Chief Minister Fabian Picardo delivered “a Brexit budget” yesterday that sought to balance “caution with optimism and prudence with investment” as Gibraltar prepares to leave the European Union next year.
In a wide-ranging two-hour speech that provided a snapshot of current political and economic developments, the Chief Minister said his government’s plans for the year ahead would require “no cuts and no austerity” thanks to solid growth across all key areas of the economy.
He reported strong economic results and a budget surplus of just over £36m, while insisting public debt was low and under control at 15% of GDP for 2017/18 of £2.18 billion.
The Chief Minister said unemployment stood at a record low of 45 people, while the number of jobs in Gibraltar’s economy had increased to 28,029, driven mostly by the private sector even as public sector jobs dropped by 1%, or 54 posts.
There were no tax increases in the budget, which was littered with incentives at the lower end of the employment spectrum including a 30p hike to the minimum wage to £6.75 and increases to allowances.
But Social Insurance payments were hiked by 10% to help cover the cost of caring for an ageing population.
Likewise public sector pay will be increased by the lower of 2.5% of the individual’s pay rate or 60p an hour, a move that will deliver pay increases above average inflation even while starting to contain the cost of the public sector payroll.
Mr Picardo also announced an external review of public sector salaries to close the gap with the private sector.
There were also measures that signalled “a deeper and wholesale change” to Gibraltar’s economic reliance on tobacco, alongside incentives across a broad range of products and activities to stimulate and underpin environmental sustainability.
Mr Picardo’s speech was immediately slapped down by GSD MP Elliott Phillips, the Leader of the Position, who signalled his party would not be supporting the budget over concerns the government’s figures did not represent the true state of Gibraltar’s public finances.
Mr Phillips accused the Chief Minister of being “a spin doctor” and dismissed his address as “the big lie budget”, insisting the government was “parking most of its debt off balance sheet” and that its figures were “fundamentally opaque”.
In setting the government’s spending plans for the year ahead, Mr Picardo reported a solid performance for Gibraltar’s economy, with GDP hitting £2.18 billion for the 2017/18 financial year, an increase of 8.6% over the preceding year. He said the government had closed the year with a budget surplus of £36.1m.
For the year ahead, he envisaged a surplus of £24m on recurrent revenue of £652m and expenditure of £628m, the latter up 5.2% over the spending estimate for 2017/18.
The Chief Minister said too that the GSLP/Liberals commitment to drive GDP to at least £2.4 billion by March 2020 would likely be achieved a year ahead of schedule.
On the controversial issue of public debt, Mr Picardo reported net public debt of £324m, just under 15% of last year’s GDP and down about 1% from the preceding year. Cash reserves stood at around £115m, he told Parliament.
And while he remained bullish about Gibraltar’s prospects outside the EU, he insisted “there will be no free ride or space for free loaders”.
Mr Picardo reported progress in chasing down tax and rent debtors, and announced a special stamp duty to target those who would seek make easy money selling affordable houses.
Arrears in tax and Social Insurance had been reduced by £16.7m over the past 18 months thanks to the work of the Central Arrears Unit, while housing rent arrears were down to £4.8m from just over £6m in 2016.
Mr Picardo, who highlighted his government’s work over the past year on Brexit ion close partnership with the UK, insisted this was a budget to get Gibraltar ready for EU withdrawal without the need for austerity measures.
Instead, the focus was investment in order to stimulate the economy in key areas ranging from the development of schools and new power generation facilities, to sporting facilities and carving out new market niches including in the blockchain sector.
Faced with the challenge and uncertainty of Brexit, Gibraltar had rallied round to defy those who believed the Rock would struggle economically.
“We were expected to be floundering by now,” he said.
“We were expected to be losing business now. We were expected to be on our knees. But I never for one moment believed that we would fail.”
And while Gibraltar would continue to work as one to ensure it prospered outside the EU, Mr Picardo underscored too the need for personal responsibility in that equation.
“There will be nowhere to hide for those who want to skive their way out of pulling their weight, because the challenge of Brexit is there for all of us, not just for some of us,” he said.
Many of the measures announced by the Chief Minister stemmed from a focus on the environment.
They included removing import duties on disposable paper products such as straws and plates, coupled to a 200% increase on duty on their plastic equivalents.
There were hikes too to import duties on fuel, in particular on diesel, and plans set out to phase out the registration of new vehicles with internal combustion engines by 2040.
As from July 1, 2030, every vehicle registered in Gibraltar will have to be a hybrid “at least”, Mr Picardo said, while registration of any type of diesel vehicle – including hybrids – will not be registrable as from that date.
There were also incentives for owners of electric vehicles, including tax breaks on the cost of installing charging mechanisms in their garage or parking space, and those who buy hybrids, coupled to a hike on the import duty for diesel vehicles.
CIGARETTES AND ALCOHOL
Import duty was increased across a range of alcoholic beverages and tobacco products.
Mr Picardo also set out a range of measures signalling “a deeper and wholesale change in our attitude to tobacco duty”.
“The health of our nation requires that we should ensure that we are taking measures to dissuade people from smoking,” he said.
“Not only are we extending our Tobacco Act provisions beyond cigarettes to all tobacco products, we are considering implementation in Gibraltar of international conventions on the use of tobacco and we are looking at an escalator of duty which will make high street retail tobacco prices, cigarette prices in particular, less and less attractive.”
The measures included increasing duty on cigarettes from £13 per carton to £14 per carton, and from £45 to £60 per kilo for rolling tobacco. Import duty for waterpipe tobacco products increased too from £15 per kilo to £45 per kilo.
But there were hefty increases too for licensing fees in the tobacco sector, both for retail and wholesale licenses.
Fees for a new wholesale licence, for example, increased from £1,000 to £20,000, while the fee for renewal went up from £300 to £10,000. The price of a new retail license went up from £150 to £5,000.
Mr Picardo said many of the measures aimed to address the problems arising from tobacco and smoking generally, as well as curb anti-social behaviour and better collect, monitor and share information to prevent the possibility of illicit tobacco activity arising.
He signalled changes to tobacco legislation to ensure that “…the licencing, importation and exportation, storage and transportation of cigarettes, as well as penalties in connection with these activities, apply to all tobacco products generally rather than only or mainly to cigarettes as at present.”
“These will assist also in controlling the public order issues that can arise if the trade in this commodity is not properly regulated,” he said.
PUBLIC SECTOR SALARIES
Mr Picardo said that to protect the public sector in the long-term and ensure it was able to face up to the possibility that Brexit “does not go well”, the Gibraltar Government would seek to contain the public sector payroll and begin to reduce the gap between the highest and lowest earners in the public sector, and between the public and private sectors generally.
Public sector pay will go up this year by the lower of 2.5% of the individual’s pay rate or 60p an hour.
“In effect, this 60p per hour cap on the pay rise will kick in on basic salaries over £46,000 per annum,” Mr Picardo said.
“Even at those levels, the increase will considerably exceed average inflation.”
Mr Picardo said the government would also commission an external review of public sector salaries, adding the last such exercise had been conducted in 1983 but that changes since then had created “myriad distortions and altered differentials”.
“For the avoidance of doubt, whatever the recommendations of that review may be, no existing officers’ salaries will be effected,” the Chief Minister said.
“All will continue to receive at least their existing salaries until retirement, whatever the recommendations of the review are.”
Mr Picardo announced a measure to crack down on those who would seek to sell “for very large profits” affordable homes they had purchased from the government at cost price below market values.
“That is not fair on the taxpayers at large, on those on the waiting list for new homes or those who have not been able to buy affordable properties,” he said.
As from yesterday, the sale of any affordable home purchased from the government in the last four years will attract a new special stamp duty of 7.5% of the total sale price. The special stamp duty will have to be paid until 10 years have expired from the original purchase of the property by the original purchaser.
After considerable public consternation about the availability of tickets last year, this year’s Christmas lottery first prize will be £1m.
Double the number of tickets available last year will go on general sale.