2010 Chamber’s Budget response

Business community says: Enough is enough!

In a robust response to the budget, the Chamber has received a number of calls from concerned members about the number of sudden cost increases announced by the government.

These increases, several of which are many times the current rate of inflation, come without warning or consultation and at a time when business in virtually all sectors is slowing down. In its 2008 budget statement the government said, “it is the policy of the government that the funding of the social insurance scheme should at least keep up its inflation adjusted value.”  The government’s own figures, which have a natural time lag, show economic growth locally is slowing.  If the economy is so buoyant that the government can announce a near £30m surplus why the need to have cost increases significantly ahead of inflation?

Last year the government also made a welcome concession to businesses in the retail, wholesale and leisure sectors by increasing the prepayment discount for prompt payment of rates from 10% to 20%. In this year’s budget this has been reversed although businesses in these sectors need this relief now more than ever. The net effect for businesses in the retail, wholesale and leisure sectors is an increase of 22% in rates.  All other sectors will see a 17% increase in rates.

Initial responses from members across a number of business sectors all indicate that the budget measures will lead to significant rises in businesses’ operating costs in the next twelve months. This has been further reinforced by a poll posted on the Chamber’s website (www.gibraltarchamberofcommerce.com)

Separately the Chamber has conducted a brief analysis of increases in business costs directly attributable to government in the last five years.  These cost increases are summarised as follows:

  • electricity costs have increased by 50%;
  • the minimum wage has risen by 35%;
  • social insurance payments have risen by 38%;
  • water costs have risen 39%.

The equivalent rate of inflation over the period was just over 15%.

Acknowledging that the top line corporate tax rate is scheduled to fall from 22% to 10% next year the Chamber says that this is largely academic if many businesses are suffering from falls in sales and an increase in costs.

The business community has always accepted that it has a responsibility to pay its fair share of tax but year-on-year increases of 8, 10 and 12% are way ahead of the current inflation rate of 3.3%.  This budget will hit growth and jobs by increasing the costs of doing business in Gibraltar.  As usual it will be the smaller home-grown businesses which depend on the local market who will be particularly badly hit by this budget whilst highly paid professionals are now rewarded with lower personal taxes.  This will lead to the further hollowing out of Gibraltar’s business community as these local firms simply cannot compete with one another and even less so with their competitors from across the frontier.

Just as the private sector is paying more than its fair share, it is inequitable that the public sector has been spared its oft-argued parity with the UK now that this means wage freezes.

Furthermore there is little point in sitting down on behalf of our members in the retail and distributive trades with Unite to agree annual wage rates if the government is going to legislate unilaterally and add further to business costs.  It is frustrating for business community to reach an agreement with the Union in good faith and then have such agreements trounced by the government.

The government’s announcement that it will become a co-developer in the long-awaited Mid-Town project as commercial finance is not in place also raises concerns among many local businesses during these uncertain times.  If this project is successful, then there should be a profit for government.  However, if it fails, then the liabilities for the taxpayer could be considerable.

In the last 12 months the government has become the dominant building contractor in Gibraltar.  The budget announced that government is also planning to set up a local bank and become a property developer.  When the Chief Minister asserts that “real socialists flock to the GSD” it is not hard to see why.  As an organisation representing the private sector it is extremely alarming for Chamber members to see the ever-rising costs that are being levied on their businesses are going to subsidise government companies that compete head-on with members in a number of sectors.

Chamber President Nicholas Russo said, “As we commented recently, times are a great deal tougher than they were twelve months ago.  Our members in all sectors have been trying to manage their cost bases accordingly.  We thought that government had taken this on board.  The Chamber is now fearful that the number of jobs lost in the last 12 months will increase as a direct result of the cost increases announced this week.