Jun 25 PDP Initial Reaction to Budget
The PDP recognises that much like last year the GSLP/Liberals budget at first sight reflects a balanced budget that does deliver to some extent for both business and the individual. It appears to be a prudent budget and the PDP is happy that economic indicators are positive. It is fair to recognise that the Government on the figures have continued to deliver the robust economy whose foundations were laid by its predecessors. The PDP are pleased to see that this budget delivers extra financial help to many sectors of our community who need it most such as the lowest paid, the disabled, the sight impaired and single parent families to name a few.
However if one starts to drill down on these figures there are some areas of concern:
On the macro picture whilst the CM seems to give it little importance, the increase in Government recurrent expenditure of 5% of £22 million is not insubstantial and goes a long way to potentially wipe out the increase in revenue of £28 million or the reported surplus of £37m. The Government should be careful not to allow recurrent expenditure to spiral out of control as any threat to our economy whether it be Gaming or otherwise, may make it difficult for Government to keep paying its obligations without raising taxes. Very quickly surpluses can turn to deficits and the Government would do well to remember that the economic curve does not always go up.
The reality is whilst there is on the face of his budget a record surplus it appears to be based on fundamentally less expenditure on capital projects some of which are sorely needed such as the power station and the tunnel/access across the runway.
It also appears positive that public debt both gross and net has been reduced but it is important for the Government to be clear whether some of this reduction (at least on a gross basis) is because all that has happened is the GSLP/Liberal Government has transferred debt in the form of Government debentures from Government to the Gibraltar Savings Bank or by way of simply using available cash deposits to pay off part of the gross debt?
The net debt reduction of 4% is quite possibly a far more realistic assessment than the reduction of the gross public debt by some 27.5%?
Additionally the boast that growth is on target and in fact will “comfortably surpass” the Governments estimate of £1.65 billion seems on the face of it to be highly exaggerated.
The GSLP/ Liberal 2011 manifesto promises were based on GDP growth over a 4 year term of circa 65% namely from circa £1billion to £1.65 billion. In its first budget the CM recorded approximately 5% growth and this year it has been identified at 7.8%. Those who analyse this will quickly work out that in the 2 • years left of this term of office growth of in excess of 12% per annum will need to be achieved to reach the CM predictions let alone comfortably surpass them. This will no doubt be a challenge in particular given that the global economy continues to be submerged in a state of financial hardship with global leaders looking at financial centres as being part of the core problem.
The PDP does not wish to deride or criticise a growth rate of 7.8% or even 5% in this current economic climate. By any measure it is excellent and far closer to the growth rate the PDP estimated was realistic, however if the GSLP/Liberals promises were based on 65% growth over 4 years and they have achieved in 5% and 7.8% respectively how realist or credible are the CM budget predictions now? If achieved the PDP would be the first to congratulate the Government, however if as it looks to any impartial observer it will be unlikely, the Government should elaborate on which projects or promises will be delayed or broken.
It is important that good news and stability are recognised and credit is given and the PDP has no hesitation in doing so but false expectations would be unhelpful.
Having done so the PDP remind the Government of the observations it made last year in response to last year’s budget, namely that to record good reserve figures by not investing in key fundamental projects timely or at all can stifle our longer term prosperity and growth.
The fact is that the GSLP/Liberals have stopped important capital projects since its election has meant that they can boast higher reserves, however these projects remain important. Specifically the PDP believe that the investment in the tunnel project is long overdue. Until such time as Gibraltar has an unobstructed free flow of traffic across the east end of the airstrip or through a tunnel its ambitions to develop its tourist product in terms of air travel and land entries is stifled. Moreover the grid lock experienced by citizens every time a flight arrives has a social cost in terms of standard of living. The PDP encourage the Government to get on with this project.
More importantly is the delay that has been experienced by business and the individuals alike in receiving a regular and reliable power supply. After 18 months in office they cannot continue simply to blame the GSD for its failures to address the issue whilst in office. Promises of long term solutions to our power needs do not resolve the challenges that are faced when business and individuals experience power cuts more akin to the 1970’s. Therefore the PDP looks forward to seeing immediate progress on the plans recently announced by Government that can give confidence that this project gets off the ground finally and shows that the Government understand the urgency of this basic need.
In so far as they affect individuals the PDP recognise some real progress.
The PDP welcomes the reductions in tax on the Allowance Based System but believes these should be put these in perspective. The tax reduction of 6% for people on the ABS between £4001 and £16,000 translates to £13.85/week or £720/annum is helpful but not remarkable. The PDP encourages the Government to prioritise its expenditure in the forthcoming years to ensure these reductions continue and increase. The PDP believe philosophically in trying to ensure Gibraltarians keep as much of their money in their pockets as possible.
Moreover the PDP would point out that many Gibraltarians are not on the ABS but rather the Gross Based System and there is little in the CM announcements that would deliver meaningful reductions in the tax burden other than a one off allowance of £5,000 in relation to the purchase of a first time property which of course may not be applicable to many already on GBS and a modest annual £1000 allowance for those who may opt to contribute to an approved pension scheme; once again the PDP reminds the Government that to compete on the international stage as a low tax jurisdiction the Gross Income Based System remains too high at 28%. As contained in its 2007 and 2011 Manifesto a PDP Government would reduce personal tax to a flat 20% rate and it would encourage the Government to do likewise.
