Chamber welcomes prudent 2012 budget measures that assists business, urges caution on rising recurrent spending

23 July 2012

Following a meeting of the board of the Gibraltar Chamber of Commerce and having consulted with a number of members across a variety of sectors, the Chamber has now formulated its full response to the first budget of the new government.

Macro Outlook

Against a background of austerity and tax increases in many parts of Europe and indeed the world, it is somewhat gratifying that the new administration has been able to deliver a number cost freezes and duty reductions. These measures are welcome and should help local companies to manage with the downturn in business activity which has become increasingly evident in the last 12 months or so.

It is also reassuring that employment levels rising to 22,247 remain buoyant and that GDP growth remains robust. The Chamber notes that most of the growth in new jobs has been accounted for by the private sector with an increase of 7.6%. Nevertheless, the 2011/12 prospective GDP of £1,137bn looks ambitious particularly as the government forecasts a reduction in corporate tax receipts and possibly import duties next year.

A strong, diverse economy is fundamental for the continued attraction of inward investment and this therefore is an important message to prospective clients and investors.

Import Duty Reductions

The government must have consulted with individual traders directly before deciding the categories of goods on which to reduce or cancel import duty. Whilst this is welcome to a degree, the Chamber and some of its members fear there may be unintended consequences from these measures.

The range of reductions to duty would appear to reflect the some of the range of goods currently available in Gibraltar and the Chamber feels it would also be worthwhile undertaking an assessment to consider what other goods could be made attractive in order to diversify and stimulate the shape and future success of Gibraltar and Main Street as a shopping hub.

The continuing changes planned with e-Government and specifically the roll out of the Asycuda system for Customs are very welcome

More measures for Start-Ups

The increase in the prompt payment discount for rates is welcome as is the reduction for new start ups. The Chamber would like the government to go further and introduce additional measures to attract entrepreneurial firms to set up in Gibraltar. This needs to be part of a “Red Carpet” Business Start Up Service which any new business looking to set up in Gibraltar could access. The Chamber tries its best to do this with new companies but its resources are finite. The Chamber would be delighted to work with the government to make a truly seamless start-up service become a reality.

The reductions in rates and the cancellation of salt water rates are measures which will be welcome by all businesses as is the holding of utilities costs and social insurance at current levels. Businesses would welcome confirmation of the government’s policy on projected amendments to these costs on an ongoing basis.

Minimum wage

The increase in the minimum wage is understandable and is a positive social measure which the Chamber appreciates needs to increase to reflect the progressive economic development of Gibraltar. However, the Chamber urges the government to give greater notice of future increases so that businesses can budget for them accordingly. For many small businesses in Gibraltar, four weeks’ notice of a cost increase does not give much room for flexibility and may prevent companies investing or expanding in other areas. As with the previous administration this increase overrides the prior agreement reached in good faith between the Chamber and Unite for workers in the retail and wholesale trades and introduces an element of uncertainty for businesses in these sectors. It is also a long-standing policy of the Chamber to call for a level playing field in respect of unscrupulous practices and we would urge the government to boost the resources of the Labour Inspectors to ensure that these rates are adhered to by all employers as the increase is likely to encourage some traders to pay below the statutory minimum wage which in turn perpetuates distortions in the local labour market.

Tax Rates

As with all employees the Chamber welcomes moves to converge rates for both corporate and personal income tax. Chamber members would like some indications of what to expect in future years or at the very least a commitment by government for progressive reductions as economic circumstances permit. Members would also like clarity around the future status of the Gross Income Based system as it would appear that whilst a large number (if not majority) of tax payers have moved onto this scheme the recent budget announcements seem to benefit those on the Allowance-Based system.

Critical issues still need resolution

A number of outstanding issues continue to give cause for concern among Chamber members and a prompt resolution of these would remove uncertainty for existing businesses and re-assure new companies seeking to set up in Gibraltar. Two in particular are recognised by everyone living and working in Gibraltar: power generation and the runway tunnel.

With the former the Chamber agrees that the right solution is always better than a fast solution but time marches on. Every power cut has significant adverse implications for businesses. We hope the government will be in a position very soon to announce solutions to this historic problem.

Although an update was given on progress at the new air terminal by the Deputy Chief Minister, it remains unclear when the tunnel is likely to be completed. Traffic congestion associated with runway closures and the frontier affects businesses, employees and visitors coming to and leaving the Rock. An update on expected progress would be welcomed by all.

Other measures

The capital expenditure earmarked for the Upper Rock improvements is welcome and the Chamber is grateful for the efforts and early successes which the government has made in developing additional contacts within the cruise industry. The Chamber looks forward to learning the outcome of the various consultation processes which the government has had on tourism. The Chamber is very clear that Tourism is the “lost” pillar of the economy and we look forward to working with government to assist in developing an ambitious, long term plan that will make Gibraltar a real gem in the Mediterranean.

The improvements to the port’s infrastructure are long overdue and our members in this sector will be pleased with these enhancements to their working environment.

Conclusion

The budget is likely to be welcomed by many of Gibraltar’s citizens whether they work in the public or private sectors or are no longer part of the workforce. It also addressed a number of issues which have been overlooked for too long. The Chamber welcomes the consultative approach taken by the new government on these and on other matters and is grateful that a number of our members’ views have been taken on board. We hope that this interaction continues to develop.

The Chamber notes that the government is focused on the challenges to e-Gaming and the development of financial services through innovation in our product offering. Continuing a strategy of quality over quantity is imperative to our ongoing success as a reputable jurisdiction. These sectors, more than any, are exposed to the volatility of international markets, investor confidence and global competition.

When one views what is happening elsewhere we should be grateful for how we stand as a community. However, a number of countries in Europe are having changes imposed upon them because of reckless decisions made in the past and as a consequence they are now being forced to face up to what is affordable and in particular, what is not. The pain can be seen on our news screens every day.

In a smaller but no less important way, Gibraltar needs to adapt and consider the real costs to business of increases in the number of bank holidays. Gibraltar is not immune to what is happening elsewhere and we need to change to ensure that all parts of our economy are affordable as well as sustainable.

ENDS


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