Falklands : PROPOSALS FOR THE FALKLANDS’ 2012 BUDGET
Submitted by Falkland Islands News Network (Juanita Brock) 02.06.2012 (Article Archived on 16.06.2012)
Whilst this will be the fifth FIG budget I have been involved in preparing this is the first time I have presented a budget to the Assembly. Hopefully this process will have run as smoothly as it has for my predecessors. This is also the first year that the Budget Select Committee has begun its deliberations earlier in the year. By establishing this Committee in February the process has been streamlined and Honourable Members have been able to make decisions in a number of meetings over a three month period rather than the informal process previously in place.
PROPOSALS FOR THE FALKLANDS’ 2012 BUDGET
THE APPROPRIATION BILL 2012
Mr Speaker, Honourable Members…
1. Whilst this will be the fifth FIG budget I have been involved in preparing this is the first time I have presented a budget to the Assembly. Hopefully this process will have run as smoothly as it has for my predecessors. This is also the first year that the Budget Select Committee has begun its deliberations earlier in the year. By establishing this Committee in February the process has been streamlined and Honourable Members have been able to make decisions in a number of meetings over a three month period rather than the informal process previously in place. This has removed some of the duplication in the process whilst still allowing a suitable time period for decisions to be considered and options to be scrutinised.
2. The purpose of this bill is to authorise the appropriation of monies from the Consolidated Fund for the next financial year, as discussed and agreed in the meetings I just mentioned. Before explaining the details supporting this bill I would like to say a few words about the background in which this budget was prepared.
3. As everyone will be aware a significant surplus was made in the last financial year and revised projections for the current year indicate a further surplus is likely to be forthcoming. Therefore, this year we have looked to achieve a number of goals whilst maintaining the aim to at least balance the budget. These are firstly, to encourage economic development in the Islands, secondly strengthen infrastructure, and finally to strengthen Government Funds.
4. However, despite the positive position in recent months achieved from revenues brought into the community by oil exploration and good fishing seasons, there continues to be significant volatility in international financial markets. In recent years we have seen this impact on revenues received from Government investments and the projections in this area continue to be cautious.
5. For the second year running, the Illex season has been successful. Final figures are not yet available, however early indications are that revenues are likely to significantly exceed our original cautious projections. As a result of these positive revenues the Budget Select Committee have reconsidered the levels of Illex revenue recognised in the budget and increased this to the five year average.
6. Finally, as touched on earlier recent surpluses have been significantly bolstered by revenues from oil exploration activities. Whilst projections for 2012/13 have taken the continued drilling into account and include additional income expected to accrue from taxation and other direct receipts, no revenues have been included from potential future oil prosperity. As at present this would be speculative and would not be prudent financial planning.
7. In the current financial year Honourable Members originally approved an operating budget with a small surplus of £100,000. As reported to Standing Finance Committee last month a significantly increased surplus of £12 million is now anticipated. As mentioned earlier, Standing Finance Committee have approved the use of £8 million from this surplus to support the capital and pensions (old) scheme Funds.
8. The Financial Management Report presented to the Standing Finance Committee in April showed that Government‟s useable reserves at the end of this financial year are projected to be in excess of £100 million, which represents 3 years‟ worth of departmental expenditure. This means that the previously agreed budget target for maintaining useable balances of at least 2 ½ times departmental spend will be achieved.
9. This is an appropriate point to start my report on next year‟s budget. The revised Medium Term Financial Plan (MTFP) approved in April 2010 outlined a strategy of balancing the operating budget. This year Honourable Members‟ have endorsed this strategy and the continued aim is for economic stability including achieving at least a balanced budget each year.
10. The budget projections I am presenting to the Assembly this morning more than achieve the MTFP targets in all years. Each year currently shows a projected budget surplus. However, it should be borne in mind that future projections do not currently include any inflationary pressures that may arise. Neither do they take into account any future revenues that may be received from oil exploration after 2012/13.
11. Moving on to specifics – In the Bill, the total appropriation requested from the Consolidated Fund amounts to £49,254,980. The schedule to the Appropriation Bill shows how this figure is allocated to each department. In addition the budget includes internal charges of just over £1 million. Total operating expenditure for 2012/13 therefore amounts to £50.3 million, up from £46.4 million last year.
12. Operating revenue for 2012/13 is forecast at £53.5 million. This produces a projected budget surplus for next year of £3.2 million. Though the remaining years of the MTFP are also in surplus they are not at the same high level, starting in 2013/14 at just £1,000 and reaching £1 million by 2016/17.
13. The operating revenue for next year is projected to be £7 million more than the original estimate for this year. The main reason for this is taxation revenue relating to oil exploration activities. The revenue forecast also includes fisheries licence fee income inserted at £14.9 million including Illex licence fees of £4 million; this is an increase of £2.3 million from the original budget for this year. Illex catches continue to be volatile, however this figure now recognises the average take over the last five years and provides a justifiable basis for the projections.
14. This brings me to the draft estimates of operating expenditure totalling £50.3 million. Following the adjustments made at recent budget meetings of the Budget Select Committee, this figure represents an increase of £3.9 million on the original estimate for the current year. This figure is the result of discussions between Treasury staff and Directors, senior officer reviews and several days of debate by Honourable Members. During the process, detailed consideration has been given to savings measures, additional spending proposals and several new projects to encourage economic development, which are all subject to consideration by the Budget Select Committee. I will elaborate further on this increase in my report back to the House on Friday.
15. The draft estimate for transfer payments amounts to £4.3 million. This is £½ million more than the original estimate for the current year. These increases are primarily in areas which are looking to support economic development in the Islands for example increased subsidies for FIDC and the Tourist Board.
16. Fund transfers have increased by £ ½ million from last year at the level of £4.4 million. This additional funding relates to an increased contribution to the capital equalisation fund to support infrastructure development across the Islands. This annual increase is intended to compliment the one off transfer to the Fund in the current financial year as mentioned earlier.
17. Moving now to proposed capital expenditure. The draft Capital Programme for the current financial year totals £12.5 million (or £11.1 million net of capital receipts). This is supported by further net investment in 2012/13 of £9.6 million with the three year program totalling £26 million. This expenditure will be met from the Capital Equalisation Fund and is significantly higher than the £10 million three year program projected this time last year. As a result of this enhanced program additional contributions into the capital equalisation fund are proposed. It should however be noted that the projections for future years are not „approvals to spend‟ at this stage and further work will be required to firm up the figures and the schemes themselves.
18. I now turn to revenue measures and I‟ll start with a brief mention of the Retail Price Index. The latest RPI figures, as at the end of March, show an annual inflation rate of 7.6%. However, a significant element of the current RPI figure relates to the impact of increasing oil prices and the figure is therefore somewhat distorted. Partly to take account of this, and partly as an attempt to limit the inflationary cycle, a general revenue inflationary increase of 3% has been factored in for next year. I would ask you to note however that this has not been universally applied to all fees and charges since many are based, or are moving towards, a „user pays‟ pricing structure.
19. All departmental fees and charges have been subject to review and a variety of increases are included in the draft budget. The Finance Bill includes a list of those requiring changes to legislation and the others were set out in various reports to Executive Council. Full details will be available to the public in due course, but I will outline some of the more important areas.
20. In line with the agreed Health of the Nation initiatives, it is once again proposed to increase customs import duty on tobacco by more than the general inflationary factor. The duty on cigarettes, tobacco and cigars will therefore increase by 5% whilst the increase in duties on alcoholic beverages has been limited to 3%. These increases will, for example, add an extra 21 pence to a packet of 20 cigarettes, 33 pence to a litre of spirits and 8 pence to a case of beer and will become effective immediately.
21. An inflationary increase in vehicle licence fees of 3% is proposed. This would, for example, increase the fee for a Land Rover from £113.50 to £117. It is also proposed that the fees for vehicle registration, drivers licence, driving test and firearms licence should be increased by the same percentage. The charges for police vetting are proposed to increase by 10% and 20% for standard and enhanced vetting respectively to closer reflect the cost involved in the checks.
22. House rents in Stanley are generally still significantly lower in the public sector than in the private sector and therefore the policy in recent years has been to increase rents for government properties by more than the inflationary rate. It is proposed that this policy continues and the general rent increase for government houses is 5%. In order to provide consistent protection to low income tenants it is proposed that the allowances under the rent rebate scheme will also be increased by 5%. There are some tenants in flats who are provided with communal heating. The charge for this is recovered with their rent on a monthly basis. Given the recent increases in kerosene prices it will be necessary to increase these charges by 10% to recover the full costs of provision.
23. A policy of full cost recovery of water provision and refuse collection was established 4 years ago. The costs of providing these services are currently being met so no increase is proposed in these charges this year.
24. Last year the intention to introduce a commercial community service charge to work towards recovering the full cost of community services such as street lighting, street cleaning and the maintenance of open spaces, currently only collected through the domestic service charge was announced. Honourable Members requested a full consultation on the best way to recover these costs and this has not yet been finalised. It is therefore proposed that the creation of this charge is delayed until the 1st July 2013 in order for this consultation to be completed and the relevant legislation drafted.
25. The domestic property service charge is currently £426 per annum with a 50% reduction for pensioners. This charge covers water supply, refuse collection and an element relating to community services. As I just mentioned the first two of these services are now at full cost recovery so no increase is proposed to the service charge. Once the commercial community service charge is put in place, the cost recovery of the community services element will be reviewed.
26. There has been much discussion over recent months of the prices for the supply of quarry products. The Director of Public Works has recently reported to Standing Finance Committee on the levels of cost recovery the current prices have achieved. In undertaking this review it was highlighted that the full cost of activity were not being reflected within the quarry section, therefore it is now proposed that the plant and vehicles used at the quarry will be charged to that section. In order to ensure an equitable basis for charges the FIG internal rates will be increased to bring them in line with the price charged to the private sector. As announced last year there will be no increase in prices to the private sector this year. However, it should be borne in mind that increases to all rates in the order of 10% are likely to be required over the next few years to bring the section ultimately to break even. These rates will be reviewed annually to take into account any changes in volume that could favourably impact on the price. Page 8 of 11 APPROPRIATION BILL 2012
27. No increases are proposed for harbour dues and customs clearance fees as an overall review of port related charges is planned in the near future.
28. The cruise vessel passenger levy is normally reviewed a year in advance. This reflects the advance notice requested by the tourism industry due to the impact on cruise operators. The last increase took effect from 1 July 2009. No increase is proposed from 1 July 2013 meaning the levy will remain at £18 per passenger for vessels arriving in Stanley and £6 per passenger for vessels arriving elsewhere in the Islands. Keeping the levy the same is intended to make a small contribution in support of the Tourism Development Strategy.
29. In addition, no increase is proposed in the embarkation fee which will remain at £22 per person as set four years ago.
30. Postal charges are currently reviewed every 2 years and the last changes were introduced from 1 July 2010. Inflationary charges are now proposed on these rates which will increase a local letter stamp by 3 pence to 30 pence and an overseas letter stamp by 5 pence to 75 pence.
31. Inflationary increases are also proposed on various charges within the Training Centre, Agriculture department, Immigration Service, Attorney General‟s Directorate and the Court.
32. Charges for Stanley House and dental charges are proposed to go up by 10% to work towards cost recovery in both areas.
33. Budget Select Committee are conscious of the ever increasing cost of medical treatment overseas and have therefore approved a £300 contribution from patients towards the flight costs for the first referral for overseas treatment. In order to keep the system simple the Committee also approved the removal of the existing £400 charge for elective treatment.
34. During previous years‟ budgets the intention to create a charge for media services in the form of a TV licence was announced. The Budget Select Committee has reviewed this policy and decided not to implement such a charge for the term of this Assembly.
35. Governments generally review tax rates and tax allowances periodically; usually annually. The Budget Select Committee have considered the current tax regime and no changes are currently included in the draft budget to the form and structure of the tax system, tax rates or tax thresholds. In addition, no changes are proposed to the current rates of Medical Services Tax.
36. Moving now to pay, pension benefits, pension contributions and social payments:
37. Members are well aware that the provision of effective public services depends on having efficient and motivated staff. It is therefore proposed that a 4% cost of living award will be paid to all government officers with effect from 1 July.
38. The Government are currently undertaking a tender process in order to appoint actuaries to carry out the next review of the Retirement Pension Fund. However, in the meantime, an increase in contribution rates is proposed in order to prevent the deficit in the scheme increasing.
39. It is therefore proposed that contribution rates be increased from 1 January 2013. As a result the voluntary overseas contribution rate would be increased to maintain contributions at the full actuarial rate. The resident rates of Page contribution would increase by approximately 7% in order to close the gap between the two rates. This would increase the employer and employee rates to £15.00 per week and the self-employed rate to £30.00 per week. No increase is proposed in the earnings limit threshold of £180 per week.
40. It is also proposed that all pension payments, including retirement pensions, public service pensions and Falkland Landholdings pensions, should increase by 4% in line with the government cost of living award.
41. It is proposed that the Christmas Bonus, equivalent to one week‟s pension, should continue to be paid to those pensioners in receipt of a retirement or ex-gratia pension who reside in the Islands.
42. It is proposed that all welfare, attendance, fostering and family allowances are also increased by 4%. In the case of family allowances this will increase the monthly allowance from £60 to £63 per child.
43. It is also proposed that the winter fuel allowance for pensioners should be continued and that the income threshold should increase by 3%.
44. In summary, I am pleased to present a budget showing surpluses in all five years, for the first time in several years. We must recognise that the surplus in recent years and projection for 2012/13 is primarily as a result of oil exploration and the increased economic activity it has encouraged. These windfalls have once again allowed a surplus budget to be presented and provided the Government with the ability to invest in a number of economic development projects which I will outline in my report from the Budget Select Committee when the House resumes on Friday afternoon
45. Mr Speaker, the proposed budget includes carefully considered increases in fees and charges, and incorporates a number of expenditure proposals put forward by departments. The process has been streamlined this year but has once again involved debate of a number of areas over the last three months. I would like to thank everyone involved, in particular Honourable Members who once again devoted a huge amount of time to the budget process.
46. I would also like to thank Daniel Heath and Donna Henry for all the assistance they‟ve given departments in preparing and reviewing their budgets and for Daniel‟s assistance in particular throughout the budget process. Once again Margaret Butler has worked hard on pages and pages of minutes and I thank her for her secretarial support during the process. I would also like to thank my other colleagues in the Treasury for keeping the office running whilst the rest of us have been occupied with the budget.
47. In closing, I would take a final opportunity to stress that whilst the current projections for the upcoming years are positive, Government balances have only recently been strengthen by the “windfall” revenues from oil, Illex and in some years investment returns. Government expenditure continues to rise and should the returns in these areas reduce, changes in our approach or management of public expectations will be needed to ensure that we live within our means.
48. Mr Speaker, this concludes my budget presentation to this house and I beg to move that the bill be read a second time.