Working together for Gibraltar’s future

By John Isola

In the nine and half years since the EU referendum, barring the two-year period of the pandemic, Gibraltar’s economy has continued to grow, create jobs and generate revenues for Government. Many local companies selling physical goods took longer to recover from the lockdown than those in the pure service business but overall, the Rock’s economy has managed to bounce back relatively well.

The announcement by the UK Chancellor in her November budget that she will increase tax on remote gambling from April this year is likely to have a dramatic effect on local operators. They will be forced to make cost cuts to deal with these tax increases and adapt accordingly.

The effect on Government revenues is likely to be material.

It is unreasonable to think that Gibraltar can change or develop one or more new business sectors in the space of six months or so to replace any revenues which will be lost from the gaming sector. This might be possible over a longer period, but it will take time.

Looking to the UK Government for assistance was wishful thinking. They are in a far bigger hole of debt than Gibraltar and it is they after all who have made the change to the taxes on remote gaming. Indeed, the UK Secretary to the Treasury has now confirmed that it will not change its decision.

So, it looks like we are on our own.

It will be tough, but Gibraltar’s economy is able to adapt, just as it has done so before. The changes are not due to hit for another 4 months yet so there is time to make some changes, but time is of the essence. The hit to Government revenues will be felt almost immediately once the changes take effect. The Chamber urges the Government to resist the temptation to raise rates on income tax or employer’s social insurance to make up the expected revenue shortfall. Businesses trading in physical goods are already having to contend with the expected sharp rise in costs which the transaction tax will bring. The associated costs of making the changes necessary to comply with the forthcoming Treaty plus the cost of providing occupational pensions are additional burdens which local companies will have to face.

 
Greater public sector efficiencies

A better alternative would be to look at how greater efficiencies and cost savings can be made in parts of the public sector. There is compelling evidence that considerable savings can still be made in parts of the public sector through cutting overtime in non-essential services, better procurement sourced with greater use of eligible local suppliers and resisting pay claims which are well above inflation. Even the Unions acknowledge the pressure which the gaming tax increases will have on Government finances. The Government should be moderate in any public sector pay claims until it has greater visibility on the effects of the UK gaming tax increases on the one hand and the local impact of the new transaction tax, on the other.

The Chief Minister is very optimistic that the Treaty will be positive for local traders in Main Street and elsewhere, despite the higher transaction tax. The expected jump in visitor numbers should thus avoid the need for any further tax increases once efficiencies have been made.

The comment by the Chief Minister in his post referendum budget speech in 2016 is as relevant today as it was then nearly a decade ago:

“Every interaction with our clients, investors and visitors is an opportunity and a responsibility. We can and must all make a difference. In that respect, the public service will be hugely important…. We have to be ready to do more, go further, work harder, be more efficient and wield greater influence than ever in building our common future.”

In the immediate aftermath of the UK Chancellor’s decision and its inevitable impact on local Government revenues, we urge the Government to ensure that every measure is taken to improve efficiencies across all departments. This includes restraint on above inflation pay claims, the granting of overtime in non-essential services and scrutinising costs wherever possible.

The wider roll-out of E-Government services should enable this exercise and some potential efficiencies are already becoming apparent. Further cost savings should become evident in the months ahead as E-Government services are improved as E-Government services are improved and widened in scope.

Targeted investment needed

Some investment in upgrading the look and feel of the border entry points, Main Street and the pedestrianised zones will also be needed. A limited monetary outlay would make a considerable difference in how Gibraltar presents itself.

Given the forecast increase in tourist visitors which the Treaty is expected to create, some capital investment will be needed in Gibraltar’s transport infrastructure. This will be for moving people around Gibraltar, whether they are local residents or visitors. The current provision is good, but it reaches capacity at peak times so additional services need to be added to cope with the expected increase in visitor numbers.

As the Cable Car will be out of action for the next 2 years there is both the need and the opportunity to rework how Gibraltar moves several thousand people around the Rock in the most efficient way.

The public transport network needs to be extended so that cruise passengers can use it from the port into town and back again. A regular Hop-on/Hop-off service is normal in most city centres, and this should not be too difficult to introduce if there is the political will to do so. With more cruise calls and larger ships, the existing tour operator and taxi provision is too small to cope with bringing more cruise passengers into town. Let the taxis and tour operators concentrate on what they do best by providing local Rock tours. Government should set up a dedicated shuttle service for cruise ship passengers who are not on a scheduled tour to encourage them to come into town. The additional spending of these visitors would more than offset the cost of providing the shuttle service.

Gibraltar should show itself at its best and the improvements made to Casemates, Main Street and the pedestrianised areas will demonstrate the pride and confidence which we have in ourselves. We have just as much to offer as many other towns, but with a greater uniqueness and originality not found elsewhere.

Many of our members continue to invest in upgrading their storefronts and these new fresh offerings make for a welcome and distinctive retail experience. With an open border, these businesses expect that unregistered or unlicensed traders are brought firmly into line by the authorities. Recalcitrant operators should not be allowed to exploit the lack of enforcement which has been tolerated for far too long.

Diversifying Gibraltar’s economy will happen over time provided that the Government makes it easier for existing businesses and potential investors to operate. The Chamber welcomes the priority which the Government is giving to this and looks forward to seeing the revised criteria on who can come to Gibraltar to live and work which are due to be published in February. Provided that this is clear, civil servants will be able to execute the policy without having to second guess what the elected policy-makers’ policy may or may not intend.

New sectors will take time to develop, and Gibraltar is in a highly competitive race to attract new business. The sooner the certainty of a treaty can be revealed to the business community, the sooner Gibraltar’s rainmakers can go out and market Gibraltar as a place to operate their business.

Gibraltar has faced a variety of different challenges before. One example was the end of the tax-exempt regime. The lesson learnt then was that we waited too long for its replacement to emerge and lost business to other jurisdictions as a result. Businesses will adapt and look for new opportunities, but they need to have clarity on the legislative road map to do this. They also need to know that there is an efficient public sector which is making every effort to support them.

John Isola is the President of the Chamber of Commerce.