Jun 29 - Minister Bossano Budget Speech – Full Text
Introduction
Last year, in my contribution Mr Speaker I concentrated on how the Ministry for Economic Development assessed the impact of the UK decision to withdraw from the European Union on the global, EU and Gibraltar economies, especially in respect of our ability to achieve the target in the four-year National Economic Plan.
I expected to be in a position to update that assessment this year based on the developments that would have taken place in the preceding 12 months.
However, the goalposts have been moved, if not indeed, altogether removed, by the results of the UK general election, which without a doubt have both a political and an Economic impact on us.
I am sure members are familiar with the saying that a week is a long time in politics. The 8 weeks between the April notification and the UK General Election in June has been a millennium in terms of the changes in the context of Brexit.
If it was difficult to hazard a guess a year ago, let alone make a prediction, the position now is one of sheer impossibility.
As far as Gibraltar is concerned, there is still the same government in UK and the commitments made before the elections still stand. Moreover, the better performance by Labour candidates has meant that all our staunch supporters are back in Parliament, whereas at the beginning it looked as if many were at risk.
So the political effect on us from the changed composition of the Commons is not necessarily negative since, in addition, the Democratic Unionist Party on whose support rests the survival of the Conservative Government, are staunch past supporters of Gibraltar’s right to remain with UK.
However, the negotiating position of the UK government is considerably weakened given the inevitable consequences of the platform on which the election was called and fought.
In the UK the Prime Minister asked for a strong mandate and argued that unless she got one, the UK would not get a good deal from the EU. Since the mandate has not been obtained, the prospect of a good deal has been reduced by definition.
The good deal would have been the deal that would provide economic benefits and reduce political liabilities, and even though we might be excluded by the disgraceful position of the 26 member states, that capitulated to the demands of Spain at our expense, it would still have been better for Gibraltar that UK should have a stronger economy rather than a weaker one.
However, in UK itself following the newly elected Parliament, not everyone is agreed on what is best for the UK economy. The official line still is that “no deal is better than a bad day.” However, the bargaining chips and the positions have now changed.
The first meeting at the start of the negotiating process has seen the EU rejecting what the UK considers a very generous offer to grant EU citizens already in UK, permanent residence if they were already there on the day the article 50 button to leave was pressed and triggered the process. The EU wants that date to be at the end of the negotiating period, which is the departure date of March 2019. If the U.K.’s offer applies to 3 million EU nationals, then a date in two years’ time, with no limit on movement beforehand means potentially a much, much bigger number and this is the first and immediate hurdle. There are going to be many more to content with, leaving UK in the most disadvantaged position that it is possible to imagine with a united 27 EU states with a single policy position and on the other side of the table an internally divided UK with a precarious government in place.
Some observers see this situation as a possible opportunity for a new referendum and a different result.
Nothing can of course be ruled out, but I would not put my money on this option materialising.
Already there is a clear move by Germany and France on further integration of the EU in areas, which UK would have objected to before the referendum.
The recent early recovery of the EU and Eurozone economies, with unexpected signs of growth, although at a very low level has encouraged EU member states collectively to start thinking that maybe they would be better off without UK, after all. The comparative economic performance of the EU 27 on the one hand and the UK, on the other, will have a considerable impact on the negotiating process.
For UK the danger is the difficulty in being a minority government having wanted to take a strong line.
At present, these issues are being reflected in the weaknesses of the exchange rate which looks set to continue. This is helping the UK manufacturing sector, with record exports being achieved and very high order books, but manufacturing is no longer the dominant sector of the economy.
The weak pound has an effect on our own economy as well and may be of benefit in terms of our prices for visitors from countries other than UK. The strong performance of the private sector in the last financial year, however, may not be repeatable in the current year, but there are so many imponderables that it is possible to make any kind of sound judgement.
In terms of the existing economic model, we need to continue developing the initiatives and the areas of the economy that are showing growth until we are better placed to be able to assess what is the most likely outcome in two years’ time. Training for Employment
The number of persons in employment is one of the indicators of the direction in which our economy is heading, as is the level of earnings. It is also an important factor that reflects the success we are having in filling job vacancies from the available local workforce, as a result of the apprenticeships and other initiatives under the Future Job Strategy.
Last year I made clear that although the EU funding will be lost if the predicted 2019 EU exit takes place, this will not affect the available resources since the government is committed to ensuring that we continue to provide the financial resources, to back up the Training for Employment initiatives.
As was clear in answer to the question in the earlier part of this meeting, these initiatives since 2012 have provided an average success rate of over 66% to date based on unemployed persons being taken on by the placement providers following training, skills enhancement or apprenticeships.
The vocational training scheme under the GSD government claimed a 28% success rate in jobs take-up after leaving the VTS system. In 2012, the Leader of the Opposition argued that the results of the new system were no better than theirs on the basis that 28% of those who had started in February and had obtained employment by end December, 11 months later. This, however, as I explained at the time and in answer to questions at this meeting, was because the new condition of a commitment to employ could not be required of private sector employers who prior to January 2012 had no obligation to employ trainees for whom they had provided placements. This meant that in 2012 many of those who had transferred to the new system had no offer of employment and no prospect of such an offer from their placements from 2011, they therefore had to be redeployed to public sector placements until a new position in the private sector, suitable for them and their skills was identified. Which is what happened in the years that followed.
As I also made clear, repeatedly, in answer to questions trainees placed in the public sector did not have a priority for vacancies but had to compete with other applicants from outside the public sector when such vacancies were opened. The exception to this rule was, and continues to be, the apprenticeships that were commenced for carers whose trainings enabled them to take up employment in the Care Agency. I remind members Mr Speaker, of why it was so important to introduce these apprenticeships.
Before 2011 the criteria for employment in the Care Agency was a requirement for care specific qualifications or evidence of having worked in a care environment. For example, in an elderly home. Although the GSD Government professed to be committed to prioritising job opportunities for the local unemployed, it was impossible for the local unemployed to meet these criteria, but relatively easy for somebody from outside Gibraltar to appear with a letter showing a record of employment in the sector. This led to a situation of increasing dependence on outside labour as local people were replaced on retirement from the only source that met the criteria. By introducing the training programs for carers for people previously unemployed and with no previous experience, we have been able since 2011 to reduce our dependence on frontier workers in an area where it is particularly important in the light of not knowing how the fluidity across the frontier will operate after 2019.
This year a similar facility for apprenticeships for nursing assistants was introduced by the training company and those completing their training are automatically assured of a position as nursing assistant, the present group will in fact be taken on next month.
By 2013/2014 the average ratio of persons completing their period of training and then being taken on had risen to around 60% and the latest ratio of those obtaining employment on leaving the training programs, up to April this year, is now over 66%.
Mr Speaker, I am not sure whether the divide between the two sides of the house in the area of training is real, or simply the consequence of the difficulty members of the opposition may have in accepting that they were wrong in predicting in 2011 that we would fail in our Employment Strategy.
I am prepared to give them the benefit of the doubt that when they first took that position in 2011 they were genuine. After all, if they had failed to achieve results in their 15 years under the leadership of the greatest living Gibraltarian, why should they believe we would do better?
However, later in 2012 in the debates on television in which the Leader of the Opposition participated with me, then as spokesman for employment, he was honest enough to say that although he still believed I would fail to deliver the employment and economic growth targets that I had set myself, he would be happy if I proved him wrong for the good of Gibraltar.
Well, Mr Speaker, I have proved him wrong.
So why are they saying after the General Election of 2015 that the strategy, has been a failure?
Last year the Hon Mr Phillips told us, "it is no secret that we are fundamentally opposed to the Future Job Strategy, it fails to deliver what it says on the tin. It is reactive, inflexible and inspires us with little confidence that the Government is committed to the delivery of skills for a modern work force”.
Another member said, “Hear... hear....” I don’t remember which member it was.
Well Mr Speaker, the strategy does deliver what it says on the tin, that is what I wrote on the tin, not what they choose to re-interpret to use against us.
The first reading of the label of the tin by members opposite was that I had promised unemployed persons not just a job in the government owned company, at the national minimum wage, whilst in training but a job for life in government after that which of course was never true and has not happened.
The next rendering of the tin label was by the greatest living Gibraltarian himself when he asked me to acknowledge in parliament that when I failed to get trainees employed in the private sector, I would have to keep the trainees in government permanently because I should know those were the political realities.
Well, we might have faced this dilemma if the private sector had not cooperated by entering into legally binding partnership agreements and if the agreements had not provided for full reimbursement for failure to employ.
Of course it is possible that their scepticism was the result of the experience of the GSD in government when they only managed to get 28% of their trainees into employment and considered this a great achievement and success, anticipating we would do no better.
The next objection of Mr Phillip’s was that their view what we need is real “training”, well Mr Speaker we are training nurses and carers, mechanics and electricians, welders, maintenance craftsmen skilled in masonry, tiling, plastering, painting, carpentry, and plumbing. We also train bus, coach and truck drivers. All unreal. We have a Gib Doc facility and a Construction Training Centre which we created in 1996, the GSD operated them between 1997-2011 and we took over again in 2012, so, these entities and these training programmes the opposition believes provided unreal training up to 1996, switched to real training in 1997, switched back to unreal training in December 2011 and all the professionals employed in the various stages of the training programme are impatiently waiting for Mr Phillips and the GSD to get elected into government, so that they can switch back again to real training.
It is difficult to describe something more detached from reality that the above.
The Hon Member also said commentators had called the Training soviet style.
Alongside the training provision where my Department is investing in skills creation for the benefit of the private sector and the economy, we have the requirement in the approved contractor list, also operated by the Ministry for Economic Development in support of the Procurement Department. If public funds are being spent in procurement of goods and services, it seems reasonable that we should require the providers of such goods and services to be approved and require them to give priority of employment to the local unemployed, given that this employment in the final analysis is the result of publicly funded demand for goods and services. It is fair and it makes economic sense.
This is something that has on one occasion, to my knowledge, been described as Soviet style, and I understand why. The approved contractor concept as I have explained in the past required the employer to accept candidates selected by the employment service and requires the private company that employed the candidate to seek the permission of the government to terminate such employment during the life of the contract. I accept that this sounds quite Draconian, even though I welcomed it when it was introduced, on paper at least, in 2010 by the greatest living Gibraltarian. Who whatever other characteristics he might have had, could not have been described as an admirer of the Soviet system. Unless, that is, one thinks that the Soviet system operated on a dictatorial style. So I am sorry to say that it is my assessment that the member opposite just strings a set of slow gains together because he thinks they are good soundbites without rhyme or reason.
He downgrades, in his thinking, our strategy by saying that we are determined to pursue a policy of "plugging the skills gap" as if this were a bad thing. In the last election, he was saying that the problem was that there was a skills deficit, which we needed to meet.
So is that the difference between us filling a gap in skills and he wants us to meet a deficit skills! He says I do not understand the message, he is right; I do not understand the message. Nor does anybody else, Mr Speaker.
He tells me. "We need to focus on sowing the seeds of growth, even though the green shoots may not be visible for some time."
Is the honourable member talking about the Gibraltar economy or the Greek one?
Green shoots, Mr Speaker, is a terminology used about an economy in the recession, expecting to show barely visible signs of a recovery. The Gibraltar Economy is not showing barely visible green shoots, the Gibraltar economy is showing an expanding rainforest.
The economic growth in private sector employment in 2016 when he was talking about barely visible green shoots has been greater than in any of the 15 years that the GSD was in government.
Mr Speaker, the Hon Mr Phillips is wrong when he says I am not prepared to engage with him. My failure is not because I have tax-free rose tinted spectacles as he claimed last year, my spectacles continue to be plain vanilla NHS high street Boots, typical of the working classes. In fact I didn't even know rose tinted ones existed.
My failure to engage is much more simple. There is nothing to engage with him on, because he's not able to substantiate what he says and I do not believe him. He said in 2015 employers were crying out for apprenticeships. Since the general election, he has been incapable of delivering these employers. I said, they do not need to be to crying just to contact me. I am available seven days a week and no employer has asked to see me to take on apprentices and been refused a meeting. He says this is not true, but will not give me one name of one employer. I have said to him to get in touch with them and ask them to contact me, no result. I invited interested employers in my budget speech last year to do so. No one has taken up invitation to date.
He says there are companies that have approached him, having previously approached me or my Department, with nothing less than I quote, “impressive plans for creating opportunities for young people,” but that they tell him that my Department is not interested. I can assure him that if this had happened, which I do not believe to be true, the person that showed no interest without making me aware of it would have to answer for it. He says that these companies care about providing opportunities for young people and getting Gibraltarians into the IT world.
Who are they? No one other than Mr Phillips knows. It is the best kept secret in Gibraltar.
I challenge him to ask permission from the companies to let me have copies of their impressive plans, which in any event, he says they claim I already have, but I'm not interested in.
Why should I not be interested? No, Mr Speaker there is not one word of truth in any of this. My Director for Economic Development has written to over 800 employers asking them if they are interested in taking on apprentices. These are employers registered with the employment service as having more than five employees. They have been selected because they do not include those already working with us and because below a level of five employees, it is difficult for an employer to have the resources to take on apprentices.
He says if I follow his advice, which I cannot because it is not specific enough, we can make, we quote, “Gibraltar an even better proposition, just as Tel Aviv and Budapest have done." Well what is it that they have done in training people for employment, Mr Speaker?
I can tell Hon Members that the only thing I have been able to find is an entity that claims to be the biggest training provider in both places. It is the same entity the Knowledge Academy of Hungary and the Knowledge Academy of Israel. It claims it is the largest training provider in Hungary and its counterpart in Israel claims the same. They claim to provide motivational training.
I do not know if this is what the member thinks is required quote to “unlock and harness the opportunities that young people present".
But if he sends me what he says is happening in Tel Aviv and Budapest that we need to imitate here, I will certainly have it investigated.
I am not sure whether these initiatives are the ones that will rid the community of the culture of entitlement and expectation that has become so endemic in our society, as he points out. Certainly, if it has become endemic, it was not endemic in 1996, but I can give him chapter and verse if he wants of the more incredibly irresponsible initiatives introduced by the GSD in the 15 years which helped to cultivate the culture, are extremely difficult to reverse and have created severe existential risks for the future success of our economy.
I do not know where Gibraltar will be in 20 years Mr Speaker. I do not even know where it will be in three years in 2020, but if the Hon Member thinks he does, again, I am happy to assess where the growth of our economy will come from in 20 years’ time if he has the ability to carry out such an exercise.
I would like also to comment on some of the issues raised by the Hon Mr Clinton last year in relation to the accounts and the use of companies.
I welcome the fact that on the need for a Rainy Day Fund, he describes himself as my soulmate and also welcome the support for the concept from the Leader of the Opposition. This acceptance of an initiative that is in the long-term interest and for the protection of our country is essential and regrettably did not exist under the previous leadership of the GSD, who shortly after coming into office rubbished the idea, saying I was hiding things in piggy banks. He then promptly emptied all the piggy banks, as he called them, so that he could start spending the money. He then engaged in a continues use of public funds to deliver things which he thought would get him votes in spite of the fact that he was doing it by emptying the war chest that had been built up from nothing over a period of eight years.
The Rainy Day Fund was a relatively these new idea then, in 1988. The closest parallel was the sovereign wealth funds that a number of countries build up by putting aside a part of their revenue streams either because of their small size or because of the narrowness of their revenue streams. We suffer from both limitations when public revenues are high, public expenditure needs to be kept under control so that if a sudden unexpected change affects revenues, essential services can be kept going. The classic contrast is what Norway and UK have done with their supply of hydrocarbons from the North Sea. The first has built one of the strongest sovereign funds in the world. The latter spend the money on meeting recurrent public expenditure.
The Rainy Day Fund policy does not serve the short-term prospects of the politician of the day, who is only interested in vote catching and the chances of re-election. But it is vital for the long- term survival of the country and therefore I am very glad that the policy should be subscribed now by members on both sides, and that both should support and defend this concept and not allow an incoming government to simply spend in one go what has taken years to build up unless of course it is used for what it is intended namely to preserve essential services that at risk from an expected drop in revenue.
With Brexit looming in 2019 there is no better time than now to understand the importance of the concept.
I will not go into the differences between members on opposite sides as to where the funds should be kept, but I need to remind members of what happened to the Community Care War chest. The GSD toyed with the idea of taking the accumulative fund from the charity in 1996, but then settled for a more surreptitious strategy revealed publicly in 2010, which was running it down by withholding first recurrent costs payments and later capital protection payments. Both actions involved breaking electoral promises and commitments given to this Parliament.
If that money had not been in the hands of the charity and easier to get at, it would have disappeared at the beginning of the 15 years instead of at the end.
So is it is a very healthy development for the long-term future of our nation that the competition between the two sides of the house becomes one, over who will save more instead of over who spends more as it has tended to be when the greatest spending living Gibraltarian was running the show.
When the Leader of the Opposition has been praising my cautious approach to spending and accusing the Chief Minister of not listening to me. He sometimes gives the impression that is trying to get us to quarrel. He does not need to do this; he should remember that quarrelling amongst ourselves has always been the way we do things in the GSLP. In the government, as I am the Father of the House, like a good father, I always urge my colleagues to be careful with how they spend the people’s money.
I also want the Leader of the Opposition to understand that is wrong about what is happening with the commutation of civil service pensions, since this is something which I am responsible for, as I devised the system and I am glad that last year he said it is a jolly good idea. I am not sure today if he is still of that view. I will just give him a figure to take note of. The cost to the government in the budget of civil service pensions in 2010/11 the last full year before Credit Finance came in with the new system was £27 million. The estimate cost for the current year is £38 million.
Another issue raised by the Hon Mr Clinton has been the use of companies. He said last year. “Normally all capital expenditure is reflected in the Improvement and Development Fund and yet low-cost housing never appears in the estimates,”
Perhaps what he meant was, normally, prior to 1996, approved capital expenditure used to be reflected in the Improvement and Development Fund and to my party came into government and started using government companies.
Perhaps he did not know this and did not intend to hide it. But if he did not know it, he could have asked the current leader of the GSD because it was happening in 2010 and 2011.
However what he must surely know is the even bigger picture, because that has featured in previous debates and in the election campaign. This is that there was a program of capital works of the order of £1.5 billion which was not going to feature in the Improvement and Development Fund. This was to be managed by a private company which had a commission on the whole value of all the contracts put together. This was going to be financed by raising money through government companies, thereby not being recorded as public debt. That all this was being done by the GSD when the present Leader of the Opposition was a member of the government means that although we knew nothing of the details of this until December 2011, he must have known it. Presumably the Greatest Spending, living Gibraltarian trusted him sufficiently, having anointed him as his successor, to have shared information with him, and if he didn’t, then maybe the present leader of the GSD may wish to revise his assessment of his predecessor and decide that he wasn’t the greatest living Gibraltarian after all, just, the biggest spender of all time. If the Hon member opposite does not know the details of this £1.5 billion package then he should ask the leader of the party because I seem to recall that during the debates on GBC TV the GSLP Leader gave him a copy of the document that we had found in 2011.
In 2009, for example, government companies were spending £47 million which did not feature in the Improvement and Development Fund the bulk of the money being spent on housing projects. In 2010 again £31 million was programmed to be spent by the companies and outside the Improvement and Development Fund. In some instances, for example, car parks, this was started in the Improvement and Development Fund, then moved out and put under a company that raised money from the bank, not public debt, on the strength of the expected revenue yield from car parking. However, when the banks decided that the revenue yield of the car parks did not meet the criteria for providing the finance the project was switched back to the Improvement and Development Fund.
The Hon member therefore needs to understand what we inherited from his party in government in recurrent commitments and in capital commitments. That we have had to honour, and meet vastly inflated costs compared to the original estimates. Things I would have strongly opposed if they had formed part of our manifesto. It is also true that in many instances we have carried on using the same private sector consultants to manage new projects and they have proved as incapable of containing costs for us as they were for the GSD administration. My additional responsibility for procurement and public sector efficiency will this term I hope deliver better results.
I welcome also the fact that Mr Clinton agrees with me that debt itself is not an evil. My position in the 45 years I’ve been here on either side of the house, has been the same. We may need to have a debt ratio because that is the norm that exists, and is established for country to country comparisons of the level of indebtedness. The EU standard was 60% of GDP and it continues to be the theoretical level that EU members should get back to. Ours is 40% of GDP, which is considered in today’s world, a very low figure to have to keep when in practice, are well below this level.
However, the racial terms are nothing about the exposure. The UK this year is borrowing £65 billion to cover its deficits. Nearly every country in Europe uses debt to meet recurrent expenditure. We in Gibraltar since the GSLP Government introduced the concept in 1988 have limited borrowing, irrespective of the level to the financing of capital projects.
The golden rule on borrowing for investment is and has been one of the fundamentals of the GSLP economic policy. The other is that the use of borrowed money should be to increase the economic potential of Gibraltar or to yield a return that services the debt.
I would like to address the issue raised by the member in respect of public accounts estimates, et cetera. His position when we compare his criticisms with the performance of this party in government is that we must not go back to the past. Other new members tend to say the same. Can I therefore remind him and them that the GSD spent most of their 15 years comparing everything with the past? It claimed to be doing better than the GSLP between 1988 and 1996. The member’s response would be because the GSD did this it does not mean that we have to do it. He is right, of course, we do not have to do it and we don’t do it as often as they did, and we certainly are not doing it when it is not true. On the public debt, for example, the GSD government claimed that the net debt was at a lower level than that at which we had left it in 1996. This, even though we left it, when calculated using the methodology, so how could they have a lower level than the one we left, Mr speaker? We will certainly not wish to make any comparisons as stupid as that. But if in government the GSD spent 15 years running down community care, and promised in an election campaign propose to close it down then it is legitimate to mention this whenever you criticise what we are doing in relation to the independent charity.
The Leader of the Opposition has said that this is no longer the policy of the GSD, but he needs to remember that he was part of the government when allowing community care to continue was described as a ticking time bomb that would blow up our economy. Let us take the honourable members comments last year that we have to change our public accounts system because he thinks that it should be so. If the honourable member questions whether we put enough money into the general sinking fund, he needs to remember that we set up the general sinking fund before 1996 and his party got rid of it after 1996. So the GSD in government in 15 years never had a general sinking fund to repay debt.
We have a manifesto which says to the electorate, things we will do if we are elected into government. This is how the political system of Western democracies work this is not just what we are entitled to do in government, it is indeed what we are required to do even the members that have lost the election do not agree with us. We have not sought a mandate to implement the things that are in the manifesto of the party that loses the election and goes into opposition. Even less do we have a mandate to change the public accounts system that had been there for the last 45 years, which is a major change in the management of public finances which features in no one’s manifest. Most countries have cash accounts for government revenue and expenditure and Parliaments approve spending on a 12 month cycle. This has nothing to do with a hangover from the colonial days, or the fact that the economy is now more complex and sophisticated than in the 1950s as the Hon Member suggested last year. The revenue and expenditure of the government has nothing to do with the sophistication and complexity of the economy other than that in the expenditure there could be an item to deal with areas of the economy that are new and where not there before.
The methodology of annual budget applies to most other countries, irrespective of whether they have had a colonial past, whether they are large or small, or whether they have complex or simple economies. If we were covering three years of expenditure then this year out would be his last budget speech and would now be the expenditure projected to 2019/20, in the middle of Brexit.
Does he not realise that it is difficult enough in a small open economy like ours to be able to come up with realistic estimates of revenue, and that we cannot always keep the expenditure under control as we should and would want to. Trying to do it for three years or more is a crystal ball gazing exercise, not a matter of sensible accounting practice.
As to why the government only forecasts the GDP for more than one year and not other items of government, revenue and expenditure.
Well, first it is not the government that does it; it is me in opposition or me in government and in order to be able to do this with a degree of accuracy one needs to devote many, many hours to charting the correlation of the indicators that provide pointers to economic performance.
The figures that the government publishes in the estimate book are the result of treasury expectations on revenue and departmental projection of costs by controlling officers.
The methodologies of the GDP and of the public accounts are two totally different things.
Only that the greater the economic growth the more likely the government revenue will benefit, but there is no guarantee that this will be the case as there are too many variable involved.
The Gibraltar Savings Bank
Mr Speaker, I am happy to report that the Gibraltar Savings Bank, the People’s Bank, continues to prosper and grow. Mr Clinton says that their attacks on the integrity of the operation of the Savings Bank should not be castigated by me as if it were an act of treason. Well, it is not an act of treason simply because it is failing to achieve its aim.
During the general election they came out with propaganda that painted a picture of the Savings Bank operations being raided as if someone was making off with the deposits from the public. He has been a banker and he knows exactly what he’s doing by suggesting that money in the GSB is not safer than in any privately owned bank.
I have explained the rationale, I have explained that it is a key element of our economic strategy and a key constituent of our economic growth, I have explained why and how we do not have liquidity problems, all to no available.
In other areas of debate, on the economy, the labour market or the structure of government accounts I might be willing to make allowance for the fact that they deal with issues which the honourable member was not familiar with before coming here. But on the Savings Bank, there is no excuse; he knows full well that his criticism is baseless and that if it were believed it would be very damaging.
Therefore, as I say, if he had been successful with the scaremongering the public would have been taking their money out and Gibraltar would have been the poorer for it.
However, I am happy to say that we continue to attract increasing investments from existing and new customers. This year, £220 million worth of debentures reach their maturity date and we have £220 million ready to pay cash if our customers need or want their money back.
All the indications we have is that the vast majority of our customers will reinvest all or nearly all of their cash with the Savings Bank, a vote of confidence in the institution for which I, as the Minister responsible, want to thank the investing public, and to reassure them that they will not find a safer home for their savings and that it is important for them to know that we are putting their money to work for the betterment of Gibraltar.
The Leader of the Opposition thinks there is something wrong in doing this because the GSD kept public deposits in cash.
Well we have a mandate from the people who elected us in the knowledge that, as we did between 1988 and 1996, we would run the Savings Bank at a profit and leave those profits accruing year after year, to be used only in case of a national emergency. As one of the key constituent of the Rainy Day Fund again, as was the case up to 1996. A Rainy Day Fund, which incidentally the GSD did not support it in 1996 and 2011, but now does, I think.
Mr Clinton also asks that I should include not just the profit and loss and balance sheet of the savings bank in the report I sent to all our investors but also the two pages of individual investments. He says I am not being transparent by not doing this. I do not agree Mr Speaker I provide a list of investments every time he asks, which is almost every month and this information provided in Parliament, is in the public domain and available to anyone, including of course all our investors.
It is standard to supply customers of deposit taking institutions with a copy of the profit and loss account and the balance sheet, which is what we do and something they never did in 15 years. At the same time as they ask us to do more. They say they would not run the Savings Bank as we are doing. So presumably the Savings Bank will only survive while we are in government, because the last time they had the responsibility for it and they finished at with £70 million in deposits from the public and £1442 in reserves. Now the public has nearly £1 billion deposited with us and the GSB forecast cash reserves for this year are almost £32 million. Both figures are to be found on page 224 of the estimates book. Growth of the Economy
Mr Speaker, if we now look at the size of the labour market as a whole, the employment survey report for October 2016 shows continued growth for the financial year just ended.
Last year I analysed for the benefit of members the statistical information in the reports to demonstrate that Opposition Members were wrong in attributing the growth in the economy to the growth in the size of the construction industry labour force.
I showed that it was not the case that a publicly funded construction boom had been engineered in order to achieve the growth targets of the government.
I also demonstrated that what the figures indicated was that such an analysis could be applied, but to the situation under the previous GSD government up to 2011
Let me remind members opposite of the simple correlation of the relevant statistics that demonstrate this, beyond doubt.
Statistics
The update on the figures for 2015 produced by the survey report for 2016, confirms the trend that I predicted for the construction industry, which was that it would be shrinking between 2015 and 2016.
I also estimated that the size of the workforce as a whole would probably remain static. That is that the growth in employment levels in other sectors of the economy would just about make up for the loss produced by a smaller construction sector.
I am happy to say that my estimate was too cautious and that the increase in non-construction jobs has been substantially greater that the number jobs lost in the construction sector.
The figures are as follows:
In 2015 the private sector grew by 1629 jobs from 18,441 to 20,070. Over a quarter of the growth took place in the construction industry, where the number of jobs went up from 2586 to 3106: an increase of 520. A level only slightly higher than the October 2011 level under the GSD engineered construction boom when it hit 2922, an increase of 755 jobs in construction in one year, compared to October 2010.
From October 2015 to October 2016 the construction industry shrunk, as predicted, by 303 dropping from 3106 in October 2015 to 2803 in October 2016. By contrast, in the same period, the rest of the private sector, excluding construction group by 1210 jobs, a better result than the increase between October 2014 and October 2015 which was 1109 jobs, but still a very respectable rate of growth when compared to previous years.
The growth in private sector jobs excluding construction from 2011 to 2015 was 2928 and from 2011 to 2016 was 4138. By comparison under the GSD Government that falsely claimed to be creating an expanding private sector the 4 year non-construction record of new jobs from 2007- 2011 was a mere 698 and the 5 year equivalent from 2006-2011 was 1400.
I have to say that though my estimate on the size of the private sector erred on the side of caution, as I think estimates should, nonetheless the growth that actually took place in 2016 is quite remarkable in the context of the uncertainty created by the Brexit referendum result in the earlier part of the year.
Looking forward it is difficult to assess the probability of the historically very high growth rate in private sector, non-construction, jobs continuing at the same pace in the current financial year. However, the construction sector will probably start recovering from the level of last October and is likely to be higher at the time of the next October survey.
However, in the longer term it is the non-construction sector that has to provide the main area of job creation to maintain a growing economy which is sustainable in the context of the present economic model.
This implies that our final GDP for the year just ended will probably be higher than the level required to reach our target of £2.4 billion in 2019/20. In simple terms, we are looking at economic growth of around £150 million a year over the four-year term. Departmental Expenditure
In answer to a question on the role of the efficiency unit in my department, I have previously told Parliament that I would expect the results to be reflected in the levels of spending in the estimates of expenditure.
The public sector efficiency policy is not a one off exercise; it is not a regrading or a manning level review. It is a permanent feature as one of the instruments we need to employ to ensure we are delivering value for money in the provision of public services and in particular in the context of the unknown parameters that could be facing our economy post 2019. This requires that we do not take on recurrent expenditure commitments that are now sustainable within the existing budget based on existing revenues but may not be there in future.
That is to say today we should not be taking on in any department, initiatives that will increase recurrent expenditure unless we have identified a source with a compensating reduction in expenditure or we have a new revenue stream to meet what is new expenditure.
The expenditure in the book is a simple cash accounting exercise as the Hon Mr Clinton points out. It is how it has always been done and it is how most governments do it.
The bulk of the expenditure is the cost of the payroll and procurement. Procurement is therefore tasked to play an important role in the efficiency policy by ensuring that the prices we pay for the goods and services we buy are the best available. I am not convinced that this is currently the case or that it has been in the past, in spite of the fact that the Procurement Department follows all the established guidelines and requirements in obtaining quotes and tenders.
Under the GSD administration the greatest spending living Gibraltarian on more than one occasion excused procurement costs by arguing that contractors always charge the government more, as if this was normal and nothing could be done about it.
There is a serious problem in the escalation of prices, once contracts are awarded because of variations that take place later. It has been the case since 2011 and it was there before 2011. When challenged on this issue by us in Opposition the Greatest Spending Living Gibraltarian compared us to the over budget results in the UK procurement public contracts which invariably finish up costing vastly more than the original tender price and argued that Gibraltar’s escalation was not as bad as that of UK.
I do not believe our role in government should be to justify the excesses over budget by pointing to the U.K.’s even worse record. Our job is to find out how and why it happens and put a stop to it. I believe that new initiatives on procurement currently being introduced will, if they work as expected, produce results in the current financial year. If that is a case it may well mean that even though we expect higher inflation, we may be able to supply our requirements at little extra cost, but we shall have to wait and see.
At present most of the efforts on efficiency savings have been concentrated on the GHA budget on which I am working closely with my colleague, the Minister for Health.
Mr Clinton last year pointed out that the biggest elements in increased recurrent expenditures have been in Healthcare and Education. This was also mentioned by the Leader of the Opposition and the Hon Mr Phillips.
Because these are the two biggest area, it follows logically that it is the two we need to concentrate on to make sure that recurrent expenditure is kept at a sustainable level in the light of the present juncture, facing our economy and as a consequence of the potential effect on the reliability in future of present recurrent revenue sources.
Taking the example of the GHA, the Leader of the Opposition last year said the cost had gone up from £75 million in 2011, in fact, it was closer to £80 million. The GHA managed to stay within the approved budget in 2012/13 and therefore there is no reason why it should not be able to do so in the future. Both I and the Minister for health are determined to make it happen again this year.
In 1996, the health budget was £20 million having risen since 1988, from £8 million. The GSD then increased it from £20 to £80 million between 1996 and 2011.
In fact, when the GSD was in government and especially on the eve of the 2011 election, the greatest spending living Gibraltarian reeled a list statistics detailing by how much he had increased recurrent expenditure in almost every corner of his empire. In those days it was a virtue to spend money, now the GSD sees it as a vice from the opposition and I welcome the conversion to the real world. They claimed at one stage to be in a position to identify the elimination of waste of the order of £50 million but so far there have not put to me, any ideas that may indicate where such waste can be avoided and savings made which I would welcome we were away the able to do it.
As members know I am having regular meetings with the three principal unions, the GTA, Unite and the GGCA. We are working well together and I believe most public sector workers understand that the objective of efficiency measures is to make sure that we can maintain services going into the future at a sustainable level. Services which public sector workers and their families access and benefit from as consumers.
In fact such is the commitment to work with me on this that the chairperson of the GGCA recently publicly lamented that too much time had elapsed between meetings. She was right of course, and we have met since then and I hope to be able to keep meeting them regularly every month without missing one including July and August, since I never take any holidays.
The GHA budget for the next 12 months is being contained at £110 million. This is close to 37.5% higher than the level it reached in 2011/12.
In previous years we have seen bids reduced only to find that the approved amounts have later been exceeded. For example in 2014/15 the expenditure was £105.5 million and the approved budget for 2015/16 was £100.9 million but £110.5 was spent. In 2016/17 the budget provided £103.5 million which was £7 million below the preceding year overspent. We have now a forecast out turn for the year of £118.8 million, no less that £15.3 million above budget. Hence the £110.5 million for the current year, £8.3 million less than was spent but £7 million more than was approved a year ago.
The education budget has grown, from £28.4 million in 11/12 to an estimate for the current year of £49.3 million almost 75%. This of course is a reflection of the GSLP commitment to the education which has been there since we first introduced universal scholarships in 1988. It has been driven both by very substantial increase in staffing levels and by greater numbers of students in tertiary education in the UK. In addition to the much higher university fees that have been introduced in the period. However, what is clear is that this rate of increase in expenditure could be difficult to sustain and therefore it is the next obvious candidate after the GHA to look for efficiency measures.
Conclusion
As well as being competitive in terms of the fiscal environment, we must be competitive in terms of customer service and speed of response. International investors do not have to come here there are plenty of alternative locations.
We have only two resources: our people and our land; and the efficient use of both resources is the only way we can provide the necessary competitive environment. We cannot grow our economy indefinitely by increasing the size of the workforce with ever-greater numbers in employment. Using the existing pool of labour ever more efficiently, which means working better not necessarily working harder, is an important aspect of what we have to consider for the future development of our country’s economic stability.
This is the analysis that has been at the heart of the GSLP economic policies since the first socialist government of 1988.
It continues to be my view that it is not one of the options open to us. But the only option. We can only face whatever difficulties may lie ahead if this is the framework for our policy making. If the decisions are founded on the analysis that I have spelt out above, which will be the guiding framework for the work on efficiency in the use of public sector resources. Finally, Mr Speaker in respect of the three departments in the estimates of expenditure that I am responsible for, in the last financial year and this year, which are the Ministry for Economic Development, the Statistics Office and the Procurement Department, I am pleased to inform Parliament that all kept within their respective budgets, and are expected to remain so in the current financial year and with no increases in manning levels.
As to why the government only forecasts the GDP for more than one year and not other items of government, revenue and expenditure.
Well, first it is not the government that does it; it is me in opposition or me in government and in order to be able to do this with a degree of accuracy one needs to devote many, many hours to charting the correlation of the indicators that provide pointers to economic performance.
The figures that the government publishes in the estimate book are the result of treasury expectations on revenue and departmental projection of costs by controlling officers.
The methodologies of the GDP and of the public accounts are two totally different things.
Only that the greater the economic growth the more likely the government revenue will benefit, but there is no guarantee that this will be the case as there are too many variable involved.
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