*High cost of public borrowings on the up and up
*No more easy government for any Chief Minister
*Higher interest rates mean public debt costs more
*Mortgage and borrowing cost increases will hurt many
*Increases come on top of higher tax and electricity and water charges
*Government can only turn to voters to pay more
*More government borrowing is difficult
*Private sector help from government not available
*Silence from all political quarters
*Will GSLP-Liberals change leadership
TMES THEY ARE ACHANGING
Interest rates are set to rise in Gibraltar as they are tied to UK rates where they are fast going up. Higher rates will make Gibraltar’s already hard-pressed public finances even more difficult to handle. Consequently, and taking account of other factors, the job for anyone who is Chief Minister and for all those who are in Government will be more difficult.
The political scene in Gibraltar is getting more interesting as a result. Does Chief Minister, Fabian Picardo, want to carry on and face that perfect storm facing Gibraltar? Do the GSD or TG have any alternative policies for the coming financial storm? Those questions remain unanswered but the feeling in many circles is that Mr. Picardo’s and his Government’s term is up.
INTEREST RATE HIKE
Increased base rate over the next few months will substantially raise the cost of Gibraltar’s direct and indirect public borrowings, as well as those of private borrowers in Gibraltar with outstanding home mortgages and private borrowings.
The increase is foretold by signs coming from the Bank of England that it will be upping UK base rates over the next few months. The plan is to raise rates to protect sterling (Gibraltar’s currency also) and control inflation. They are expected to be ‘significant’ upward movements over a short period of time.
Currently the Bank of England has increased base rate to 2.25%. Pressure to raise it further comes from a desire to keep inflation at a maximum of 2%; inflation is currently running at about 10%. There is an estimate that base rate could reach 6% towards the end of the first half of 2023.
MORTGAGE AND BORROWING COSTS
A huge number of people in Gibraltar have mortgages to purchase their homes, as well as personal loans and credit card debts.
Those individuals on tracker and variable rate home mortgages will suffer increases immediately that the Bank of England raises base rate. Those on fixed rate home mortgages will be protected for the period that their rates are fixed but they will suffer a large increase at the end of that period.
Personal loan interest payments will go up at the same time as base rate increases. Those rates are hugely higher than home mortgage rates, so the change will impact on borrowers substantially.
NOT A PRETTY PICTURE
All in all, a vast number of people will feel the financial pinch in their pockets, after they have already suffered higher income tax payments, which reduce their take home pay. In addition, families are having to meet the higher cost of electricity and water.
Prospects for the future do not paint a happy picture. International pressure is mounting adversely with inflation meaning that many basic goods will cost people more and more over the next few years.
At a local level the public finances are in deficit. The picture does not look good to achieve a reversal of that. The cost of financing direct and indirect public borrowing will shoot up as interest rates go up.
The cost of public services will rise with little commensurate returns. The value of the pound has plummeted against the Euro, so the cost of purchasing items in Spain has also risen.
The likelihood is that pay rise demands will be on the increase as people seek to recover their standard of living that they have become used to. Trade union activity will become more militant with substantial wage rise demands.
GOVERNMENTS HANDS ARE TIED
In the UK the Chancellor of the Exchequer in his mini-budget last Friday, leading to much criticism, announced £45 billion of tax cuts. Those will be funded from higher borrowings.
Irrespective of the arguments of whether the UK policy is right or wrong, the GSLP-Liberals cannot follow that same strategy in Gibraltar. They do not have any room left to borrow more to fund any tax cuts. The opposite is true more tax rises and other increased government revenue sources paid by all of us are looming.
The last tranche of public borrowing, a massive £500 million, had to be guaranteed by the UK. The GSLP-Liberal spin was that the guarantee had allowed for the borrowing to be at lower interest rates. Reality points to difficulty to have borrowed without that guarantee.
FURTHER BORROWING TOUGH
The trouble faced by Gibraltar in raising further public money from borrowings is shown also by the rises made in the last budget. In truth they were not enough.
People should prepare themselves for bigger and more widespread increases after the next general election, if the GSLP-Liberals can hold back from having to do that before.
Those public cost and tax hikes will be needed for Gibraltar’s public finances to be balanced and to pay for the increased cost of direct and indirect public borrowing. The irresponsibility of having borrowed so much in the past will soon be seen and understood.
It will be especially so when the UK guaranteed last tranche of borrowings amounting to £500 million runs out. It will not be long before that happens as the current account deficit continues. The GSLP-Liberals do not seem to be finding a way to fund the public current account deficit, which repeat themselves annually.
PRIVATE SECTOR
It is the resolute private sector that continues marching on trying to create and provide wealth and employment to Gibraltar. It is unlikely to go forward unscathed, however, not least because consumers will have less disposable income as their fixed costs keep going up.
Unlike what is being done in the UK to help business, there will be no room for the government to do the same in Gibraltar, as there is no money in the public coffers from which to pay for any such measures. The truth is that the private sector will be faced not just with higher government costs but with wage claims.
POLITICAL SILENCE
There is no word coming from our Finance Minister, Fabian Picardo, about the realities being faced and to be faced soon by our public finances and economy. Undoubtedly factors affecting most economies in the world are exacerbating the situation, but his past unaffordable extravagances have meant that Gibraltar is in the weakest possible position to meet those challenges.
Mr. Picardo’s and his Government’s silence is matched by their equal silence on the most important issue facing Gibraltar in decades, namely the Gibexit talks between the UK and the EU. There is no doubt that if there is no Gibexit ‘deal’ Gibraltar’s economy and public finances will be hit even worse.
It is not too tough to say that it all points to an element of irresponsibility by the GSLP-Liberal Government. Or just perhaps what it reflects is either fear or lack of courage to say what Gibraltar faces as it will lessen the electoral chances of the GSLP-Liberals, which they have bought with their extravagances using our money.
There is one harsh reality that will have to be faced. The financial position will be what it will be irrespective of which party is elected to government in Gibraltar next. Significantly neither the GSD nor TG say a word about what they will do to put right the likely decimated state of Gibraltar’s public finances.
The measures needed will prove to be too unpopular to encourage election. There again, election without truth will result in a short one term in government.
TIME FOR LEADERSHIP CHANGE?
To be Chief Minister whilst there was in his eyes plenty to give away was easy For Mr. Picardo. The going is getting tough now, not just on the issue of public finances and the economy, but on the Gibexit front also. The word on the street is that Mr. Picardo does not want to carry on in office.
Reality points to his having to see the Gibexit treaty talks out, but that does not mean that he must see the consequences of a treaty or no treaty out, nor does he have to see out all the economic and public finance problems that are here already, which will only get worse.
Is he going? Will he pass the baton on to his deputy Joseph Garcia, leaving the door open for Nigel Feetham soon after?
Joseph Garcia is certainly being allowed more media prominence. His recent and ongoing visit to the Labour Party Conference is a prime example. We will need to see if that will be repeated in October at the Conservative Party Conference.
In the meantime, Nigel Feetham’s rebirth as a member of the GSLP is significant, as is his continuous political commentary online, and a recent opinion piece in the Gibraltar Chronicle. Is he being groomed or grooming himself to take over after a short spell of Joseph Garcia as Chief Minister? It will prolong the Hassans hegemony in Gibraltar.
As the Chinese saying goes, “may you live in interesting times”. We are certainly there right now. We can only wait and see but perhaps the care that should have governed our public finances that has been preached on this blog for years should have been heeded by those who have governed us since the GSD took over from Sir Joe Bossano’s GSLP Government.