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Clinton says CM’s budget is ‘financial fantasy’

Clinton says CM’s budget is ‘financial fantasy’

The Gibraltar’s Government’s budget is “a mirage” that keeps the cost of major projects off-balance sheet in order to sanitise public finances and conceal mounting debt, GSD MP Roy Clinton said this week.

Speaking during a budget address, Mr Clinton said the Government’s approach to public finances had in effect neutered the Opposition’s ability to put spending under proper scrutiny.

Mr Clinton said structuring major capital projects through government-owned companies meant huge investments were not reflected in the budget book, giving a distorted view of the real shape of Gibraltar’s public finances.

“We are being asked to believe what our eyes perceive to be a shimmering land of plenty, an oasis in which our financial thirst will be quenched and satisfied,” he said.

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“And yet on closer examination of this miraculous mirage we find out perhaps too late that our minds have been deceived by an optical illusion that we have been only too quick to believe.”

“We are invited to believe a record surplus of £82.8 million, net debt down to £314 million and bumper revenues of £706.6 million in the year ended 2018/19.”

“This pre-election budget has been purposely designed to create just that, an illusion of plenty when the truth is the opposite, and we should not allow ourselves to be so cruelly deceived.”

By way of example, Mr Clinton said that despite the Chief Minister having previously told the teachers’ union NASUWT that the cost of the new schools would exceed £100m, this figure was not reflected at all in the budget book.

If it had been, the government’s £85m surplus would have turned into a £17.2m deficit, while net debt would stand at £414m, he told Parliament.

“We can see that schools are indeed being built, but at what cost?” Mr Clinton asked.

“The estimates book would have us believe that they appeared by magic at no cost, or perhaps our eyes are deceiving us and it is all a mirage, some sort of an optical illusion.”

And he added: “We are being asked to believe in the realms of financial fantasy and fiction.”

The GSD MP was tough too on the latest property deal announced by the Chief Minister, who revealed in his budget address that the Gibraltar Government had sold its 50% share in 50/50 affordable homes in Waterport Terraces, Cumberland Terraces, Bayview Terraces, Nelson’s View, Beach View Terraces and Mons Calpe Mews.

Fabian Picardo said the £165m deal would not impact on homeowners in any way and had released capital value that would be used to finance new affordable homes.

He said deal represented “massive foreign investment” in Gibraltar against the backdrop of Brexit uncertainty.

But in a preliminary analysis, Mr Clinton said the deal raised numerous questions, including the terms of loan notes issued by one of the Gibraltar-registered company’s in the structure to major international institutional investors.

And he expressed the view that rather than a sale, this was the government borrowing money outside the scrutiny of Parliament.

“This is a lending structure, a borrowing, this is not a simple sale of property,” he said.

“This is a borrowing structure.”

Mr Clinton asked where the government would find the money to pay for the interest on the loan notes, insisting that the investors were “not going to wait forever for people to buy out their 50%”.

“Something’s missing,” he said.

“What is it? What is it that we’re not being told?”

And he raised concern too that the deal had been struck without any manifesto commitment or public discussion beforehand.

“Where does he get the authority to do this?,” Mr Clinton asked.

“This House hasn’t even voted on it.”

“He may have a government majority but he hasn’t even bothered to put it to a vote.”

“There may be members on his side who don’t want to do it.”

“It’s frankly incredible.”

Mr Clinton said Parliament’s process for approving the budget was “not fit for purpose”, arguing there was a need for a Finance Bill in order to ensure taxation measures were properly scrutinised and debated.

But the “biggest failure” of the budget process, he said, was that the Appropriation Bill did not present a full picture of the finances because the GSLP/Liberals channelled capital projects into government-owned companies outside the Improvement and Development Fund.

He cited by way of example the £300m “mortgage” on housing estates – the government describes this as an institutional investment – which he said was being “passed around” government-owned companies “with no explicit legal authority” from Parliament.

“This is surely contrary to the spirit of our Constitution that assumes that this Parliament will approve all major recurrent and capital expenditure and of course borrowing,” he said.

Additionally, he said deals between government-owned companies were further distorting the numbers reflected in the budget debate.

Mr Clinton said major capital expenditure should be reflected in the Improvement and Development Fund “…so that we know what our current and future commitments are.”

As an example, he said the cost of the airport terminal had been included in successive GSD budget books which were then approved by Parliament, including with the backing of the then GSLP/Liberals Opposition.

“As it stands today the Chief Minister claims to be spending over £100 million on new schools but not a penny of expenditure for 2018/19 is shown, we don’t actually know how much it’s costing,” he said.

Mr Clinton said that between January 1, 2012, and December 2017, the Gibraltar Government incorporated or acquired 37 companies, of which only 12 had filed any financial information as off last weekend, much of that in abbreviated form.

“We can thus only guess at the financial activities of the Government owned companies and their assets and liabilities,” he said.

“This is an impossible situation and again undermines the ability of this Parliament to scrutinise Government.”

Mr Clinton also raised concern about the relationship between recurrent expenditure and recurrent revenue, saying that caution was needed so as not to fall into the “trap” of spending more than is earned.

He said government revenue was largely dependent on taxation, which in turn was dependent on company profits linked to economic performance.

“I hope the Government in its Brexit planning has included the effects on this budget should there be a negative shock to the economy come October,” Mr Clinton said, citing Sir Joe Bossano’s “call for caution” in public finance.

Mr Clinton said Gibraltar needed to be “in a stronger position” in terms of its so-called “rainy day funds”, and also questioned government calculations about the size of public debt.

While the government calculates gross debt as being at £447.7m, Mr Clinton’s estimate is that it stands at £1.2 billion as of March 2019 if external companies are included in the mix.

The GSD MP also questioned the government’s commitment to efficiency, given its spending in certain non-essential areas.

The cumulative cost of the Gibraltar Music Festival since its inception stands at £11.5m, he said by way of example, adding that this was more than the initial cost of the university.

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