Company borrowing has 'absolutely no connection' with Govt spending

Sir Joe Bossano attacked the GSD's decision to once again vote against the budget, insisting that borrowing by public companies had "absolutely no connection" to government recurrent expenditure.

In a detailed budget address that delved into economic concepts in a bid to deconstruct GSD criticism of the government's handling of Gibraltar's public finances, Sir Joe said public companies should be allowed to conduct their affairs under market rules.

And he accused the GSD of saying one thing in Opposition and doing another in government, reminding the Opposition that it too had used company structures in the past and had planned to raise finance in the US for a diesel power station that would ultimately have been funded by higher electricity prices in Gibraltar.

Sir Joe was responding to GSD criticism that the government's budget presents a distorted picture of public finances and debt levels because it does not include major capital projects channelled through government-owned companies.

For three consecutive budgets, the GSD has decided to vote against the Appropriation Bill because of its concerns about how the government handles public spending and accounting.

"This is not a question of secrecy it's a question of protecting the right of the entities in which we invest to have a level playing field and not be handicapped because the shares are publicly owned," Sir Joe said.

Sir Joe said the key metric in analysing public borrowing was the debt to GDP ratio, insisting that it was impossible to fund capital projects if debt was measured against revenue.

"All this has been explained ad nauseam but the members opposite do not care about the explanation because their strategy is not about accountability, transparency or anything else, it is about finding something to attack the government with in order to be seem to be an effective opposition."

"The only relevant issue in borrowing, irrespective of who is doing the borrowing, is whether the money is employed so that it produces a return that is greater than the servicing cost."

"The opposition says the level of borrowing by companies is what stops them being able to vote for the government recurrent expenditure."

"There's absolutely no connection between one thing and the other."

"Nothing that they get told will change their mind because having decided not to vote in favour of the Appropriation Bill they are now stuck with the policy."

Sir Joe said that although many countries financed recurrent using debt, Gibraltar had since 1988 borrowed only to purchase assets.

And he said that increasingly, economists shared the view that it was not the size of the debt that mattered but whether it was raised within the country and was in the national currency.

Sir Joe, who was 80 on Monday and said he could think of no better place to celebrate his birthday than in Gibraltar's Parliament engaged in a budget debate, also hit out at the GSD's record of bookkeeping for the publicly-owned companies it administered while in office.

"They did not just fail to give information, which we accepted, they didn't even comply with the law to have up-to-date accounts for 15 years, [so] how do they have the gall to question anything now?" he asked.

"As socialists we believe in public ownership of companies that engage in commercial activities."

"We believe that such companies have to be allowed to conduct their affairs under the rules that apply in the market."

"So why does Mr Clinton think that Gibtelecom should be debated in Parliament as if it was a government department because the Savings Bank has invested in its shares?"

"Does he think this because it's Gibraltarian and that it should be handicapped?"

"Or does he think that if the Savings Bank bought BT shares we should debate the activities of BT in this Parliament?"

In a wide-ranging speech that also defended the government's track record on training and industrial relations, Sir Joe repeated the same warning about the need for greater efficiency that he made during last year's budget speech, and for which he was sharply criticised at the time including by the GGCA union.

Last year the pay of ministers and the highest-earning civil servants was capped last year, something which was not repeated in this year's budget. Not only that, the government will reimburse the money from last year to those affected.

Sir Joe said that the economy had performed better than anticipated against the backdrop of the Brexit uncertainty, but that this was still a key factor going forward.

"We need to understand that if we find ourselves facing financial difficulties once we are out of the EU, those who are on the highest salaries have to expect to be affected rather than those on the minimum wage," he said.

"I cannot see how anyone who believes in social justice can expect it to be any other way."

And he added: "The fact that we're able to meet an increase in expenditure in a particular year doesn't mean that we're going to be able to keep on increasing recurrent spending at the same pace in the future given that we're not able to project the revenue figures into the future."

"This would have been true especially of this year had we left the EU in March and will be true after October if we leave then."

"I believe the nature of the structure of the economy is such that it is not capable of producing increases in revenue indefinitely to meet the kind of increases in expenditure we have been experiencing over the last few years.

"Therefore we should be thinking how we can develop a different economic profile that will provide greater security of income, or we will have to introduce effective measures that will secure greater efficiency to enable us to continue to meet the rising level of expenditure in one area through savings in another."

"Both are difficult to achieve and it will probably have to be a combination of the two."

Sir Joe struck a downbeat note as to whether his warning would be heeded, however.

"Affordability in one year does not imply sustainability in the medium term, and therefore what I issued last year was a health warning which applies equally to this year’s estimate of revenue and expenditure," he said.

"Like the health warning on a packet of cigarettes that many choose to ignore but some take heed of."

"I do not expect that my health warning will be as effective and produce a change of direction."

"But it is my duty to give the health warning because if I see the danger signs, I say nothing and then things go badly wrong, I will have failed to do my duty."

Sir Joe said that part of the problem was that many people were making a simplistic analysis of the economic indicators, questioning why, if GDP per capita was so high, the government was unable to carry on increasing recurrent spending.

"Experience has taught me something about human behaviour," he said.

"As a general rule people do not take heed of things they do not want to hear."

"So why did I issue a warning last year and have repeated the same this time?"

"Because the reaction I have had indicates to me that those who disagree with me are not analysing the validity of the arguments, but simply reacting because they don't want to hear them."

"My most fierce critic has more than once said that my speech is like a broken record repeating the same theme."

Sir Joe also reflected on the environmental challenges facing the globe and said that at the root of this was western consumer demand and the "insatiable" culture of entitlement which was "not limited to Gibraltar" and transcends politics.

And he said that what was needed was a "radical" marriage between economic and environmental sustainability.

He was clear too that even though Gibraltar was too small to have any discernible physical impact on the globe in terms of its environmental initiatives, it could lead by example.

"My job is to make our economy grow and just like going green in Gibraltar will not affect the greenness of the rest of the planet, so growing faster will not dramatically damage the prospects of survival for the planet," he said.

"We are too small to count."

"But we're not too small to set out to be an example to others, even if few will follow."