I preface this blog by admitting that they are my initial reactions and preliminary views (although they may remain the same after further consideration). Also, I base it entirely on the summary published by the Chronic this afternoon, so I trust it does not contain inaccuracies. My professional duties did not allow me to attend Parliament or hear the budget speech live. If truth be told, just as well, because now I know that I need to work and earn more in order to pay increased social security contributions, higher commercial rates and increased commercial salt water rates. These are all regressive taxes. They need to be paid irrespective of whether a business makes a profit or not.
Regressive taxes are a disincentive to commercial investment and a disincentive to employment. Will the GSD be able to boast that employment numbers are only down by 59 jobs next year? We will need to see what the effect of these regressive taxes will be on businesses in a recessionary climate. We are told that it has affected us little but will it be the same looking forward? The increasing value of the pound sterling and the lack of liquidity in the pockets of Spanish and persons of other nationalities must at some stage affect the retail trade in Gibraltar, at least. The combiend effect of fewer Spanish buyers and more Gibraltarians visiting Spain to make their purchases, as Spain becomes more competitive due to the improving foreign exchange rate, could be a double hit.
I fail to understand why in a budget speech the Chief Minister lists all the capital projects. Their relevance, save by reference to their cost, is difficult to see or understand, save for the purpose of electioneering. It would be churlish, however, not to recognise that the list is impressive, although many items are repeats of last years projects (and possibly the year before that and before that and before that ... you get the picture I am sure). It would also be short sighted not to realise that many of these project, when completed, will result in added government expenditure once they are completed. Will the GSD be able to keep overall recurrent expenditure increases at 6.3%? It is noticeable that GDP has grown by 5.5%, so recurrent expenditure has increased at a faster rate, the difference being 0.8%. Increasing expenditure with falling GDP, if my assessment in the previous paragraph is correct, is not a good omen for the future, as the differential will increase adversely.
On personal taxation ... well the reductions must be commended. The GSD is keeping its manifesto commitment. From a working man's point of view part of what is given is taken away by increased employee social security contributions for those earning in excess of £12,000 per year and increased electricity and water tariffs, both essential and unavoidable expenses and so another form of regressive indirect tax. The other point is that these measure only helps the employed or self-employed.
I see very little giving effect to any social policies, the building of a new government rental estate is about all there is. Is something missing from the Chronic summary? Are there any increases for the unemployed? Or will these be announced as part of the expenditure estimates? That would be odd because a reduction in tax is a benefit for some and increased unemployment benefits or social security payments is a benefit for those who do not earn due to unemployment, so cannot benefit from the tax cuts. Additionally, if increases in student grants are announced, why shouldn't increases in unemployment benefits and social security payments have been announced also?
The 10% corporate tax rate is also to be commended as another manifesto promise kept by the GSD. It is an essential element in ensuring the success of the finance centre and so its ability to employ our increasingly educated, trained and sophisticated youth. If this is not done and made a success of, then GDP will also be adversely affected.
I do not agree with the belief that this reduction in corporate tax will lead, necessarily, to a reduced tax take, as suggested. Company tax for local shareholders is an advanced payment of tax. It is subsequently credited against their personal tax liability, so the tax receipts from such companies will only be reduced by the amount of profits reinvested in the business of the company, whic will consequently not be distributed or deemed to be distributed. Some larger tax payers that are not locally owned will benefit from the reduction to 10% but that loss of tax could likely be replaced or exceeded by tax collected from locally based exempt companies that will now start paying 10% tax. We will need to see but if I am right, the justification for the increases in business outgoings will prove not to be right and the Government revenues will be swelled by the increases revenue from this source.
The jury is out on the proposed new locally owned and managed retail bank that the Government has said it will try to promote. I am not sure that any government should be involving itself in this type of venture, especially if it is intended to provide more resilience in local mortgage and business lending. In today's climate of increased capital requirements it proves difficult to produce a profit out of that type of banking, especially if any direct government involvement, and consequently political factors influencing lending policy, is envisaged.
The same applies to the proposal that Government will fund Phase 1 of the Midtown office development. Is this the type of project that any government should be involved in? What is the risk? What is the potential return/benefit?
Well there we are; this is a quick and short analysis by me ... what are your views now?