Friday, June 24, 2005

Caruana defends Government record of economic management

F Oliva reports

Budget Speech 2005 • CM rejects Opposition’s picture of “doom and gloom”

Chief Minister Peter Caruana yesterday argued that it would take “many bonfires of tax-payer’s money” to match the funds wasted by the previous GSLP administration and gave the example of “the Harbour Views fiasco.”

The roars of disapproval from the Opposition benches gave way to a slow session where Mr Caruana announced a series of Budget Measures aimed primarily at benefits for the elderly, and a lengthy defence of what he said was the GSD (Gibraltar Social Democrats) Government’s “well established model for prudent stewardship of public finances”.

His diagnosis of the economy was that it is in good health, pointing at areas of growth in the private sector and of continued modernisation, expansion and improvements of public services particularly education and medical facilities.
“We expect the economy to continue to grow, to continue to produce budget surpluses and the increases in revenue to sustain public services,” he declared.

Mr Caruana said nothing in the horizon threatened that scenario despite the challenges to the finance centre and the problems with the Ministry of Defence’s “unacceptable and irresponsible” contractorisation plans.

The Chief Minister also denounced what he described as “misconceived dialectic devices” with which the Opposition “distort and misrepresent the economic realities when the position is the very opposite.”

He also chastised the Leader of the Opposition for remarks he made in his May Day Message suggesting that the administration was short of money.

Mr Caruana argued that increasing revenue measures such as electricity and water was not a sign of weakness, and to suggest that this was a sign of financial ill health “is as ridiculous as it is economic illiteracy,” accusing the Opposition of being politically opportunistic by attempting to deceive the general public.

He said that even in a growing economy, it was not possible to indefinitely sustain increases in public expenditure without ever increasing any revenue raising measure.

Mr Caruana said it was “a unique achievement” that these tariffs had not risen since the 1980’s, while maintaining that the inescapable economic fact was that charges “had fallen hugely in real terms and as a proportion of pay and incomes.”

He said these increases were not a failure of the Government but rather it should be seen as a mark of “extraordinary success of having been able to hold them unchanged for 20 years.”

Mr Caruana then launched an impassioned defence of the public sector rejecting criticism from business sectors and other quarters regarding its cost and size, and calls for a curtailment of the public sector bill. He also reaffirmed his Government’s “irrevocable commitment to the principle of parity.”

Mr Caruana specifically denied comments by the Chamber of Commerce that the public sector “had grown significantly in the past eight years without appreciable improvement in the services it provides.” He said this was simply untrue as there had been considerable improvement. He argued that it was the mark of a caring, modern and civilised society that cares for the underprivileged, the elderly, the disabled and other disadvantaged groups like drug-addicts, and that he would not hesitate to invest the fruits of a successful economy in these areas.

“Government is not a business that has to make profit. Reducing costs to maximise profit is not our role. We have a duty to develop services for the benefit of the community and the financially less well off in particular,” he exclaimed.

The Chief Minister also scoffed at “the sheer audacity” of Mr Bossano’s May Day remarks that with the water and electricity increases, the GSD Government was “rolling back the gains of the past,” and eroding the standard of living of working people in Gibraltar.

He returned the accusation stating that no Government in recent history has improved the living standard of working people in Gibraltar more than the GSD, while no Government had eroded these same living standards more than the GSLP.

Reform of the Public Sector

Mr Caruana said further improvement of the public sector was necessary but pointed to progress already achieved in the Post Office – he described the current service as among the best in Europe – and to a forthcoming “root and branch review” of the Customs Department.

Additionally he dismissed complaints from those who said that such reforms were coming at a high price, asserting that all reform comes at a cost everywhere in the world.

He said that through the setting up of authorities, the public sector was being reorganised to allow greater flexibility and a role for outsiders in the management of these public services.

Mr Caruana also rejected Opposition criticism regarding the Theatre Royal and stated that “unlike their millions ploughed into a black hole, the theatre will be a reality.”

Other Areas of the Economy

The Chief Minister then reviewed individual sectors of the local economy noting the substantial growth of the Finance Centre, the Gaming Industry, Port activity and Tourism.

He said this had been achieved despite a number of external factors which impact adversely on the economy, like the current recession, the record high price of oil, the adverse effect of Savings Directive and tax uncertainties on the finance centre, and the increasing impact on businesses of EU Environmental and health & safety regulations.

More Locals in Employment

The number of Gibraltarians in employment has risen from 9448 in April 1996 to at least 9864 in October 2004, an increase of 416 Gibraltarian jobs.

Another statistic, which government says demonstrates clearly the sustained growth in the economy is tax yields from companies and businesses. This has risen from £10m in 1997/98 to £27.8 m last year (or £22 million excluding one-off items of revenue.

Average Earnings

Average earnings in Gibraltar rose to £17,834 p.a. Out of the 13,549 full time workers in Gibraltar, 5100 (that is 38%) earn more than £20,000 p.a. Of those, 3458 earn more than £25,000. Less than 2000 earn less than £10,000 p.a.

· The recurrent revenue and expenditure budget for last year was in surplus (£2.9 million) and a further surplus is estimated for the current year;
· Government reserves stand at record levels (£51 million);
· Public debt remains low in real economic terms (only 17% of GDP);
· The economy grew by 8% in money terms in 2003 and is estimated to have grown by a similar amount in 2004;
· Employment stands at record levels (15994 jobs) and continues to rise;
· 575 extra jobs were created in 2004
· Government revenue and expenditure stand at record levels.
· Personal Taxation Rates are at the lowest ever.

Improvement and Development Fund

Government will be spending £24.6 million this year in the Improvement and Development Fund. The main expenditure items will be as follows: -

(1) £2.4 million on the on-going programme to refurbish the public housing stock;
(2) £0.80 million on further equipment and works for the GHA;
(3) £0.50 million on the project to relocate the prison to the Lathbury Barracks area, which will commence this year;
(4) £0.50 million on further equipment and works for the Elderly Care Agency and Social Services Agency;
(5) £1 million on refurbishing school building;
(6) £1 million to constraint a new swimming pool for the elderly and the disabled;
(7) £1.6 million on the new Bayside Sports Com plex;
(8) £3.8 million on environmental projects, including rock safety works, works to sewers and drains and on the Upper Town Urban Renewal Scheme;
(9) £3 million on road maintenance, the construction of new roads and the construction of new parking facilities;
(10) £2 million on Upper Rock, tourist sites and other beautification projects;
(11) £2.8 million on MOD relocation costs.

We are estimating that upto £21 million of this expenditure will be funded from the proceeds of sale of Government properties.

2005 Budget Measures

Taxation Reduction Measures

Since 1996 we have abolished capital games tax, reduced income tax rates by at least 40% and we have abolished income tax for most senior citizens. This year:

1. Tax on Savings Income is abolished

• In order to encourage people to save for their old age and to also encourage personal investment, Income Tax is abolished on all savings income.

For these purposes savings income means:

(a) dividends arising from investments quoted in a recognised stock exchange.
(b) interest paid directly or indirectly – by banks, building societies or other financial services institutions licensed in Gibraltar or in any other recognised jurisdiction to undertake deposit-taking or investment business; or (i) arising from investments quoted on a recognised stock exchange; or (ii) by the Gibraltar Government Savings Bank.

2. All Senior Citizens’ Allowances increased to £10,000

• Tax Allowances for all senior citizens will be topped up to £10,000 irrespective of the level of income. Under the present Senior Citizens tax scheme introduced by this Government a couple of years ago, men aged 65 or over and women aged 60 or over are exempt from tax on income upto £8000, with tapering off provisions upto £13,495. Senior Citizens with income between £8000 and £13,495 get a reducing benefit and Senior Citizens with incomes above £13,495 get no benefit at all.
• With effect from 1st July all men aged 65 or over and all women aged 60 or over will get additional allowances over and above their existing personal and wife allowances so that the total of their age, personal and wife allowance is £10,000.
• In effect therefore all Senior Citizens of state pensionable age, regardless of their level of income will have personal allowances of £10,000 and pay no tax on the first £10,000 of their income.

3. Personal Allowances

• All personal tax allowances are increased by 3%.

4. Child Abroad Allowance

• The allowance for child studying abroad will now be the same irrespective of the number of children studying abroad. Accordingly all such children will attract the allowance at £1015 p.a.

5. Disability Allowance

• The present disability allowance of £1470 is increased to £2500.

6. Dividends & Interest paid by Companies

• Taxation is abolished on dividends paid by one Gibraltar Company to another Gibraltar Company.
• Taxation is abolished on dividends and interest paid by a Company to a non resident recipient.
• The requirement to withhold tax from dividends in accordance with Section 39 of the Income Tax Ordinance is abolished.

7. Unilateral Tax Relief

• The unilateral tax relief provisions will be extended to all coun- tries.

8. IBNR Deductible

• Incurred but not reported claims (IBNR) will be allowable deduc- tions for insurance companies.

Other Budget Measures

1. Rates payable by Clubs & Societies

• Premises occupied by Clubs, Associations and Societies that do not operate on a commercial “for profit” basis will be exempted from Rates.

2. Rates Payable on Commercial Premises

• The existing 20% discount for early payment of commercial rates is reduced to 10%.

3. Gaming Tax

• The cap on gaming tax is increased to £425,000 with the minimum payable remaining at 20% of the cap figure. The actual rate of Gaming Tax remains unchanged.

4. The Elderly

The following measures are introduced for the benefit of the elderly, in addition to the £10,000 tax allowance that I have just described: -

• Medical tests for the renewal of driving licences for persons over 70 will be carried out free of charge by the GHA;
• Where the registered tenant or owner of a property, or the spouse thereof, is over 65 years of age, TV licences will be free.
• Where a man aged 65 or over, or a woman aged 60 or over, works they will no longer have to pay the employee’s share of Social Insurance Contribution. At present such persons pay £10.81 per week in respect of GPMS contribution. This will no longer be payable.
• The Elderly Persons Minimum Income Guarantee is increased by 3% from £95.40 to £98.26 per week for a single person and from £127.20 to £131 per week for a married couple.

5. Minimum Wage

The Statutory Minimum Wage will increase from £4 to £4.50 with effect from 1st July 2005.

6. Stamp Duty

• Stamp duty will be abolished on all transactions except real estate and share capital transactions.
• Stamp duty on share capital, whether on initial creation or subsequent increase will be £10.
• In order to further assist buyers of affordable homes real estate property that costs less than £160,000 will be exempt from stamp duty; for those worth between £160,000 and £200,000 it will remain at 1.26%. Stamp duty will be increased for properties worth more than £200,000 to an amount, not yet decided, but which will not exceed 2.5%.

7. Annuities

• At present only 25% of the capital value of a money purchase scheme may be withdrawn on retirement. The balance of 75% has to be used to purchase an annuity unless it purchases a pension of less than £1000 p.a. This is now increased to £2000. At present interest rates, this means that if the capital value amounts to less than around £53,000 it can all be withdrawn.


Related Articles:

Full text of Budget Speech by the Chief Minister The Hon Peter Caruana QC to the House of Assembly on 23rd June 2005

Full text of Budget Speech response by Joe Bossano GSLP / Liberal Alliance Opposition Leader to the House of Assembly on 23rd June 2005

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