SLIDE 1
Long-Term Expenditure and Revenue Model
Presentation to Migration Policy Development Board Thursday, 18 April 2019
SLIDE 2 Overview of the model
- Combines demographic, fiscal and economic data out to 2050
- Population projections
- Health and education expenditure projections
- Taxes Office data by sector
- Based on policy and commitments staying the same as 2018
- And before savings from implementing Target Operating Model
- Revenue: Income Tax, GST, Impôts, stamp duty, island-wide rate, ‘other
income’ (dividends, return from Andium etc.)
- Expenditure: Departmental expenditure, including States Grant to Social
Security and capital expenditure (excluding SSF, HIF, LTC)
SLIDE 3 Key variables/assumptions
- Main variables:
- Productivity (FS and NF)
- Net migration
- Sectoral composition
- Key assumptions:
- Education and health spending grow in line with departments’ models
- 0.7% HSSD annual productivity improvement (can be varied)
- Health expenditure grow by 2%/year in real terms (can be varied)
- No change to tax rates
- States Grant, capital spend and income support grow in line with overall
population (2017 base)
- Other spending flat in real terms
SLIDE 4 Impact of ageing on public finances
Revenue and expenditure: net-nil migration, no productivity growth
125 98 20 40 60 80 100 120 140 160 180 200
Index, 2018=100
Expenditure Revenue
SLIDE 5 Migration scenarios
Revenue and expenditure: +325 net migration
135 110 20 40 60 80 100 120 140 160 180 200
Index, 2018=100
Net nil Net nil +325 +325
SLIDE 6 Migration scenarios
Revenue and expenditure: +700 net migration
147 124 20 40 60 80 100 120 140 160 180 200
Index, 2018=100
Net nil Net nil +325 +325 +700 +700
SLIDE 7 Migration scenarios
Revenue and expenditure: +1,000 net migration
155 134 20 40 60 80 100 120 140 160 180 200
Index, 2018=100
Net nil Net nil +325 +325 +700 +700 +1000 +1000
SLIDE 8 Migration scenarios
Revenue and expenditure: +1,500 net migration
170 151 20 40 60 80 100 120 140 160 180 200
Index, 2018=100
Net nil Net nil +325 +325 +700 +700 +1000 +1000 +1500 +1500
SLIDE 9 Recent trends in migration
Net migration per year
200 400 600 800 1,000 1,200 1,400 1,600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Recent net migration
SLIDE 10 Recent trends in migration
Net migration per year
Average:759 200 400 600 800 1,000 1,200 1,400 1,600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Recent net migration
SLIDE 11 Productivity scenarios
Revenue and expenditure: +325 migration, no sectoral change
135 110 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure 0% productivity growth
SLIDE 12 Productivity scenarios
Revenue and expenditure: +325 migration, no sectoral change
135 122 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth
SLIDE 13 Productivity scenarios
Revenue and expenditure: +325 migration, no sectoral change
135 136 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth 1% growth
SLIDE 14 Productivity scenarios
Revenue and expenditure: +325 migration, no sectoral change
135 91 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth 1% growth 1% worse
SLIDE 15 Recent productivity performance
GVA per FTE (£k, 2017 prices, excluding rental)
10 20 30 40 50 60 70 80 90 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Recent productivity
SLIDE 16 Recent productivity performance
GVA per FTE (£k, 2017 prices, excluding rental)
Average: -1.1% 10 20 30 40 50 60 70 80 90 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Recent productivity
SLIDE 17 Sectoral shift scenarios productivity performance
Approach used
Sector Average salary/range Low income <£35k Medium income £35k-£50k Other high income £50k+ Financial services £72k Utility and property £35k-£71k
SLIDE 18 Sectoral shift scenarios productivity performance
Approach used
Sector Proportion of employment (2015) Low income 23% Medium income 27% Other high income 24% Financial services 16% Utility and property 8%
SLIDE 19 Sectoral shift scenarios productivity performance
Approach used
Sector Proportion of employment (2015)
- Scenarios assume that 10% of workforce shifts by 2050
- Utility and property constant, each other sector falls equally
- Small fall in actual numbers due to growth in workforce in +325 scenario
- Equivalent to shift of 6,000 people by 2050 in +325 scenario
- c 1,500 from each other sector
- Plus 1,500 new workers
- <200 people per year
SLIDE 20
Sectoral shift scenarios productivity performance
Approach used
Sector 2015 employment 2050 employment Low income 14,000 (23%) 12,400 (20%) Medium income 16,300 (27%) 14,800 (24%) Utility and property 4,800 (8%) 5,000 (8%) Financial services 10,000 (16%) 8,200 (13%) Other high income 14,900 (24%) 21,500 (34%)
Example = shift to other high income (+325 migration scenario)
SLIDE 21 Sectoral shift scenarios
Revenue and expenditure: +325 migration, 0% productivity growth
135 110 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure No sectoral change
SLIDE 22 Sectoral shift scenarios
Revenue and expenditure: +325 migration, 0% productivity growth
135 103 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure No sectoral change Shift to low value
SLIDE 23 Sectoral shift scenarios
Revenue and expenditure: +325 migration, 0% productivity growth
135 120 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure No sectoral change Shift to low value Shift to finance
SLIDE 24 Sectoral shift scenarios
Revenue and expenditure: +325 migration, 0% productivity growth
135 110 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure No sectoral change Shift to low value Shift to finance Shift to other high value
SLIDE 25 Recent trend in sectoral mix
Sectoral proportion of FTEs
0% 10% 20% 30% 40% 50% 60% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Recent trends in sectoral composition
Low productivity Financial services Other high productivity
SLIDE 26 Recent trend in sectoral mix
Sectoral proportion of FTEs
1998, 50% Lowest: 46% 2018, 49% 1998, 22% Peak: 25% 2018, 24% 1998, 28% 2018, 28% 0% 10% 20% 30% 40% 50% 60% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Recent trends in sectoral composition
Low productivity Financial services Other high productivity
SLIDE 27
What if we move all three levers?
SLIDE 28 Break-even point
+1,000 migration, 0.5% productivity growth, 5% shift to FS
20 40 60 80 100 120 140 160 180
Index, 2018=100
Expenditure Revenue
SLIDE 29
Alternative break-even point
+1,000 migration, 0.5% productivity growth, 10% shift low to other high
SLIDE 30 Alternative break-even point
+700 migration, 0.5% productivity growth, 8% shift to FS
20 40 60 80 100 120 140 160 180
Index, 2018=100
Expenditure Revenue
SLIDE 31 If the levers move the other way…
net nil, repeat recent productivity growth, 5% shift to low income
143 85 20 40 60 80 100 120 140 160
Index, 2018=100
Expenditure Revenue
SLIDE 32 Conclusions
- Long-term structural pressures on public finances
- Will need a number of levers
- Productivity important but may not be sufficient
- Likely need some combination of some or all of:
- Productivity improvements within sectors
- Focus on high-productivity sectors
- Targeted inward migration
- Savings and efficiencies
- New/increased sources of revenue
SLIDE 33
Questions?
