Advertisement

CM’s budget points to strong economy despite Brexit

CM’s budget points to strong economy despite Brexit

Chief Minister Fabian Picardo delivered a bullish budget yesterday that pointed to strong economic growth underpinning significant public investment, but stopped short of delivering a basket of pre-election goodies against the backdrop of Brexit.

In his eighth budget as Chief Minister just months before a general election, Mr Picardo said Gibraltar’s economy had outperformed expectations despite the uncertainty of Brexit.

But the statement drew immediate criticism from the GSD, which said it would vote against the measures because the numbers did not reflect the true scale of public debt.

During a wide-ranging four-hour speech, Mr Picardo acknowledged recent landmark anniversaries – it is 50 years since the 1969 Constitution and the closure of the border, for example, and yesterday was Sir Joe Bossano’s 80th birthday – and said Gibraltar’s current economic success was the product of a succession of governments and Gibraltarian entrepreneurship and hard work.

Advertisement

General Franco, he said, had “closed us in” and “left us to rot”, but instead Gibraltar had responded by pulling together and finding solutions.

“Through it all, under successive governments of different political complexions, we thrived,” Mr Picardo said.

“A little more under some than under others, but we thrived.”

“And half a century passed. And we did not fall. We did not surrender or succumb.”

Mr Picardo reeled off a string of positive economic indicators to back up his arguments, including a budget surplus of £85m and a 7% increase in jobs in the economy to 29,995 posts in October 2018, including a record 11,228 Gibraltarians in employment.

The growth was driven by the private sector, which had witnessed an 8.8% increase in jobs even as public sector jobs decreased by 0.5%.

Mr Picardo said average gross annual earnings increased by 3.1% from £29,575 in October 2017 to £30,497 in October 2018, with inflation in Gibraltar averaging 2.8% in that period.

The number of frontier workers also increased in that period to 13,654, or almost 14.4%, and there were only 33 Gibraltarians registered as unemployed as of May this year.

The Chief Minister also sought to pre-empt Opposition criticism that much of Gibraltar’s public debt was held off balance sheet in government-owned companies.

He said the estimates drew on the input of senior officials from across the government structure and were both “credible and deliverable”.

He said too that the strategy of financing capital projects through government-owned companies had first been used by the GSD while in office, adding that the government had been transparent about those schemes.

“What we have put outside the [estimates] book in companies are capital projects which relate to investment in Gibraltar and are therefore transparent in their obvious and free standing construction and existence,” he said.

And he added: “How we have chosen to do structure these projects is no different to the construction of the 50/50 housing schemes which they undertook.”

“If it made sense for the GSD to build houses through the companies, and car parks through the companies, and to mortgage those car parks as [they] did, why does it not make sense to build schools, a power plant or sports projects through the company structure? What makes it right when they do it and wrong when we do? Is it scale? Is it our level of ambition for our community? Is it the time of delivery?”

The Opposition’s concern about “opaque” public finances was at the heart of the Leader of the Opposition’s reply to Mr Picardo yesterday.

Elliott Phillips said the GSD would vote against the budget for third consecutive year and that this decision stood as a message to the community that Gibraltar’s public services were being threatened by bad management of public finances.

Gibraltar’s public finances, Mr Phillips said, “…are on a cliff edge.”

“If you include all the off balance sheet borrowing our economy appears to be on life support,” he told Parliament.

“The Government is parking most of it debt off balance sheet and intentionally hiding the true level of our debt from the people.”

The government bench

NUMBERS

In his address yesterday, Mr Picardo reported a record £85m surplus and said GDP for “the turbulent and challenging” 2018/19 financial year was up to £2.35 billion, an increase of 8.2% year on year.

Mr Picardo also played down concerns about government borrowing, saying net public debt for 2018/19 was £314m, or 13.4% of GDP, while gross public debt remained unchanged at £447.7m.

“As a percentage of GDP, our net public debt is currently among the lowest of the countries in the European Union,” the Chief Minister said.

“Net public debt is 13.5% of GDP and aggregate public debt is 18.6% of GDP.”

And he added: “Overall borrowing is relatively low even if we were to include the borrowing by Government-owned companies, which was commenced and established by the former administration, and which has never…been deemed to be part of the public debt.”

Mr Picardo said the numbers were driven largely by the strength of the private sector. In the 2018/19 financial year, for example, the government had forecast tax revenues of £295m, whereas the figure was actually around £345m.

“This all points to an economy that is firing on all four cylinders,” he said.

Mr Picardo also sought to underline the government’s policy of reining in recurrent spending in the public sector, even while reporting increased revenue on the back of an economy that was performing well.

For 2019/20, the Gibraltar Government is forecasting recurrent revenue of around £697m, an increase of 7% over the previous year’s estimate, while recurrent expenditure is budgeted at £676m, also up 7%.

“The Government is therefore prudently and conservatively projecting to increase expenditure by no more than revenue and to then end the year with a very conservatively calculated recurrent budget surplus for this financial year of around £20 million,” he said.

Mr Picardo stressed too that the government was also committed to continuing it policy of catching up with overdue tax returns and would budget £18m in the 2019/20 fiscal year to that end, having already channelled £48m back to taxpayers since 2016.

“The government does not want to hold onto taxpayer’s money,” he said.

“It wants to return it in an organised and structured manner, ensuring and maintaining a responsible approach regarding public finances through a right and equitable balance between the funding of repayments and the carrying out of the correct and proper assessments.”

“This is a balance of rights and obligations.”

The Opposition bench

THORNY ISSUES

Mr Picardo also sought to address thorny issues that had placed his administration under heavy Opposition flak over the past few weeks and months, including criticism of the Victoria Keys reclamation.

Mr Picardo said the Victoria Keys reclamation costs would be financed by a Government-owned company using funds raised from the £300m “institutional investment” in Gibraltar’s government housing estates.

He said the cost would likely be about £50m and that this would be loaned, with interest, to the developers of the scheme.

But Mr Picardo was clear that this was a good deal for Gibraltar and highlighted long-term confidence in the economy.

He said the developers in the project were all well know individuals and companies – he named them all – who had completed many projects in Gibraltar under different administrations.

With the Victoria Keys reclamation, “…we have found someone else to pay for it, pay us interest for lending them the money to do so, and give us half the reclaimed land for free.”

“I am sure that most of our people will see the value in large scale projects like this,” he added.

“It is resoundingly positive for our economy, especially given the undeniable uncertainty that Brexit has shrouded us in.”

Mr Picardo said the confidence expressed by the local investors was in stark contrast to what was happening in the UK, where such decisions were being deferred due to Brexit uncertainty.

“Here we have local developers, with proven track records under all administrations, prepared to make long-term, large scale investments,” he said.

“What’s wrong with that? These are not people who are here today and gone tomorrow, they have roots in our community.”

The chamber during the debate yesterday

BREXIT

On Brexit, Mr Picardo defended his administration’s handling of this challenge and repeated his well-known position on key aspects including the tax treaty.

He also praised Prime Minister Theresa May for her “sensitive, committed and stalwart support” of Gibraltar throughout the process.

Mr Picardo said Gibraltar’s success in “cementing” its single-market with UK early on in the process had secured continued success in online gambling and financial services.

“It has been critical in steadying the ship after the referendum and continuing to attract new business,” Mr Picardo said.

The Chief Minister downplayed the recent bad news of the relocation to Malta of much of bet365’s Gibraltar operation – “I am confident we will continue to enjoy a long term relationship with that outstanding company and the professionals that lead it,” he nonetheless said – and insisted gaming jobs had increased from 1,900 in 2008 to 3,800 in 2018.

Likewise financial services jobs had increased by 37% to 4,068 since 2011.

“That is real growth that Brexit is not breaking thanks to the work we have done with the United Kingdom,” he said.

TEACHERS AND PUBLIC SECTOR PAY

Mr Picardo said public sector pay would rise by the rate of inflation this year, or just under 2.1%.
And he announced that the pay cap imposed on high earners in the public sector last year would not be repeated again this year.

Additionally, he said sums saved as a result of the pay cap last year – on public sector salaries of over £46,000 – amounted to £300,000 and were “easily affordable” given the budget surplus.

As a result, civil servants who missed out last year would have the relevant amounts included in their September pay packets.

“There was no Brexit shock last year and we do not need to deprive them of those sums this year,” the Chief Minister said.

Mr Picardo announced too that the government was ready to start consultation to abolish the abuse of zero hour contracts entirely in Gibraltar economy in all sectors other than where they are “a necessary and unavoidable requirement”.

And in respect of the teachers’ pay claim, he said he had now received an interim report from PriceWaterhouseCoopers and was “…now ready to start the process of engaging more fully on the issue of the pay claims that are overdue consideration and settlement.”

He said he would seek to meet with the teachers’ union NASWUT Gibraltar the day after he returns from his annual address to the UN’s Committee of 24 next week.

“This is an opportunity to now settle also all the outstanding issues which we have with the teachers as the final, crucial piece in our education revolution,” he said.

“To ensure that the key stakeholders, our educators, are understood, their concerns are addressed and that their role in this process is recognised.”

“For that reason, I am will be asking the GTA NASUWT, pursuant to the offer to meet to resolve matters and my equally conciliatory approach, to put together a group to engage directly with me, the Minister for Education and our teams to address the detail of the pay claim they have submitted.”

“I believe that there is real mileage in understanding the underlying principles which the author of the claim set out to establish and to resolving these in the context of the modern, objective and fair system of education and schooling we are in the process of delivering not just for our children but for our teachers too.”

STUDENT GRANTS, MINIMUM WAGE AND OTHER MEASURES

Among the measures announced by Mr Picardo was an increase to the minimum wage of 10% from £6.75 to £7.50 over the next three financial years.

The increases will be staggered at the rate of 3.9% this year – double inflation – followed by 3.7% next year and 3.4% the year after that.

At the end of the three year period of rises to £7.50, the minimum wage will continue to rise by inflation.
Mr Picardo also announced an increase to student grants.

The grant for inner London will increase from £ 6,939 to £ 7,500 per annum, while the grant for outer London increases from £ 5,640 to £ 6,100 per annum.

General rates payable by businesses will remain unchanged and there will be no increase to electricity, water charges or Social Insurance. Likewise discounts for early payment will continue and increase in some sectors.
The Disability Benefit and Old Age pension will increase by the rate of inflation.

There were also a number of measures relating to single-use plastics and electric cars in line with the government’s bid to boost the so-called green economy.

Advertisement
mm
Brian Reyes
ADMINISTRATOR
PROFILE

Recent Posts

Today's e-edition
Advertisement