Is Jersey's Public Sector too Big?

Taxation Revenue

Across the globe, most significant source of funding for the public sector is taxation revenue.  Jersey’s taxation revenue differs from that of many industrialised nations and the continuing vitality of its economy, in the face of the disadvantages faced by small islands, presently depends significantly on an ability to maintain favourable taxation levels.  An interesting perspective in which to frame the relative resources available to the States of Jersey might be constructed in terms of States taxation revenue.  Benchmarking must be undertaken with due caution as larger nations have additional government responsibilities, not least among which is defence expenditure (averaging some $540 per capita in OECD countries).  However, after adjusting for military expenditure and excluding social security revenue which varies so widely from country to country, States revenues per capita compares with developed nations as shown in the panel below

 

This comparison suggests that, per capita, Jersey’s tax revenues are on a par with OECD averages and in a close peer group comprising the United Kingdom, Ireland, Canada and Italy.  Crudely, if the island is achieving value for money, one might therefore expect key social outcomes such as educational attainment, health of the population, extent of deprivation to compare with these peers.  This comparable standard of public services is of course the espoused aim of the States. 

Small Community Comparison

On the other hand meeting the requirements of a small community may not be closely comparable with a large nation due to economies and diseconomies of scale.  An alternative perspective is provided by comparisons with other small self-governing communities.  Comparisons of Jersey with smaller territories are fraught with difficulty in that Jersey’s economy is somewhat more advanced, global in reach and longer established than other small self governing communities (Barbados, for example, is an aid recipient).  Jersey lies in a middle ground between, on the one side, the advanced economies of the world, and small communities on the other.  To reflect both population and national income characteristics the closest comparisons might be Cayman, Bermuda, Guernsey, Isle of Man and Luxembourg.  Each of these small communities has a significant financial services industry, small population, comparatively high per capita GNP in global terms and a small physical size.  The table below shows key indicators for each of these communities.  Figures must be treated with caution in that each territory operates differently.  For example, Guernsey's figures include Social Security contributions (circa £40 million) whereas Jersey does not.  On the other hand, Jersey's figures include gross income from Telecommunications and Postal Services (£66 million) rather than net contribution (£15 million). 

  Population 1995 GNP per capita Gov’t revenue Gov’t revenue
  (‘000) US$’000 (% of GDP) $’000 per capita
Luxembourg 390 46 45 21
Jersey 85 28 28 8
Bermuda 63 30 21 6
Cayman 34 28 20 6
Guernsey 59 27 21 6
Isle of Man 70 13 39 5

Sources and Recommended Reading

For challenges facing small islands see UN Department for Policy Co-ordination & Sustainable Development, Macroeconomic Policy Questions: Trade & Development Annex Specific Measures in Favour of Small Island Economies, which makes only passing reference to the role offshore financial services has played as a developmental engine. 

Jersey’s taxation revenue has been calculated as: taxation & impôts £248m, Finance & Economics surplus £40m, traders surplus £15m.  All figures taken from States of Jersey Statistical Review, 1997 pp54.  Check the States of Jersey website for figures on line.

Tax revenue for OECD countries has been derived from OECD in Figures, OECD, 1998 and IISS  Note that this comparison ignores investment income of the States of Jersey (£7.8 million in 1996).

Further sources: Jersey: Statistical Review, 1997, Guernsey: 1998 Economic & Statistics Review, Bermuda: 1997 Economic Review, Cayman: Economics & Statistics Office, Isle of Man: Key Facts, 1996, World Development Indicators, World Bank