There are signs, despite the lack of a budget, that measures to increase public revenues, which will cost each of us, but some more than others, are needed, as are public expenditure cuts, which will affect all, but also, some more than others.The government’s financial year ended on the 30th June, yet no budget meeting of Parliament is announced. The budget is overdue.
INCREASES SEEM INEVITABLE
One such indication is that the GSLP Chief Minister, Fabian Picardo, has said that the budget deficit as of 30th June 2021 stood at £137 million, that he would reduce it to £51 million in the coming year, and to nothing by the 30th June 2023.
Another clue, that there will be tax rises, is that Social Security Contributions have been greatly increased, already, ahead of the budget. The actual effect of these increases will be seen and felt in people’s salary and wage slips as from this month.
A third, that the GSLP have announced that Gibraltar has signed up to an OECD initiative to lead to a 15% minimum corporate tax for multi-nationals. Further, it would be politically unacceptable, and unsellable, to the electorate to increase personal taxes without accompanying these with increases in company taxes.
MONEY FROM WHERE?
Governments do not have many choices from where to raise revenues, although we will need to wait for the budget to see what the GSLP decides to do.
Governments are, essentially, limited to raising revenue (leaving increased economic activity to one side, especially in current circumstances, engaging Brexit and COVID) by increases to tax, rates, tobacco, fuel and import duties on other goods and to telephone, electricity, and water charges.
Expenditure cuts are another. There is much talk that financial taps are being closed everywhere by government. It will not be long before we see the impact of these cuts. There is a limit, however, to the savings that can be made, especially, when a substantial part of government outgoings is wages and salaries.
PERSONAL TAX
Increases in personal tax is what will bring in most the quickest under the PAYE system. It also provides a government with an immediate discount on all public sector funded wages and salaries. A pay cut may not be possible, but a hike on personal tax means that the cost to government of public sector pay is effectively reduced immediately.
There are also some sectors that have been unfairly advantaged. Whether or not it is politically expedient to reform these will need to be seen. Regarding personal taxes, pensioners have been advantaged, as indeed have non-Gibraltarians who have been granted special tax statuses. In the case of the latter, the concessions have impacted on the cost of housing in the private sector.
CORPORATE TAX
It seems unlikely that personal tax can be increased without similarly increasing taxes on companies. Politically there is little or no argument to defend one without the other.
Yes, the finance centre needs protecting for the overall good of Gibraltar’s economy and so on its revenues. There is, however, some elasticity, the corporate tax rate in Ireland is 12.5%.
In the corporate sector beneficiaries of Development Aid, namely wealthy property developers, have also been greatly rewarded, as indeed have wealthy property purchasers who have taken advantage of specific short-term property related credits and allowances given to them.
MONEY NEEDED TO COVER DEFICIT AND BORROWINGS
There is no doubting that Gibraltar PLC, be it the government itself or government owned entities, owes large sums in borrowings. There is no doubt that Gibraltar is running a budget deficit. Both must be dealt with.
Picardo has said the deficit will be gone in 24 months. We shall see because business alone will not recover sufficient to pay for that, either through employment, and so personal taxes, or through corporate taxes, which will take at least 18 months to yield any added money to the public coffers.
The public debt is a longer-term exercise, but it needs to be brought under control. That is more so in the new environment created by Brexit, and the longer-term economic effects of the COVID pandemic on tourism, and so business.
FAIRNESS
People should not be punished for the financial mismanagement of governments like the GSLP, which has been addicted to overspending, although inevitably, they will be, as money cannot be sourced from anyone else. Whatever measures are taken in the budget, we will only find out when they are announced, therefore, must be fair.
Fair includes the need for social democrat principles to be considered, especially by a government that is formed by a political party, the GSLP, which carries the words “socialist” and “labour” in its name. We shall wait patiently to see what surprises the budget will bring, but pleasant ones seem unlikely.
PICARDO NOT BOSSANO
We should remember that Sir Joe Bossano made very clear recently that he is minister responsible for the economy, not public finances.
Public finances are the responsibility of the Chief Minister, Mr. Picardo. So, people will know who to criticise if they do not like the coming budget package.
We do not have long to wait before the GSLP’s budget measures are announced. The budget is, however, unlikely to make pleasant listening or reading, but we shall see how ‘disagreeable’ it will be.