Last year the Treasury Minister, Alfred Cannan, referred to the Budget as ’like no other in modern times.’

This reflected the huge £300m hit from Covid-19, spread over both 2020/2021 and 2021/2022, which decimated the Isle of Man’s finances as much as other countries’ around the world.

Just as soberly, the new Treasury Minister, David Ashford, spoke on February 14 of the current Budget as ’the first step of a new medium-term financial plan.’

deficit

In truth, things are still tough, with the Minister projecting a £36m deficit in 2021/22, reflecting a shortfall of £5m in projected income and £30m higher expenditure.

A new five-year plan will aim to eliminate our structural deficit, but there will be some headwinds: bills keep going up as pensions (up 3.1%), state benefits and public sector worker wages rise.

As elsewhere, healthcare costs continue to rise, with Manx Care getting £17m more, part funded next year by drawing on income from the National Insurance Account.

The government also wants ordinary revenues to cover both revenue expenditure and capital expenditure in future, rather than funding capex through drawdowns on reserves (at least after the current five-year £485m capex programme).

Government revenues are forecast to recover to pre-Covid levels by 2023/24, so this will help.

The workforce is already back to pre-Covid levels of more than 36,000 people.

But there is clearly a desire for value for money going forward, implied by talk of a review into social security.

Another requirement will be to start putting money aside for the £400m Sustainable Bond that the island issued last year. The timing was good, and the money assures the island’s immediate liquidity needs, but that is a sizeable ’rainy day’ fund to save up for.

climate change

One standout was a bold £42m commitment across revenue and capital budgets towards climate, with the establishment of a new Climate Change fund which should assist the island’s aim to become zero carbon by 2050.

Governments generally do well from inflation, as liabilities are inflated away and revenues boosted after more people are pulled into higher tax bands via ’fiscal drag’, but as we saw in the last decade in the UK, the modern state, with its linkage of pensions and benefits to RPI, tends to be more encumbered than previously.

We should be fine, but tax cuts may be off the agenda for some time.