Monday, June 27, 2005

Mixed reaction to Budget measures

By Peter Schirmer

Business sector: Chamber ‘shocked’ at rate increase

While aspects of the Budget announced by the Chief Minister on Thursday have been welcomed by local bankers and most financial services players, the Chamber of Commerce has slammed other provisions – including the Government’s halving of the discount previously allowed for early payment of commercial rates.

And the Chamber continues to take the Government to task over the high cost of the civil service. “It is a total shock to the business community that, in spite of the strong growth of the economy, the Government has decided, in effect, to increase commercial rates by reducing from 20 per cent to 10 per cent the discount for early payment,” Chamber President Peter Isola said yesterday. “Business is being penalized by the increase in the slice of the rates cake."

“Rates in Gibraltar are already extremely high and a burden on all our businesses. And one should remember that when the 20 per cent discount was introduced – to encourage business people to pay on time – Europort was half empty so that the income from commercial rates was actually far lower than it is today…when Europort office space is bustling and virtually full.”

Mr Isola also expressed dismay that, although Gibraltar’s economy was “running so successfully on all cylinders” the actual surplus should be a mere £2.9 million.

In fact, as the Chamber’s board points out in an article to be published next week in its quarterly magazine “B2B” were the Government to collect all the revenue it is owed – in tax and PAYE arrears, outstanding unpaid rates and rents, which by 2002/2003 stood at more than £50 million or 27 per cent of GDP – its finances would be extremely healthy. Elsewhere in the same issue it discloses that unauthorised sick leave in the civil service could be costing the taxpayer more than £3 million annually.

“With the economy bowling along successfully one would expect public expenditure to drop as a percentage against the background of the economy as a whole,” Mr Isola pointed out.

“Instead, it remains as high – and even higher – which can only be seen as part of the Chief Minister’s disappointing determination to maintain the fable that the public service is efficient. The sort of ‘windfalls’ like the March boost of corporate tax revenue and other one-offs are unlikely to be repeated and if this current high rate of spending on public service is maintained the only way to balance the books will be to raise taxes…"

Of course, there are things to welcome about the Budget” Mr Isola adds. “The restructuring of stamp duty on property transactions and its elimination at the lower end of the scale should certainly help those trying to get a foothold on the property ladder. And the Chamber believes that provision should be made for the elderly – which this Budget does.”

Both Isola and local bankers argue that “the devil may be in the detail” as far as some of the measures are concerned.

“I can only go by what I have read in the Chronicle, but if as it seems some of the measures are designed to improve trading conditions, that can only be for the good,” says Franco Cassar local managing director of SG Hambros Bank.

“But the intention behind the abolition of tax on savings income is not clear. If it is to encourage people to bring back cash to Gibraltar from overseas, it could be good for the economy and create more job s in banking. If it is purely not to tax people, there’s no real advantage to the economy as a whole – though individuals may feel a benefit.

The abolition of tax on income from savings could be extremely good news for banks and other local financial institutions,” added Tim Streatfeild-James local director of Barclays Bank. “It could encourage Gibraltarians and other residents of the Rock whose money is held or invested elsewhere to repatriate that cash…where it will be used to the benefit of our local economy.”

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

24 June 2005 - Budget “another wasted opportunity” says Reform Party


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