IF the Minster for Treasury and Resources thought outside experts would give him all the answers to the Island’s economic problems, he was greatly mistaken.

The two wise men and the wise woman who make up the Fiscal Policy Panel, prove in their recent letter to him that they definitely know a thing or two about the ‘dismal science’, but they can’t give specific advice on how Jersey is to tackle the impact of the recession.

Yes they can provide guidelines and contribute to our knowledge of how the Jersey economy works, but they aren’t able to draw up a blueprint on how to avoid the worst impact of the global crisis. No one can.

Their recent advice to the Treasury Minister on the use of the Stabilisation Fund will undoubtedly be a help, but it’s the Council of Ministers who will have to decide what to actually do. Politics is, therefore, likely to have as much of an influence on decisions as economics.

Setting up the FPP was a wise move, because as an independent organisation it can have considerable influence, but it has no powers and no one has to take any notice of it. Indeed a major part of the panel’s first set of recommendations was ignored by the Council of Ministers when they agreed to a new package of spending. Advice from the panel in the current climate of crisis is more likely to be listened to.

But does the advice get us very far? As the members of the panel point out themselves they operate ‘within the confines of the limited data that are available on both the economic performance and the fiscal outlook, compounded by the backdrop of the most uncertain times in recent history’.

Nevertheless, the panel is clear that now is the time to spend money that was wisely put aside in the Stabilisation Fund to protect jobs and the economy. This is despite the fact that there’s not a great deal of concrete evidence about the extent of the downturn in Jersey. Or if there is any evidence, nobody has told us about it yet. Apparently new economic forecasts have been produced by the Economics Unit, but no one knows what they are.

What the FPP have concluded following their own research is that economic growth was about 3% last year compared to the previous year’s 7%. However, all the panel can say is that the outlook for this year has ‘deteriorated sharply’ and that the Island will experience ‘a significant cyclical downturn’ this year and the economy will decline further in 2010.

This brings the panel to the conclusion that the Stabilisation Fund needs to be used now, although they are unable to say how much of the money should be committed to a stimulus package. All they can say is that if all of the money in the fund were spent it would be the equivalent of about 4% of the Island’s Gross Value Added over a two- to three-year period. That’s between the 5% of GDP the US is proposing to spend on their economic rescue package in a couple of years, and the 1.5% proposed in the UK and France.

However, everyone has pointed out that the problems in Jersey’s economy are nothing compared to those in major countries such as the US and the UK. No doubt there has been an increase in unemployment in the Island, but there’s no sign that it has become unmanageable. So do we need the same kind of stimulus package?

It’s all very well talking about spending all of the Stabilisation Fund, or even only tens of millions of pounds of it. But it’s a limited fund, and when it’s gone, it’s gone.

So the FPP are unable to tell us how much we should be spending, and they are not much help when it comes to deciding how the money should be spent either. That’s not a criticism of the panel. It’s simply to illustrate the difficulty that the States will have in making some important decisions.

The panel and the treasury agree that any stimulus package should meet the three Ts criteria of being timely, targeted and temporary. But all this tends to do is emphasise what should not be done, rather than what should be done.

Thus, it’s relatively easy to identify what measures cannot have a timely impact in the next six to nine months. Cuts in direct taxation, for example, wouldn’t work.

Increasing income support could have an immediate impact, and be targeted at those more likely to spend and therefore boost the economy. But it would be very difficult to make it temporary.

Cuts in indirect taxes would definitely meet the timely criteria but would not be targeted and probably not temporary.

Money spent on skills and training could have an immediate impact on the economy, although the benefits of the training might take longer to feed through.

Supporting small businesses could be timely and targeted, but care would have to be taken to ensure any support was temporary.

However, investing in infrastructure and maintenance is the stimulus option that ticks most of the boxes, according to the FPP. Some projects are ‘shovel ready’ and some could also be targeted to support local employment. However the panel says nothing about the difficulty there will be in deciding precisely which individual projects should be supported.

This might be where politics becomes more important than economics. Every States Member will have his own pet project that he would like to push through and anyone who can demonstrate that local jobs are at risk, is also likely to get a sympathetic hearing. After all, the money is available and if the project meets the three Ts, or perhaps only one or two of them, who’s going to worry about the long-term economic merits of the case?

So the States proved that it was forward thinking when it set up the Stabilisation Fund (and the Fiscal Policy Panel). It’s now got to prove that it can spend the money wisely.
Peter Body is editor of Business Brief magazine