It was to be expected that measures would be introduced to pay for the cost of the COVID pandemic and the Chamber was prepared to work with Government had it been consulted. However, once again the Government has sought to lumber the taxpayer and local business with additional costs with very little attempt to return Government to a balanced budget whilst its recurrent spending continues unabated. The deficit is forecast to be £55.29 million this year and £45.3 million next year. It will borrow to meet this deficit instead of seeking greater efficiencies and reducing spending which would be the more prudent and sensible approach.
No attempt has been made by the Government to rein in its recurrent expenditure despite the sharp fall in revenue and increase in debt. Alarmingly, it announced that it is prepared to borrow to keep giving pay rises to civil servants when they are paid on average 40 per cent more than their UK counterparts. This is in sharp contrast to some employees in the private sector who will continue to have to face wage freezes.
There is little transparency about the real state of Government finances or how much it owes directly or when Government-owned companies are included. That would have been a good starting point so that we can all be clear on the extent of the problem.
The changes to import duty will simply encourage more people to shop online or in Spain once more as the flat duty rate of 10 per cent for personal imports has now been abandoned to the detriment of local businesses.
Imposing an annual Covid recovery tax of £1,300 on every company is unreasonable and disproportionate. Why should a small company with one or two employees pay the same amount as a company which employs several hundred? If such a charge was inevitable, a more equitable system would have been to make it scalable and thus more affordable using the Companies Act definitions. What must absolutely not happen is that only local trading companies are burdened with this charge and those that benefit from being incorporated in this jurisdiction but do not trade locally are exempted. That would be an inequity of the highest order.
Some of the increases announced are understandable given the “headwinds” described by the Chief Minister in his address. These include increases in electricity and water although significant increases to these services, other charges and social insurance were already introduced last year.
However, many of the other increases are simply stealth taxes under other guises. Increases in licence fees, registration fees, a cruise passenger tax and a tourism tax will all raise some additional revenue, if the collection mechanisms are robust enough. For example, it remains to be seen how the Government expects to collect the tourism tax in respect of Airbnb rentals which are unregulated thus competing unfairly with established hotels.
But there was little in the budget which indicated any semblance of a future financial plan for Gibraltar.
Apart from increasing the usual taxes few other revenue raising measures were announced with the exception of the Covid recovery fund.
Stamp duty has remained static for several years despite a booming property market. There would be scope to raise additional revenue from an increase without it damaging confidence.
If the Government’s finances are in such a dire state then more drastic measures such as means testing and inflationary rent increases for Government housing should have been considered. In his budget address just after the EU referendum in 2016, the Chief Minister appealed to civil servants “to be ready to do more, go further, work harder, be more efficient and wield greater influence than ever in building our common future”.
There is little evidence that this plea has been heeded since then.
In short, the budget was a missed opportunity to plan for the future and to rebalance the Government’s finances. We will all have to pay for this but as usual, it will be the private sector which will have to pay more than most, a private sector that has been hammered by and is still struggling to recover from the effects of the pandemic and which already faced sizeable increases in costs arising from budgets over the last few years .
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