financial difficulty, and this increase in the personal allowance is to be welcomed.

I look forward to this approach being taken a step further when later in the year the Government will be laying proposals before this Hon Court for a voluntary living wage scheme, as was requested by Tynwald last month.

I’d also like to place on record my support for some of the other changes to the tax system, specifically the increased incentives to support and encourage cycling to work as well as the increased allowances for nursing expenses. Government support for low carbon transport is a sensible approach, one that I am pleased will be echoed with regard to vehicle duty when the Minister for Infrastructure brings a revised Order to Tynwald later this year – and also with the programme for government’s commitment to Implement an energy efficiency scheme for the Island by the end of 2017 

With regard to increasing the nursing expenses allowance and contributions it is good that Treasury have identified the significant cost pressures that people face in this area. I would like to see the same acknowledgement of the cost pressures of funding further and higher education, which is key to our high skill economy – and encourage the Treasury Minister to give serious consideration to reintroducing tax reliefs in this area in a similar manner.

The last element of the tax policy I’d like to comment on is the tax cap. I have confidence that the tax cap can deliver its intended benefits to the Island – but in order to ensure that it is working as intended, that it is encouraging high net worth individuals to spend their money locally I believe it needs to be tied somehow into the contribution tax cappers make to the local economy – whether this be through directly employing staff, paying professional fees to local firms, investing in local companies or through other means. As the Treasury Minister said, all who want to come and live, work and invest on our Island should be welcomed and I would urge the Treasury Minister therefore to consider adding some of these qualifying criteria, which I’m sure the vast majority of our current tax cappers would already meet. 

Turning away from tax, I’m glad that this budget shows Treasury are prioritising expenditure, by ploughing additional funds into the Health Department, this recognition and acceptance that the Health Department has been underfunded is a step in the right direction, and although these extra funds do come with some stringent savings targets attached I am glad that some priorities have been clearly identified. 

I refer to this as a clearly identified priority because almost every other area, including departments and the levels of benefit payments, is seeing real terms cuts to help pay for these extra funds – this shows a clear statement that this year the Health Department is the priority. 

Whilst we might not all be satisfied with below inflation increases in some areas of social security and with some departmental budgets, I believe we can be satisfied that this administration is deciding on its priorities and following them through with this budget. Although I might not agree with all of these priorities, I do agree with this approach. 

That this budget has identified and targeted priorities came across clearly in the Treasury Ministers speech and I’m hopeful that the Treasury Minister carries on this trend in the future, with some more focused and priority based budgeting. One disappointment with the current approach is it is still an incremental budget, based on previous years plus or minus, whereas it is my belief that we need to look again at a zero-based approach, on top of prioritising where taxpayer money should be spent – as well as whether it should be spent by national or local government.
Not only this, but we should also be looking at the other side of the coin – at the way in which our revenue is raised – which will involve both local and national government. The upcoming rate review is the first step on this journey. We need to move away from these sort of blanket charges and towards a system where peoples ability to pay is placed forefront. 
I’m disappointed then that some of the policies of the previous administration are being carried forward with this Budget, the way the MUA is being funded for example. I believe that national infrastructure and national assets should be funded through our national system of taxation – and not through rates, which is unfortunately the policy being continued in this budget. 

When the financial review of the MUA is complete I hope that the Treasury Minister will bear in these comments in mind.
I’m very reassured that the Treasury Minister has in the past spoken about the need for many of these things, for a 

“revised taxation policy, prioritisation of national services and clear guidance on local service delivery” 

and I’m very supportive of this approach, of these key issues that need to be addressed.

When we are looking at these issues the Treasury Minister has already recognised in another place that having 

“some form of budgetary consultation process is increasingly becoming normal”

and in the past has set out his views that 

“the public need to be in some way engaged” 

with the budget process. 

This gives me a positive outlook for the future and for the next budget that the Hon Member will bring to this Hon Court – and I’m looking forward to seeing how he will be engaging the public in the budget process in a meaningful way as part of any future reforms.

I welcome the Treasury Minister’s commitment to increasing pension freedoms and also am reassured that Housing has been identified as a continued priority for this administration. Affordable housing is one of the key strands that underpin a strong and healthy economy and needs to remain high on this administrations agenda.

Alongside this however, we must remember that this budget is setting out a real challenge to Departments – finding over £60 million of savings over the course of this administration in order to reduce the structural deficit will be no easy task. 
The Treasury Minister spoke of one new measure intended to support departments in achieving these savings – the new Cross Government Saving Team, of which I am an enthusiastic team member (although perhaps not quite as enthusiastic as my colleague the Hon Member for Middle Mr Shimmins) – this collaborative approach, engaging with departments, government staff and the public to help drive value in delivering government services is to be applauded. This approach is about empowering staff and the public and delivering on the promise of a financially responsible and sustainable government.

There are a few specific items I’d like to pick out from the budget in relation to departments. 

Firstly, “non pay” inflationary pressures have been identified at 2%, and with pay costs capped at 1% I’d hope the Treasury Minister will bear these figures in mind when setting future increases for fees and charges to address these inflationary increases. 

And the pay cap itself poses a potential issue. The budget document itself identifies that pay awards on average are 2% and with pay budgets capped at 1% and states clearly what the Treasury Minister outlined in his speech:

 “Departments will be required to make staffing efficiency reductions”

And so this budget is building in a reduction in staff numbers at the outset. The impact on front line services needs to be carefully considered, and here I echo the comments made by the Hon Member for Ayre and Michael Mr Baker. The education dept identify in this budget that

 “Continued pay pressure will ultimately impact on pupil-teacher ratios.”

The pay cap then is a very blunt tool to address spending and one I think needs to be revisited for future budgets, lets be more focused and targeted when it comes to cost control and and do away with these sort of blanket approaches. We need to remember that value is not the same as cost – and it is value we are looking for out of government departments, not just cost reductions across the board

As part of securing value for the taxpayer I firmly believe that we need an independent auditor general, although one that functions differently to how the original Act intended. A truly independent office of budget responsibility would provide operational oversight to ensure that we really do get value for money from government services and to help give the public confidence that government is delivering on its promises. I’d ask the Treasury Minister to seriously consider this as part of any upcoming reforms to the budget process.

This brings me to the real concern I have with the 5 year forecast contained in this budget – the budget document identifies that:

 “The Public sector pension liability remains the key threat to long term stability of public finances”

And the 5 year forecast starting with this budget seems geared to working towards ensuring the revenue budget can absorb the anticipated £58m hit in 2021/22. As the Treasury Minister stated “ensuring we can deliver”. Part of this hit will be met through economic growth and part through efficiency savings but not all of it. The rest will be met from cost reductions that don’t come from efficiency.

Are we then potentially reducing service levels, potentially reducing staffing levels, potentially reducing the services on offer and all this for a potentially increased cost to the Island community – all with the main aim of being able to pay for public sector pensions? 

I know that’s a bleak picture to paint, but I believe there is an element of truth in there – and so we need to address the pension issue as soon as we can, and I’m glad we can take the first step towards this with the “cost envelope” proposals later this sitting. 

I’m hopeful that during this financial year CoMin, together with the PSPA, will be able to grasp this key threat and set out plans to tackle it alongside the 5 year forecast presented in this budget. 

I find myself echoing some of the comments made by the Hon Member for Douglas East Mr Robertshaw, in this this forecast there is little mention of structural reform of government – and I think this is something that needs to be reiterated here. Government needs to be fit for purpose, which will involve delivering services in more and more innovative ways, which may not necessarily fit with our current structures and systems. Government exists to serve people – and this needs to be a fundamental principle of this administration. 

Overall Mr President, I view this Budget as something of a placeholder, with few significant policy shifts from the last administration – but with a number of positive indicators that are pointing towards more changes further down the road – as the Treasury Minister has said, we need to be looking forward. This budget has identified many of the challenges we are facing and sets out a direction of travel, supporting workers and businesses alike and continuing the steady rebalancing of public finances. 

Now this year is the chance for the Council of Ministers to really get their priorities and programme for government under way and it will be this coming year and the next budget that really puts this administration to the test.

I commend the Treasury Minister and his team for this realistic budget and look forward to working with government to deliver.

Thank you Mr President

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