Jul 06 – Budget Speech By Roy Clinton
Mr Speaker
Introduction
In the aftermath of the Brexit referendum we live in “interesting times’” as the Chinese curse goes and so as this House debates Gibraltar’s Economic and Financial future we must be honest with ourselves and face reality.
The Budget debate in this Parliament has historically turned into something of a collective state of the nation address by both Ministers and Opposition members.
I would like the focus of the debate to ideally return to the financial numbers pure and simple.
On The Budget
Mr Speaker
The ideal budgetary position is that enshrined in what has come to be known as the Micawber Principle named after the character in Dicken’s Victorian David Copperfield who wisely observed:
"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
In other words we should not spend more than we expect to receive in any year or afford. We have been fortunate in Gibraltar to have reported budget surpluses year after year in recent times but as my learned colleague the Leader of the Opposition has correctly pointed out the size of these reported surpluses are decreasing and we must take care that expenditure does not overtake revenue if we are to avoid Micawber’s misery.
The United Kingdom has for many years run a recurrent primary budget deficit funded by increased borrowing and the Chancellor George Osborne has only last week had to abandon plans to reach a balanced budget and a surplus by 2020 due to the significant negative economic shock to the UK economy caused by Brexit. Our cousins in Bermuda have in the past allowed recurrent budget deficits funded by debt to get out of control and as a result are struggling not just to reach a balanced budget but also to reduce debt and the debt burden.
But how can we be sure we are truly living within our means in Micawber happiness? Can we really trust the surpluses reported are not in reality disguised deficits? Are our Finances as transparent as they could be?
On The Budget Surplus
Mr Speaker
Let us be clear how our budget surplus has been calculated, in the words of the Accountant General:
“The Government’s accounting system is ‘cash-based’, which means that the books reflect receipts and expenditure actually paid in and paid out during the year and no account is taken of amounts owed by or due to the Government at the year –end”
Put simply it is the total money received less the money paid out including any debt repayments as at the 31 March every year. In banking terms the amount your bank balance has moved from one year to the next ignoring unpaid bills.
In March 2014 the surplus was £61.1 million, in 2015 £51.3 million, in 2016 £38.8 million and projected for 2017 is a surplus of £ 20 .3 million.
So are these surpluses real?
The two questions we must ask are as follows:
Does it reflect all Government expenditure?
And: Has spending been curtailed before 31 March to improve the cash position?
The first question is a huge point of contention between the Government and Opposition. Historically members of this House will be aware that the Government only ran two main cash accounting systems under the Public Finance (Audit and Control) Act namely the Consolidated fund and the Improvement and Development Fund. The first being for recurrent income and departmental expenditure and the second being for capital projects “to benefit the social and economic development of Gibraltar”.
All funding for projects and Government owned companies was channelled through the Improvement and Development Fund. As my learned colleague the Leader of the Opposition has repeated warned the creation of Credit Finance Company Limited and the use of money in the Gibraltar Savings Bank to the tune of over £400 million has enabled this Government to fund capital project expenditure without the need to seek money from the Improvement and Development Fund. This would have inevitably caused the Government use up its reserves and ultimately to borrow more money. Perversely it has also given loans to repay Government arrears to debtors.
Normally all capital expenditure is reflected into the Improvement and Development Fund and yet the low cost housing at Eastern Beach that cost £ 76 million and the old coach park housing that cost a further £ 39.8 million being total of £ 115.8 million never appeared in the estimates. In addition the purchase of Gibtelecom shares in December 2014 which would normally have been through the Improvement and Development Fund in the amount of £ 37 million was paid by the Savings Bank.
The Father of the House the Hon Mr Bossano finally settled the question in February this year by adding to the objects of the Gibraltar Savings Bank the words: “preference shall be given to investments that will maximise the social and economic development of the community”. Thus the Government now has the ability to fund capital projects which do not appear in the annual Estimates book and thus are not reflected in the reported and projected surplus. This greatly diminishes the ability of Parliament to get a true picture of our financial health and brings any reported surplus into question and a makes a mockery of the Budget process.
As regards the second question, namely has spending been curtailed before 31 March to improve the cash position? The Chief Minister himself has admitted calling in all Heads of Department on the 5 December 2015 to control spending in the last quarter of the financial year. In answers to questions this month the Chief Minister has also admitted that the Government owed over £30 million of tax refunds to individuals and companies which if paid before 31 March would have reduced the reported cash surplus to only £8.8 million. There is further anecdotal evidence that payments to Government suppliers had also been delayed.
This Mr Speaker this what is known in accounting terms as pure “window dressing” to make the year end cash position look good by delaying expenditure and payment to creditors.
And so Mr Speaker I cannot really draw much comfort from the cash surpluses that have been reported and projected but perhaps I should be thankful that at least they are not deficits.
On Expenditure and Priorities
Mr Speaker
I would now like to turn to Government expenditure and priorities. My learned colleague the Leader of the Opposition has already described how recurrent expenditure is creeping up at a faster rate than income.
We need to keep an eye on that but I would first like to add my congratulations to the Financial Secretary for keeping overall departmental expenditure within Budget. I don’t know what the Chief Minister told the heads on department on 5 December but evidently it worked!
The devil however is in the detail and whereas overall departmental expenditure was within Budget there were some spectacular failures.
The bulk of Government expenditure is in Health and Education which correctly reflects the needs and aspirations of our community.
It was to me disturbing that despite a budget of £800,000 for the Dementia Day Care and Residential Centre in 2015/16 none had been spent on the first and only £10,000 on the second. Whereas I can understand the Health Minister’s argument that he wanted the best deal for the tax payer the fact that virtually nothing was spent in the entire year beggars belief. The budget for 2016/17 has now been set at £2.5 million, 3 times last year’s estimate. The Alzheimer’s and Dementia society will get some comfort at least from this and will no doubt continue to press the Minister to deliver this much needed project.
This specific underspend in 2015/16 by the Minister for Health is to be contrasted with the eye watering overspend by the Minister for Culture in the 2015 Gibraltar Music Festival. The Budget for which was £870,000 and the net amount actually spent was £2,250,000 representing an over spend of £1,420,000. Whereas I am sure Gibraltar enjoyed the event I wonder if all taxpayers would have been happy with such a use of their money or would they perhaps have preferred it going to pay for a third of the £ 6 million cost of Calpe House?
On an aside, and at the risk of being labelled a killjoy by my Parliamentary colleagues, it has come to my attention that Members of Parliament have in the past received complimentary VVIP tickets by the Music Festival Organisers. In my view this is totally inappropriate as we are here to work for the taxpayer and not party at their expense. In addition we cannot as a Parliament scrutinize expenditure while benefitting from it. The Leader of the Opposition and myself will not accept any complimentary tickets VVIP or otherwise from the organisers, we will be discussing this with our Parliamentary colleagues this side of the House and would encourage Members on the Government benches to do likewise and decline any complimentary tickets.
Coming back to expenditure, the point I am trying to make is that we need to ensure we keep sight of our priorities and target our spending accordingly. It will be small comfort to those struggling to pay off housing arrears to see that same money squandered on frivolities and merriment. We need to spend Gibraltar’s money wisely and appropriately.
On Rainy Day Funds
Mr Speaker
The Father of the House is fond of talking about rainy day funds and in this I can truly describe myself as his soul mate. A country such as ours with an open and small economy is vulnerable to economic shocks such as we may face in the unfolding post Brexit scenario.
We need to keep aside a financial buffer to soften any potential blows we may suffer. The Hon Mr Bossano is proud of the £100 million set aside in Community Care to look after our pensioners, but I ask myself what has been set aside for the young and the sick? Should we not also have rainy day funds for Education and Healthcare which are the largest expenditure areas in our Budget? How is the Government going to ask Community Care for its £100 million rainy day fund back if it finds itself short to fund health and education?
The Government needs to look after the entire community and not just one section of it. It needs to stop funding luxuries and start setting aside money in a general rainy day fund for us all. The Cayman Islands was set a requirement by the UK government to maintain a cash reserve or surplus that represents 90 days of expenditure. As at the 31 March 2016 the Consolidated Fund had a cash balance of £80.9 million representing 54 days we would need to set aside another £54.8 million over the coming years to reach the target of 90 days expenditure.
The Government needs to be honest, donating every last penny of surplus (now half) to Community Care may have been affordable in the past but I am sure even pensioners will agree that the young and sick also have needs and our new power station still needs to be built and paid for.
On Debt
Mr Speaker
A lot has been said in the past about Government debt. Whether of itself it is good or bad and whether it is affordable.
The Father of the House famously said last year that only the Neanderthals didn’t borrow and it was not the borrowing that was important but the use it was put to and if it could be serviced.
In this I again agree with the Hon Mr Bossano, debt is not of itself evil so long as it is affordable and put to good use. However ultimately debt needs to be repaid and we must be firm in our resolve to pay our own way in this world.
When I questioned the ability of the Government to meet its debt reduction target earlier this year, the Chief Minister immediately responded by stating: ‘I am confident we will meet the targets set out in our estimates’. Well Mr Speaker the forecast Gross debt at 31 March 2016 was targeted to be £400 million and it is now forecast to be £447.7 million i.e. no change to 31 March 2015. He has missed his target by £47.7 million in what was a confident statement that was made barely 2 months before the end of the financial year.
The Chief Minister was also confident that he would halve the gross debt from £ 520 million in December 2011 to £ 260 million by November 2015 and again in that he failed.
Mr Speaker
We need a comprehensive debt management plan for Government debt. This should see the setting up of a specific formula to put aside money into the sinking fund to provide for repayment and also of course ensuring the best possible financing rate for current and future borrowing. It should not be a matter of good luck or chance cash flows that we can repay our debts.
Mr Speaker
I was surprised to hear in the Chief Minister’s Budget speech this morning his announcement of the raising of £300 million of finance by what it looks like the mortgaging of 6 housing estates. The Government it would appear incorporated this company, which was called Gibraltar Capital Assets Limited, only one day before the general election on 25 November 2015, on the 22 April 2016 seven charges were registered against this company.
We’ve been told that this was an opportunity to benefit from current very low interest rates which come in it would appear at an average of 3.85% which is to be contrasted with the Bank of England base rate of 0.5% which may yet fall to 0.25% so it cannot be said to be the best rate going.
Now what we haven’t heard from the Chief Minister and no doubt he will enlighten us in his response at the end of the Budget session is what use he wants to put this £300 million to?
Is this £300 million to be considered part of our national debt? In which case it would explain why the public debt limit went up in February this year, or is he going to use this money to repay Government borrowing? but then again in the projection for 2017 I see no reduction in Government debt. So I think certainly members this side of the House would benefit from him enlightening us as to exactly what it is he is going to use this £300 million for? Bearing in mind he denied emphatically in January and February this year that he had any need to borrow any money at all!
The public will like to know the answer to that question.
And also of course the granting or the assignment, I don’t know how these leases got into Gibraltar Capital Assets Limited but I would like to know also what consideration was given for these was it for a notional pound? did they give good value? How much money did the Government get for these leases?
And also perhaps for those who live in these 6 as yet unnamed housing estates. They perhaps would like to know where is their rent going to go now? Is it going to go to Gibraltar Capital Assets Limited or is it still going to the Government or is the Government now acting as an agent for Gibraltar Capital Assets Limited?
And of course is the money from the rent even enough to pay the servicing cost of this £300 million that Gibraltar Capital Assets Limited has raised. All it is really is an asset backed bond probably with multiple maturities hence the average rate.
Obviously this side of the House we have only just heard about this today and we would love to hear a lot more about it in the future from the Chief Minister or indeed the Father of the House.
What is this money for? Where is it going to go? What are you going to do with it? And how are you going to repay it in future?
And in fact to put it into perspective this £300 million considering that our net debt at the moment is £345 million, I find it surprising that it is possible for a Government to more or less borrow almost 100% of its national debt without any reference to this House at all.
There has to be something wrong with that. How is that the Public Finance Borrowing Act requires that a simple bank loan agreement has to be tabled in the House? And yet the members opposite seem to think its fine to borrow £300 million without telling anyone.
This cannot be another Credit Finance! You need to be open and explain what you are going to do this money?
At the end of the day as you know it is not your money it’s the tax-payers’ money
At the end of the day it will be the tax-payer who will have to repay this money and not the members opposite who will be long gone and retired.
And so Mr Speaker I move on ….
On Transparency
Mr Speaker
Too often in this House when I have asked for financial statements or information the answer is no or get it yourself.
The Accountant General avows in the introduction to the report on the annual accounts for the 31 March 2014 that it is “the Government’s policy to promote transparency and accountability in public finances”.
Well Mr Speaker I regret to say that I have found little evidence of that policy in the short time since I have taken my seat in this House.
I have asked the Father of this House for detailed movements on the Sinking Fund and the answer has been no.
I have written to the Chief Minister asking for information that has been omitted from the 2016/17 estimates book specifically about the Sinking Fund and the forecast debt split between bank debt and debentures, and I asked for a meeting with him in this respect prior to the Budget; I am still waiting.
I have asked the Minister for Financial Services for the audited accounts of the Gibraltar International Bank to be given to Parliament when they are ready and his answer is to get them yourself. Mr Speaker the Financial Services Commission would have had them by the end of April and yet this House and the public is still kept in ignorance.
I have asked for audited accounts of Gibraltar Investment Holdings Limited the Government’s ultimate controlling company in February and the written answer I have been given was:
“Unfortunately, given that the former GSD administration failed to comply with the legal obligation to file accounts for these companies for a number of years, we are still in the process of catching up with the GSD’s failure to provide transparent access to this information.”
Mr Speaker it does not take four years to produce a set of audited consolidated accounts and it shows a lack of commitment to the ideal of transparency whatever past failures may or may not have occurred.
Mr Speaker this really has to stop. This is not a cat and mouse game between two political parties but the Government refusing to be held to account by an elected Opposition whose job it is to do so.
All Government owned companies need to have their accounts up to date, audited and filed at Companies House. If the Government truly had a policy of transparency and accountability in Public Finance it would table all such financial statements in Parliament. It also should advise when it incorporates new companies.
What on earth does the Government have to lose?
The Government needs to do more than pay lip service to a stated policy of “transparency and accountantability” it needs to be seen to be actively doing so. To this end I have tabled a motion to not only debate the findings of the Principal Auditors report but also to create a Public Accounts Committee.
Without wanting to pre-empt the forthcoming debate it is sad that the Government immediately sought to, as the New People colourfully put it, ‘Hijack “my motion by proposing a counter motion opposing the creation of a Public Accounts Committee.
Mr Speaker it is said that you are judged by your actions, and unless this Government changes its attitude, sadly it is evident that it has no interest whatsoever in either transparency or accountability and it should thus stop pretending it does. The electorate will have to judge for itself if this this the type of behaviour it wants from its elected Government.
On Forecasting
Mr Speaker
It seems to me that the only number the Government likes to forecast over more than one year is GDP.
The Estimates book only covers income and expenditure and our projected cash and debt position for the next year. It maybe that this is a hangover from colonial days but our economy is much more complex and sophisticated than that in the 1950s.
We need to consider where our future needs are going to arise and how we are to meet them. We need to prepare to financially meet those needs.
I would like to see the estimates book expand to cover a period of at least 3 years so that we can see if we are setting aside enough today for example to meet capital projects or other needs in future.
I would welcome any Government initiative or ideas from the Financial Secretary in that respect.
I understand that the Chief Minister has created a Gibraltar 2020 committee but I also understand that it has yet to meet. The Chief Minister needs to follow through on this especially given the recent Brexit scenario.
On the Minister for Public Finance
Mr Speaker
It has been my long held belief that the Chief Minister should not also be the Minister for Public Finance. I have managed to convince my colleagues on this side of the House but it would appear not on the Government benches.
It is a truth universally acknowledged ….or even a self-evident truth…that a Chief Executive Officer should not also be the Finance Director. It would certainly not be accepted in the private sector and generally it is not so in the Public sector …so why is it that in Gibraltar it should be any different?
There is always a tension between the Finance Director and the CEO ….between the realist and the dreamer.
We are entering uncharted waters post Brexit and I would encourage the Chief Minister to divest himself of the Public Finance portfolio and concentrate on the political negotiations ahead. The obvious candidate to take on the potentially thankless task is without doubt the Father of the House upon whom the Chief Minister has already bestowed the title of Titan of Finance and as recently as today described him as a “safe pair of hands”.
Having been personally described by the Chief Minister as the Shadow Chancellor I would welcome such an appointment and would I hope be able to work constructively with the Hon Mr Bossano in trying to navigate a safe passage through the gathering financial storm.
On Our Economic Model & Inwards Investment
Mr Speaker
Both the Chief Minister and the Minister for Inwards Investment have spoken of the impact that Brexit may have on our Economic model. The most immediate being the pause in the Chinese LED project.
At the risk of stating the obvious I trust that the Government has started a confidential consultation with all sectors of our economy to establish what is truly at risk and what can be done to mitigate that risk.
We need to preserve what we have and adjust where needed.
It is disappointing to hear that the Bluewater project is still delayed due to complex technical engineering problems. However the public needs to hear about the 1,000 low cost housing estates Bob Peliza Mews and Hassan Tercentenary Terraces and what the Government proposes to do in that respect. I of course welcome the Coaling Island reclamation project and look forward to hearing in due course what the position is for new Foreign Direct Investment and land projects.
On the Savings Bank
Mr Speaker
The Savings Bank is a very important part of our Economy since it holds most of our savings and is also now a declared source for providing finance for social and economic activities that benefit Gibraltar.
I would encourage the Government to publish the results of the Savings Bank on a more timely fashion and also include a statement of investments if any glossy type publications are produced for public consumption. It should also identify what element of deposits are Government related.
We may differ as to the impact using the Savings Bank money has had on Public Finances, but The Father of the House needs to stop accusing the Opposition of trying to undermine the Savings Bank as if was an act of treason, it is our duty to point out what is being done with the public’s money and we will continue to do so.
It is the Government’s sole cabinet collective responsibility to keep that money safe, and as the Leader of the House said today they need to look after that money as if was their own.
On Small Businesses
Mr Speaker
The small business community deserves as much support as it can get. The Government can help by providing start up support in the form of subsidised accommodation. Increases in business licence fees are a form of stealth tax.
The Gibraltar Federation of Small Businesses (GFSB) conducted a survey in February this year.
42% of respondents were concerned with the burden of regulation and enforcement following the introduction of the Office of Fair Trading.
The GSFB had this to say on the implementation of the OFT:
“ a welcome initiative, however the GFSB’s concerns regarding the implementation were not taken into account by Government meaning a substantial increase in licensing fees and companies who previously only needed one license now having to apply for multiple licences.”
A further 95% of GFSB members said that they were concerned about the impact of a potential Brexit on the local economy and their businesses.
The Government needs to do all it can to ensure it is business friendly and keep red tape to the minimum. It needs to take into account concerns expressed by the GFSB and the Chamber and not ignore them as they are key drivers of the economy.
On Heritage
Mr Speaker
I am pleased that the Government will not allow the Europa Tanks to be demolished and look forward to a similar statement in respect of Hargraves Parade and Rosia Bay. We should not allow our Heritage to be sacrificed on the altar of profit and progress.
The new Heritage and Antiquities Act is still to be launched as a bill and I invite the Government to add it to the Parliamentary agenda this year.
Conclusion
Mr Speaker
In conclusion, I have serious reservations as to how this Government has been able to report surpluses in recent years by use of money in the Savings Bank. We need to manage the money that we have in a more transparent fashion reducing waste and ensuring that we are targeting those areas of real need.
We need to build up a general rainy day fund to meet any future eventualities and I would welcome the creation of a dedicated Minister for Public Finance that is someone other than the Chief Minister.
We need to aim for Micawber’s happiness and maintain a balanced budget, and we need economic success to guarantee that happiness.
The New People summed up their expectations of this first post Brexit Budget as follows:
“we should not expect many give-aways and we should also expect a more rigid control in public expenditure. We have to find our feet before we carry on spending; this is a budget of consolidation and reflection for what the future might hold.”
I can identify myself fully with all those sentiments and trust the Government does too.
Thank you Mr Speaker.
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