Sunday, 12 October 2008

Have the Goalposts moved, now?

All the hopefuls currently running for election in Jersey will, or, at least, should, have considered rough estimates of how much their manifesti would cost to implement. In the month since they drew them up, though, two things have thrown a dark shadow of doubt over everybody's costings.

Firstly came the news that States Departments have not been following best practice in their accounting techniques, and that properly prepared accounts would show a picture of very much poorer financial health than has been commonly believed. On the one hand, this makes ministerial spin look even more hollow and untrustworthy than ever: No longer can they stand for re-election on a boast of how tightly they have run their ships. But, on the other hand, the unreliable accounts also mean that the ministers' challengers have been preparing their alternative strategies from false starting positions. If the top line is wrong, anything that you do, that would produce a satisfactory bottom line from it, will also be wrong.

Then, just to make matters worse, the global finance industry has suffered its worst setback for decades. Our Ministers, whether from an obligation not to “talk Jersey down”, or from a genuinely deluded view of what is going on both here and elsewhere, assure us that Jersey is well placed to avoid all the troubles besetting the rest of the world, and will be able to carry on expanding its finance industry as usual. On the face of it, arcane sharp practices and virtual money playing a global game of musical chairs are both what got the world into the current mess and the foundation of our own economy. The official spin is that we are up to different tricks, that have not gone wrong yet, so everything is going to be all right. Hoping that they are correct is one thing, and I certainly do, but believing it is quite another.

Now, if the projected expansion of Jersey's economy is suddenly replaced by a rapid and substantial shrinkage, the projected revenue figures that the Ministers rely on to fund their plans, and the challengers their alternatives, will turn out to be vastly more than actually gets received, in a sharp contrast to the recent practice of systematic underestimation to ensure the appearance of spare money. Obviously, going bust would be unthinkable, and the necessary money would have to be borrowed, at a price. The government would then have to look at how much the new revenue level would be, and how much of that was going on servicing the emergency borrowings, and then slash the provision of all kind of public goods. If our politicians exercise some foresight now, however, and start looking at what should be sacrificed first in an economic disaster, then if the worst does come to pass, then they can roll back public spending levels to meet the revenue available, and at least then be able to spend it all on the remaining public services rather than debt service. If we are to have to borrow, then the place to start is financing major capital expenditure by bond issues, to keep the debt burden structured, controlled and predictable. This maintains investment in infrastructure, while maximising the amount of the income stream that can go on services and support.

Even the most cynical politicians go into the trade with higher aspirations than to be the one who stopped this, that and the other. Nor is it “sexy” politics to put in a manifesto intended to appeal to voters. However, all the aspiring candidates need to be privately thinking about how they would prioritise and target the spending of budgets twenty, thirty or even forty percent smaller than they were expecting to have at their disposal, even if their preference would have been for the tax-and-spend variety of left-wing government. A lot of things would have to go, and it would be the unhappy lot of the next government to face the angry public and explain why.
As well as spending cuts, it would be essential to tax the surviving economic activity more heavily. The deservedly unpopular Goods and Services Tax, would have to remain, and even increase, for far longer than many have been hoping. There are alternatives, as matters stand, but in a shrinking economy they are likely to vanish.

All this means that a new regime taking power will have a high risk of meeting with a big disappointment. And, to make it worse, all except the most analytical of people will blame them for the shipwreck happening on their watch, instead of blaming the previous watch for fishing amongst the rocks on a falling tide.

I am not saying that we do not need a change of government. I just think that there is an uncomfortably high chance that the task of a new one would be to manage catastrophe better than the present one would, instead of actually taking Jersey forward. I hope that those who will provide alternatives are preparing further alternatives to their first choice plans, in case the reassurances, that the global crash will somehow pass Jersey by, do prove to be unfounded.

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