could the president confirm that the rate of inflation for the March quarter of 4.9% would only have been 4.3% had it not been for the last budget which raised many prices for Islanders

1240/5(1852)

QUESTION TO BE ASKED OF THE PRESIDENT OF THE FINANCE AND ECONOMICS COMMITTEE ON TUESDAY, 29th APRIL 2003 BY SENATOR E.P. VIBERT

Question

1. W o uld the President confirm that the rateof inflation for the March quarter of4.9% would only have been 4.3% had it not been for thelastbudgetwhich raised manypricesfor Islanders?
2. In view of the fact that the previous President of the Finance and Economics Committeehad stated that despite the increases, hisBudget would notbe inflationary, could the President inform the Assembly if he is being advised on inflation by the same adviserswho advised the previous President?
3. W  ould the Presidentalsoadvisemembersifhe intends topresent a policy paper on tackling inflation for debate by theAssembly in the near future?

Answer

1. I a m not privy to the detailed information usedincompiling the Jersey Retail Price Index,(RPI),which remains confidential, but I am advised bythe Statistics Unit that the index does reflecttheduty increases agreed inlastDecember'sbudget and that without those duty increases theindex would have risen by 4.3%.

T h e e ffect of price rises caused by duty increases and retailers' price increases has made the R.P.I. higher

than it would otherwise have been. However the increase is not entirely down to duty. As an example, I am aware (as a consumer) that the price of a typical pint of beer has increased by 15-20 pence, but the actual duty increase only amounted to 5 pence per pint. It would be misleading to suggest that duty increases are the sole cause of price increases in these areas.

2. T h e messagewhich I believe the previous Presidentof Finance andEconomicsCommitteeintended to, and did, give, was that these duty increases would have someimmediate,short-termimpactonthe R.P.I., but should in thelongertermhave a deflationary effect asmoney is takenoutof the economy.

T h i s would be the case provided that the money was taken out of the economy. If, however, the States

simply pumps the extra revenue back into the economy the deflationary effect is lost. This is one reason why the Finance and Economics Committee is anxious to reduce the growth in public spending, and why it is proposing for next year an increase of only 2.5%, a cut in real terms.

I s h o uld perhaps also point out that there may be good social or other policy reasons for raising duty levels

on tobacco and alcoholic products, even if the effect was inflationary in the short-term.

T h e Finance and Economics Committee continues to use the same professional advisers, but I would be

pleased to receive any further sensible and reasoned advice or suggestions that Members may care to offer.

In f la t ion remains a problem for which we all need to work together to seek a solution.

3. T h e policiesput forward by the previous Finance and Economics Committee remainsound,but they have not yet all been fully implemented nor have they necessarily had time to workthrough the economy.

N e v e rtheless, the Finance and Economics Committee, and its newly constituted Economic Strategy Sub-

Committee, will be reviewing what further steps can be taken. Meanwhile I reiterate that the proposed reduction in the growth of States' spending for 2004 is an important move in the correct direction.