Financial mess, but no solution offered

By Robert Vasquez
Gibraltar is ‘broke’ says Roy Clinton, the GSD Shadow Minister for Public Finances, in his Opinion piece of March 20. Yet, he offers no tangible solutions, despite the GSD’s ambition to govern.
If the GSD are to be elected, he, and the GSD, must put forward solutions to the current bad state of public finances that it highlights.

EXTRAVAGANCE
He described public finances as being in a “dangerous tailspin” in his 2024 Budget parliamentary intervention.
His Opinion piece suggests that GSLP-Liberal extravagant expenditure is being patched over with Gibraltar Savings Bank savers’ money at below market rate interest.
He warns, “Beware the demons to come in the 2025 Budget”.

DISTRACTION
Meanwhile, the GSLP-Liberal Government insists on distracting people from reality. They play ‘distraction politics’ over public finances.
It campaigns that it will hit at ‘fraudsters and freeloaders’. It is an issue, but not the cure for the existing public money problems.
The GSLP-Liberal Government are not governing responsibly for the greater good.

WASTE
The problem is caused by huge and unaffordable spending over past decades.
Warnings from a few quarters have fallen on deaf ears. The quest by some has been for political power and position. Their selfish interests have prevailed.
Mr Clinton rightly says, “The main issues of debt and unrealistic budgeting and waste still have not been addressed by the Chief Minister, as Minister for Public Finance.”.
The reality is worse. It is that public cost and spending is increasing at a higher rate than revenue.
The increase in tax recovered is below inflation and not enough to justify current spending levels or resolve the financial mess.

THE PROBLEM
Unpopular decisions are needed, but those undermine electability, despite the need for honesty and not just political expediency.
It may be good to see Mr Clinton preaching honesty and financial prudence, but he fails in the end, as he does not provide solutions, as indeed nor does the GSLP-Liberal Minister for Finance, Mr Fabian Picardo, so he fails also.
In that scenario, Gibraltar’s public finance problem will grow due to the personal political ambition of both the GSLP-Liberals and the GSD, with them not doing what is best for the public good.

DEBT
Mr Clinton reveals, “The total direct official gross debt of the Government (confirmed in Parliament) as of January 1, 2025, stands at £872.7 million”.
He estimates indirect public debt to be over £1.3 billion, of which, the Gibraltar Savings Bank is directly and indirectly owed nearly £1.1 billion.
Additionally, there is a £300 million loan secured on Government Housing Estates and added borrowings for the power station.

ALL OWE
It is easy to say, ‘public debt’, but what that means is that it is owed by all of us. The total public debt is about £2.2 billion pounds, divided by the 25,200 registered voters, that means each of us owes £86,218.25; whilst all of it will not need to be paid, it is a very high per capita figure.
Maintaining that high level of debt needs very dynamic and successful economic and business activity, which is primarily encouraged by a fluid frontier.
Maintaining that will need a Gibexit ‘deal’ between UK/Gibraltar and EU/Spain.

‘ROSY’ PICTURE
The GSLP-Liberals have ignored that what is needed to benefit all of us is a balance between revenue and expenditure. They have worsened public finances and done little to improve them.
In his 2023/24 Budget speech, Mr Clinton revealed that:
“The Budget presentation has been changed so that the Government can pretend the Consolidated Fund has produced a small surplus in 2023/24 and projects the same for 2024/25… [this is] a disingenuous and inconsistent presentation of the numbers…”.
He proceeded to show that there were deficits.

CLINTON’S ROADMAP
Mr Clinton suggests a road map to start getting public finances into shape, but his suggestions do not resolve the actual financial mess.
They establish systems and institutions to start dealing with it, prevent it from getting worse, avoid future repetition and finding ways forward.
Mr Clinton suggests nothing to resolve the real issues he highlights.
Those are that public revenues are not sufficient to meet public expenditure, and that additional borrowings, were any to be available, are unaffordable.

A WAY FORWARD
‘Real’ government is needed, not just ‘playing’ at government.
The only, but hugely unpopular, way forward is to increase taxes, rates and public housing rents, but all that undermines the selfish ambition of many, which is to be elected to government.
Public cost and added public borrowing will only be affordable, however, if revenue streams are improved to meet outgoings and debt repayment.

‘DEAL’ OR ‘NO DEAL’
Affordability will be affected adversely if there is ‘no deal’.
There will be an economic downturn in some sectors, however, even if there is a Gibexit ‘deal’, but that ‘rainfall’ will not be the tropical torrential downpour that a ‘no deal’ would bring.
A ‘deal’ is more likely, irrespective of the compromises, as publicly admitted by Mr Picardo, that will be needed.
Whispers continuously indicate that a ‘deal’ is in the offing.

FINANCIAL RESPONSIBILITY
It is the responsibility of MPs, specifically the Government, to clearly spell out the public finance problem, its extent, and their proposed solutions to it.
The GSD has not done so, nor has the GSLP-Liberal Government. Voters are left in the dark.
Systemic changes, which are what Mr Clinton has put forward publicly, whilst needed, do nothing to solve a shortage of money.
Only increased public revenue streams and expenditure cuts will help.

PAYING THE PRICE
We will all pay the price, but Mr Clinton does not put forward any actual suggestions how that will happen.
He suggested that what is needed is resilience, community spirit, sticking together in tough times, protecting each other, not leaving anyone behind and a long road to economic stability, but there is no getting away from it: none of that will fill the public purse.
To pay one needs the money, and that comes directly or indirectly, in the main, from each of us.
Public funds come mostly from direct taxes (being the largest slice), rates, indirect duties, other government earnings, gambling charges and fees, rents, departmental fees and other receipts (public undertakings).

SOLUTION
There is a little room to cut costs. Cuts must be pursued, but cuts will not resolve the problem.
There is a need, aside from growing the economy, to increase public revenue by increasing direct taxes, rates, rents and other revenue streams, but that is unpopular, so no politician will say it. Any income and other tax changes will need to protect the finance and gaming sectors. Those bolster employment thereby increasing revenues.
Playing with peripheral income producing streams will help also, but is not a solution either, even if combined with cost cutting.
A cost/benefit review of the overall public finance advantages of special income tax benefits given to some should be undertaken. The income tax rates payable in Gibraltar are low enough to attract those people paying their full way.
It is time for our politicians to face reality and take responsible decisions.

Robert Vasquez, KC, is a retired barrister and political commentator. He stood as an independent candidate at the last general election on a platform of democratic reform.