Long-Term Expenditure and Revenue Model Presentation to Migration - PowerPoint PPT Presentation

Long-Term Expenditure and Revenue Model Presentation to Migration Policy Development Board Thursday, 18 April 2019

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)

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

Impact of ageing on public finances Revenue and expenditure: net-nil migration, no productivity growth Index, 2018=100 200 180 160 140 125 120 98 100 80 60 40 20 0 Expenditure Revenue

Migration scenarios Revenue and expenditure: +325 net migration Index, 2018=100 200 180 160 135 140 110 120 100 80 60 40 20 0 Net nil Net nil +325 +325

Migration scenarios Revenue and expenditure: +700 net migration Index, 2018=100 200 180 160 147 140 124 120 100 80 60 40 20 0 Net nil Net nil +325 +325 +700 +700

Migration scenarios Revenue and expenditure: +1,000 net migration Index, 2018=100 200 180 155 160 140 134 120 100 80 60 40 20 0 Net nil Net nil +325 +325 +700 +700 +1000 +1000

Migration scenarios Revenue and expenditure: +1,500 net migration Index, 2018=100 200 170 180 160 151 140 120 100 80 60 40 20 0 Net nil Net nil +325 +325 +700 +700 +1000 +1000 +1500 +1500

Recent trends in migration Net migration per year Recent net migration 1,600 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Recent trends in migration Net migration per year Recent net migration 1,600 1,400 1,200 1,000 Average:759 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Productivity scenarios Revenue and expenditure: +325 migration, no sectoral change Index, 2018=100 160 140 135 120 110 100 80 60 40 20 0 Expenditure 0% productivity growth

Productivity scenarios Revenue and expenditure: +325 migration, no sectoral change Index, 2018=100 160 140 135 122 120 100 80 60 40 20 0 Expenditure 0% productivity growth 0.5% growth

Productivity scenarios Revenue and expenditure: +325 migration, no sectoral change Index, 2018=100 160 136 140 135 120 100 80 60 40 20 0 Expenditure 0% productivity growth 0.5% growth 1% growth

Productivity scenarios Revenue and expenditure: +325 migration, no sectoral change Index, 2018=100 160 140 135 120 100 91 80 60 40 20 0 Expenditure 0% productivity growth 0.5% growth 1% growth 1% worse

Recent productivity performance GVA per FTE (£k, 2017 prices, excluding rental) Recent productivity 100 90 80 70 60 50 40 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Recent productivity performance GVA per FTE (£k, 2017 prices, excluding rental) Recent productivity 100 90 80 Average: -1.1% 70 60 50 40 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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

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%

Sectoral shift scenarios productivity performance Approach used • Scenarios assume that 10% of workforce shifts by 2050 Sector Proportion of employment (2015) • 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

Sectoral shift scenarios productivity performance Approach used Example = shift to other high income (+325 migration scenario) 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%)

Sectoral shift scenarios Revenue and expenditure: +325 migration, 0% productivity growth Index, 2018=100 160 140 135 120 110 100 80 60 40 20 0 Expenditure No sectoral change

Sectoral shift scenarios Revenue and expenditure: +325 migration, 0% productivity growth Index, 2018=100 160 140 135 120 103 100 80 60 40 20 0 Expenditure No sectoral change Shift to low value

Sectoral shift scenarios Revenue and expenditure: +325 migration, 0% productivity growth Index, 2018=100 160 140 135 120 120 100 80 60 40 20 0 Expenditure No sectoral change Shift to low value Shift to finance

Sectoral shift scenarios Revenue and expenditure: +325 migration, 0% productivity growth Index, 2018=100 160 140 135 120 110 100 80 60 40 20 0 Expenditure No sectoral change Shift to low value Shift to finance Shift to other high value

Recent trend in sectoral mix Sectoral proportion of FTEs Recent trends in sectoral composition 60% 50% 40% 30% 20% 10% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Low productivity Financial services Other high productivity

Recent trend in sectoral mix Sectoral proportion of FTEs Recent trends in sectoral composition 60% 1998, 50% 2018, 49% 50% Lowest: 46% 40% 2018, 28% 1998, 28% 30% Peak: 25% 20% 2018, 24% 1998, 22% 10% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Low productivity Financial services Other high productivity

What if we move all three levers?

Break-even point +1,000 migration, 0.5% productivity growth, 5% shift to FS Index, 2018=100 180 160 140 120 100 80 60 40 20 0 Expenditure Revenue

Alternative break-even point +1,000 migration, 0.5% productivity growth, 10% shift low to other high

Alternative break-even point +700 migration, 0.5% productivity growth, 8% shift to FS Index, 2018=100 180 160 140 120 100 80 60 40 20 0 Expenditure Revenue

If the levers move the other way… net nil, repeat recent productivity growth, 5% shift to low income Index, 2018=100 160 143 140 120 100 85 80 60 40 20 0 Expenditure Revenue

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

Questions?