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Long-Term Expenditure and Revenue Model Presentation to Migration Policy Development Board Thursday, 18 April 2019
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 financesRevenue and expenditure: net-nil migration, no productivity growth
125
98
0
20
40
60
80
100
120
140
160
180
200
Index, 2018=100
Expenditure Revenue
Migration scenariosRevenue and expenditure: +325 net migration
135
110
0
20
40
60
80
100
120
140
160
180
200
Index, 2018=100
Net nil Net nil +325 +325
Migration scenariosRevenue and expenditure: +700 net migration
147
124
0
20
40
60
80
100
120
140
160
180
200
Index, 2018=100
Net nil Net nil +325 +325 +700 +700
Migration scenariosRevenue and expenditure: +1,000 net migration
155
134
0
20
40
60
80
100
120
140
160
180
200
Index, 2018=100
Net nil Net nil +325 +325 +700 +700 +1000 +1000
Migration scenariosRevenue and expenditure: +1,500 net migration
170
151
0
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
Recent trends in migrationNet migration per year
0
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
Recent trends in migrationNet migration per year
Average:759
0
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
Productivity scenariosRevenue and expenditure: +325 migration, no sectoral change
135
110
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure 0% productivity growth
Productivity scenariosRevenue and expenditure: +325 migration, no sectoral change
135
122
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth
Productivity scenariosRevenue and expenditure: +325 migration, no sectoral change
135
136
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth 1% growth
Productivity scenariosRevenue and expenditure: +325 migration, no sectoral change
135
91
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure 0% productivity growth 0.5% growth 1% growth 1% worse
Recent productivity performanceGVA per FTE (£k, 2017 prices, excluding rental)
0
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
Recent productivity performanceGVA per FTE (£k, 2017 prices, excluding rental)
Average: -1.1%
0
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
Sectoral shift scenarios productivity performanceApproach 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 performanceApproach 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 performanceApproach 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
Sectoral shift scenarios productivity performanceApproach 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)
Sectoral shift scenariosRevenue and expenditure: +325 migration, 0% productivity growth
135
110
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure No sectoral change
Sectoral shift scenariosRevenue and expenditure: +325 migration, 0% productivity growth
135
103
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure No sectoral change Shift to low value
Sectoral shift scenariosRevenue and expenditure: +325 migration, 0% productivity growth
135
120
0
20
40
60
80
100
120
140
160
Index, 2018=100
Expenditure No sectoral change Shift to low value Shift to finance
Sectoral shift scenariosRevenue and expenditure: +325 migration, 0% productivity growth
135
110
0
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
Recent trend in sectoral mixSectoral 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
Recent trend in sectoral mixSectoral 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
What if we move all three levers?
Break-even point+1,000 migration, 0.5% productivity growth, 5% shift to FS
0
20
40
60
80
100
120
140
160
180
Index, 2018=100
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
0
20
40
60
80
100
120
140
160
180
Index, 2018=100
Expenditure Revenue
If the levers move the other way…net nil, repeat recent productivity growth, 5% shift to low income
143
85
0
20
40
60
80
100
120
140
160
Index, 2018=100
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?
