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STATES OF JERSEY
ADDENDUM TO THE IFG FORECAST FOR SPRING 2021
Presented to the States on 21st September 2021 by the Minister for Treasury and Resources
STATES GREFFE
2021 R.151 Add.
Income Forecasting Group
Addendum to the IFG forecast for Spring 2021
R.151/2021 Add.
Updated economic assumptions
Since the IFG finalised its forecast in July, based upon the Fiscal Policy Panel's (FPP) Spring economic assumptions, the FPP has produced an updated set of economic assumptions.
The economic assumptions are included in the FPP's letter[1] available at www.gov.je/fiscalpolicypanel and are set out in Figure 1 below.
Figure 1 – FPP Economic Assumptions August 2021
Figure 2 – FPP Economic Assumptions change since April 2021
The economic assumptions are for much stronger growth in nominal terms in the initial years of the forecast, but this is moderated somewhat by much higher inflation in the initial years – a phenomenon currently being experienced in most advanced economies. Stronger nominal growth in the economy will result in stronger growth in tax revenues, all other things being equal. This is because taxes are of course collected on nominal incomes.
On the basis of the latest economic data and intelligence gathered during their recent visit, the FPP's judgement is that the economic downturn in 2020 was less sharp than previously estimated and the recovery is likely to be more rapid.
The FPP letter summarises the forecast as follows:
• The recovery in financial services profits has been brought forward somewhat, with strong growth in 2022 and 2023, reflecting the updated market expectations of earlier (albeit modest) increases in Bank Rate and the Panel's judgement on the impact interest rate rises will have on banking profits.
• A temporary period of inflation running significantly above trend, gradually falling back during the course of 2022.
• A more rapid rise in average earnings, in response to temporary labour shortages and high inflation. However, the forecast for high inflation would mean that earnings fall in real terms over the forecast, particularly in the non-finance sectors.
• A faster recovery in employment growth in 2023 and 2024.
• House prices rising more rapidly in the initial years of the forecast, reflecting the ongoing buoyancy of the property market and low interest rates.
Overall impact on IFG forecast
Figure 3 below shows a summary of the revised forecast incorporating the updated economic assumptions. The variation to the previous forecast agreed in July is shown in Figure 4.
Figure 3 – Summary of Spring forecast with updated economic assumptions from August 2021
Updated Forecast (£'000) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
Personal income tax | 473,000 | 511,000 | 545,000 | 581,000 | 609,000 | 641,000 |
Corporate income tax | 120,000 | 96,000 | 99,000 | 109,000 123,000 130,000 | ||
GST | 93,900 | 99,700 | 103,600 | 105,800 | 107,800 | 110,000 |
Bad debts | (3,235) | (6,000) | (6,000) | (3,000) (3,000) (3,000) | ||
Impôts duties | 74,298 | 73,652 | 71,026 | 72,825 73,247 73,645 | ||
Stamp duty | 36,949 | 43,915 | 41,737 | 42,265 43,671 45,040 | ||
General tax revenue | 794,912 | 818,267 | 854,363 | 907,890 | 953,718 | 996,685 |
Other Government income | 64,924 | 104,436 | 65,390 | 67,034 68,806 70,231 | ||
Total States income | 859,836 | 922,703 | 919,753 | 974,924 1,022,524 1,066,916 | ||
Columns may not sum due to rounding
Figure 4 – Change to forecast using updated economic assumptions from August 2021
Changes to forecast (£'000) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
Personal income tax | 3,000 | 8,000 | 16,000 | 19,000 | 17,000 | 13,000 |
Corporate income tax | - | - | - | 4,000 | 10,000 | 7,000 |
GST | - | 2,000 | 2,500 | 2,800 | 2,800 | 2,800 |
Bad debts | - | - | - | - | - | - |
Impôts duties | - | - | 504 | 1,174 | 1,247 | 1,190 |
Stamp duty | - | 671 | 1,214 | 1,461 | 1,348 | 1,404 |
Change in general tax revenue | 3,000 | 10,671 | 20,218 | 28,435 | 32,395 | 25,394 |
Other Government income | - | 40,000 | 262 | 314 | 322 | 363 |
Total change | 3,000 | 50,671 | 20,480 | 28,749 | 32,717 | 25,757 |
Variance (%) | 0.4% | 6.3% | 2.5% | 3.3% | 3.5% | 2.7% |
Columns may not sum due to rounding
Impact of new assumptions on individual forecasts
Personal income tax
As would be expected, the significant increase to the forecast for the components of nominal GVA have resulted in a significant increase to the forecast for personal income tax. This is because the forecast is largely driven by the rate of increase in the components of nominal GVA – compensation of employees and gross operating surplus.
Figure 5 – Changes to personal income tax forecast
£m | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
Personal tax July 2021 forecast New FPP economic assumptions | 483 0 | 470 +3 | 503 +8 | 530 +16 | 562 +19 | 593 +17 | 628 +13 |
August 2021 forecast | 483 | 473 | 511 | 545 | 581 | 609 | 641 |
Change since October 2020 forecast | 0 | +3 | +8 | +16 | +19 | +17 | +13 |
October 2019 forecast Change since October 2019 forecast | 475 +8 | 497 -24 | 524 -13 | 550 -5 | 576 +6 |
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Some columns may not sum due to rounding
The FPP assumptions have the following impact on the forecast:
• Incorporating the increased inflation forecasts, and assuming that exemption thresholds grow by the lower of RPI inflation and wage increases, results in a decrease to the forecast of £2m in 2022, £4m in 2023 and £5m in 2024 and 2025.
• The increased forecast for financial services profits results in a forecast for an additional £3m in 2022, £6m in 2023, £5m in 2024 and £2m in 2025. Growth in financial services profits is one of the variables used to forecast taxable earnings, to reflect the potential tax impacts of bonuses in the financial services sector.
• The increased forecast for earnings, employment and compensation of employees results in an additional £3m in 2020, £8m in 2021, £14m in 2022 and £16m-£17m for the remainder of
the forecast. The increase in 2020 is due to the lower-than-expected outturn for employment growth in 2020, which leads to an assumption that the aggregate value of allowances will be lower while aggregate earned income does not change as this is assumed to grow in line with earnings reported through ITIS.
• The FPP's revised assumptions for interest rates and house prices have a small impact on the tax forecast; as they have an impact on projected investment income and mortgage interest tax relief.
Corporate income tax
The majority of corporate tax is collected from the financial services sector, and therefore the significant upward revisions to financial services growth in the early part of the FPP forecast will result in an increase in the tax forecast.
The change to the FPP's assumptions on financial services profits increases the forecast for corporate tax from financial services by £4m in 2023, £9m in 2024 and £7m in 2025.
The changes to the FPP's assumptions on inflation and aggregate company profits results in a small increase in the forecast for corporate tax from other sectors – around £0.5m in 2024 and 2025.
Figure 6 – Changes to corporate income tax forecast
Corporate tax (£m) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
July 2021 forecast | 120 | 96 | 99 | 105 | 113 | 123 |
New FPP assumptions | 0 | 0 | 0 | +4 | +10 | +7 |
August 2021 forecast | 120 | 96 | 99 | 109 | 123 | 130 |
GST
The FPP's assumptions for compensation of employees, the main determinant of GST receipts, have risen along with a higher growth path assumed for the retail price index. This has raised the forecast for GST receipts by approximately £2m in 2021, £2.5m in 2022 and £3m from 2023 to 2025.
Figure 7 – Changes to GST forecast
GST (£m) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
July 2021 forecast | 93.9 | 97.7 | 101.1 | 103.0 | 105.0 | 107.2 |
New FPP assumptions | 0.0 | +2.0 | +2.5 | +2.8 | +2.8 | +2.8 |
August 2021 forecast | 93.9 | 99.7 | 103.6 | 105.8 | 107.8 | 110.0 |
Impôts duty
Impôts duty on alcohol, tobacco and fuel are all assumed to increase by RPI plus additional Government Plan measures. The FPP increase in RPI for 2021 to 2023 therefore provides an increase to the forecast for impôts duty of £0.5m (0.7%) in 2022 and c.£1.2m (1.7%) in each of the years 2023 to 2025.
Stamp duty
House prices continue to rise throughout Q1 of 2021, with the number of transactions being comparable to the same period in 2019 and 2020. The FPP have therefore increased the assumptions for house prices in the earlier years of the forecast, reflecting the continued buoyancy of the property market and low interest rates. This has resulted in an increase of £0.7m (1.5%) in 2021 increasing to c.£1.4m (3.6%) for each of the remaining years of the forecast.
Other Government income
With an increase in RPI for each of the years 2021 (+0.9%), 2022 (+1.0%) and 2023 (+0.1%), there is an increase in the forecast for Island Wide Rates. The partial sale of the JT business provides an estimated £40m dividend in 2021, with a subsequent decrease in future years.
Overall forecast
Figure 11 – Central forecast with updated economic assumptions
2020 Outturn | Central forecast (£'000) | 2021 Forecast | 2022 Forecast | 2023 Forecast | 2024 Forecast | 2025 Forecast |
| Income Tax |
|
|
|
|
|
473,000 | Personal | 511,000 | 545,000 | 581,000 | 609,000 | 641,000 |
434,000 | Autumn 2020 | 461,000 | 500,000 | 534,000 | 561,000 |
|
120,000 | Corporate | 96,000 | 99,000 | 109,000 | 123,000 | 130,000 |
120,000 | Autumn 2020 | 97,000 | 103,000 | 108,000 | 113,000 |
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|
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|
593,000 | Total Income Tax | 607,000 | 644,000 | 690,000 | 732,000 | 771,000 |
554,000 | Autumn 2020 | 558,000 | 603,000 | 642,000 | 674,000 |
|
39,000 | Variation | 49,000 | 41,000 | 48,000 | 58,000 |
|
7.0% |
| 8.8% | 6.8% | 7.5% | 8.6% |
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| GST |
|
|
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|
85,213 8,687 | GSTx ISE Fees | 87,100 12,600 | 91,000 12,600 | 93,200 12,600 | 95,200 12,600 | 97,400 12,600 |
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|
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|
93,900 | Total GST | 99,700 | 103,600 | 105,800 | 107,800 | 110,000 |
78,210 | Autumn 2020 | 84,610 | 90,910 | 94,510 | 98,310 |
|
15,690 | Variation | 15,090 | 12,690 | 11,290 | 9,490 |
|
20.1% |
| 17.8% | 14.0% | 11.9% | 9.7% |
|
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| Bad Debts |
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(3,235) | Bad Debts | (6,000) | (6,000) | (3,000) | (3,000) | (3,000) |
(3,235) | Total Bad Debts | (6,000) | (6,000) | (3,000) | (3,000) | (3,000) |
(9,000) | Autumn 2020 | (6,000) | (6,000) | (3,000) | (3,000) |
|
5,765 | Variation | - | - | - | - |
|
-64.1% |
| 0.0% | 0.0% | 0.0% | 0.0% |
|
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| Impôts Duties |
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|
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|
8,499 | Spirits | 8,191 | 7,401 | 7,668 | 7,867 | 8,063 |
9,413 | Wine | 9,345 | 9,256 | 9,589 | 9,839 | 10,085 |
940 | Cider | 912 | 865 | 878 | 883 | 887 |
6,168 | Beer | 5,821 | 6,311 | 6,473 | 6,575 | 6,673 |
23,900 | Tobacco | 21,024 | 15,935 | 16,335 | 15,754 | 15,181 |
22,636 | Fuel | 24,611 | 27,728 | 28,438 | 28,885 | 29,312 |
431 | Customs Duty | 800 | 800 | 800 | 800 | 800 |
2,311 | Vehicle Emissions Duty (VED) | 2,948 | 2,730 | 2,644 | 2,644 | 2,644 |
74,298 | Total Impôts | 73,652 | 71,026 | 72,825 | 73,247 | 73,645 |
67,716 | Autumn 2020 | 67,986 | 69,979 | 71,037 | 71,485 |
|
6,582 | Variation | 5,666 | 1,047 | 1,788 | 1,762 |
|
9.7% |
| 8.3% | 1.5% | 2.5% | 2.5% |
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| Stamp Duty |
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|
|
31,836 | Stamp Duty | 38,564 | 36,168 | 36,509 | 37,767 | 38,992 |
2,527 | Probate | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 |
2,586 | LTT | 2,851 | 3,069 | 3,256 | 3,404 | 3,548 |
36,949 | Total Stamp Duty | 43,915 | 41,737 | 42,265 | 43,671 | 45,040 |
29,083 | Autumn 2020 | 30,953 | 30,249 | 31,118 | 32,022 |
|
7,866 | Variation | 12,962 | 11,488 | 11,147 | 11,649 |
|
27.0% |
| 41.9% | 38.0% | 35.8% | 36.4% |
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|
794,912 | General Tax Revenue | 818,267 | 854,363 | 907,890 | 953,718 | 996,685 |
720,009 | Autumn 2020 incl GP measures | 735,549 | 788,138 | 835,665 | 872,817 |
|
74,903 | Variation | 82,718 | 66,225 | 72,225 | 80,901 |
|
10.4% |
| 11.2% | 8.4% | 8.6% | 9.3% |
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| Other Income |
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13,286 11,247 9,589 30,802 | Island-wide Rates Other Income-Dividends Othe rIncome-Non-Dividends Other Income-Returns from Andium and Housing Trusts | 13,565 51,122 9,169 30,580 | 14,178 11,082 8,404 31,726 | 14,546 11,377 8,511 32,600 | 14,910 11,935 8,495 33,466 | 15,298 12,244 8,368 34,321 |
64,924 | TotalOtherIncome | 104,436 | 65,390 | 67,034 | 68,806 | 70,231 |
59,069 | Autumn2020 | 58,866 | 60,779 | 64,560 | 66,264 |
|
5,855 | Variation | 45,570 | 4,611 | 2,474 | 2,542 |
|
9.9% |
| 77.4% | 7.6% | 3.8% | 3.8% |
|
859,836 | TotalStatesIncome | 922,703 | 919,753 | 974,924 | 1,022,524 | 1,066,916 |
779,078 | Autumn2020 | 794,415 | 848,918 | 900,224 | 939,081 |
|
80,758 | Variation | 128,288 | 70,835 | 74,700 | 83,443 |
|
10.4% |
| 16.1% | 8.3% | 8.3% | 8.9% |
|
* Some columns may not sum due to rounding |
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Figure 12 – Range of forecast with updated economic assumptions
£'000 Range of total updated IFG forecast Spring 2021 1,200,000
1,150,000
1,100,000
1,050,000
1,000,000
950,000
900,000
850,000
800,000
750,000
2020 2021 2022 2023 2024 2025
Upper Central Lower Autumn 2020 Autumn 2019
£'000 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
Upper | 859,836 | 931,930 | 947,346 | 1,023,670 | 1,094,101 | 1,162,938 |
Central | 859,836 | 922,703 | 919,753 | 974,924 1,022,524 1,066,916 | ||
Lower | 859,836 | 913,476 | 892,160 | 926,178 | 950,947 | 970,894 |
Autumn 2020 | 779,078 | 794,415 | 848,918 | 900,224 939,081 | ||
Autumn 2019 | 868,433 | 903,319 | 941,584 | 980,232 |
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