CM announces ‘prudent’ budget and says Gibraltar is on track for recovery

Chief Minister Fabian Picardo announced a 1% tax cut for people earning less than £100,000 and one-off cost-of-living payments to public sector workers during a “prudent” budget speech during which he insisted his government had restored financial stability after the impact of Covid-19.

Mr Picardo highlighted investment in schools, housing and healthcare as he also announced an increase to the minimum wage and to statutory payments for the elderly and most vulnerable.

There were 15% increases announced too for student grants and sponsored patients, and there would be no increase to utility bills while inflation remained over 5%.

The Chief Minister said this year’s deficit was down to £15m from initial forecasts of £50m, while a £2.5m surplus was forecast for 2023/24.

Gibraltar, he said, was “on the right road” to recovery after Brexit.

“Today, after Covid as before, I see a Gibraltar of entrepreneurs and workers in partnership,” Mr Picardo told Parliament.

“I still see a Gibraltar we have built through generations that have never had an easy ride.”

“And that is why, with the Covid debt to deal with and with Brexit still to be safely resolved, the measures announced today are not designed to deliver spending on ‘goodies’ to win an election.”

“Instead, these estimates are designed to deliver spending properly, and carefully calibrated to protect our nation.”

The measures, Mr Picardo told Parliament, come at a time when Gibraltar was still recovering from the Covid-19 pandemic and the knock-on effects of the “Kwarteng Budget”, while still dealing with Brexit, the cost-of-living crisis and the economic impact of Russia’s war on Ukraine.

The aim is to get beyond the “truly exceptional circumstances” which have taken place so far this decade, which last year saw tax increase by 2% alongside hikes to utilities.

The Chief Minister told Parliament the Government had secured a three-year extension for repayment of a £500m debt facility during Covid, on the same terms. The UK sovereign guarantee linked to that will also be extended.

This long-term facility includes a commitment to repay 10% of any budget surpluses towards the debt.

Mr Picardo said Gibraltar had seen a “magnificent GDP performance” and a reduction in public debt, contrasting that against the GSD’s net debt ratio which was about to exceed the debt ceiling in the runup to the 2011 election.

The latest forecast for GDP in 2021/22 is £2.55bn, representing a 5.4% growth, while the GDP forecast for 2023/24 is £2.74bn, up 7.5%.

The public debt/GDP ratio fell in net terms to 22.4% of GDP in 2022/23, from 25.6% in 2021/22, Parliament heard.

Mr Picardo said this rate was “considerably” lower than when the GSLP/Liberals took office in 2011, when gross public debt had grown to £517m and net debt was £304m on a smaller GDP.

“In fact, now, not only are we on a lower GDP to net debt ratio, we have massive headroom for extra borrowing should we need it,” Mr Picardo said.

Net Public Debt as a percentage of GDP stood at 22.4% as at March 31, 2023, leaving headroom for an additional £481.8m of borrowing, he said.

The Chief Minister repeatedly stressed too that Gibraltar had largely escaped the large increases in budget measures being applied in the UK and the EU, where electricity bills for example had increased by over 300% in some cases.

And with an eye on the forthcoming election, the Chief Minister sought to pre-empt some of the criticism that was later levelled at him by Opposition Leader Keith Azopardi, who said the budget was “built on a fiction” and that Gibraltar public finances were in crisis.

“Given the bleak analysis of the public finances that they are doing outside of here and will no doubt repeat in this debate, I assume the GSD are not going to go into an election promising to build another rental housing estate or any other affordable homes,” the Chief Minister said.

“If they truly believe what they are saying about the public finances, they cannot commit to anything but austerity, hellfire and brimstone for four years.”

“They will have to go to the election promising only to raise taxes, raise social insurance and raise all Government charges.”

“If they do not, they are, in effect, going to be admitting that our analysis of the public finances is the correct one and theirs has been false all along.”

“They cannot have it both ways.”

Among the key budget announcements were:

• Personal tax rates will decrease by 1% for those below £100,000. This means that the maximum effective rate for anyone earning above £25,000 and below £100,000 will be 26% and not 27% when taxed under GIBS. The effective rate will decrease from 19% to 18% for anyone earning below £25K. Those earning above £100,000 will continue to have that income taxed at 27% for another year. If returned to Government, the GSLP/Liberals will reduce all rates to 25% next year.

• The Minimum Wage will increase, in line with estimates of inflation, at the rate of 6.2%, up by 50 pence to £8.60 per hour. Based on a 37.5-hour week, the Minimum Wage will go up from £15,855.75 to £16,770.00 an increase of £914.25 per annum. Based on a 39-hour week, the Minimum Wage will go up from £16,489.98 to £17,440.00.

• The State Pension and Disability Benefit will go up by 7%, just over the forecast for inflation.

• There will also be an increase for occupational pensions from the Government which will increase by 2%.

• The student’s maintenance grant will increase from the next academic year by 15% for last year and this year in order to assist with the cost-of-living increases in the UK over the past two financial years.

• The sponsored patients allowance will increase by the rate of inflation in the UK in the past two years, or 15%
Public Sector Workers Below a Basic Salary of £50,000 will receive a non-consolidated, non-taxable lump sum assistance payment of £1,200 to help tackle cost-of-living increases.

• Public Sector Workers with Basic Pay Between £50,000 and £75,000 will receive a non-consolidated, non-taxable lump sum assistance payment of £900 to help tackle cost-of-living increases.

• Public Sector Workers with Basic Pay Between £75,000 and £100,000 will receive a non-consolidated, non-taxable lump sum assistance payment of £600 to help tackle cost-of-living increases.

• The entry-level salary of all public sector jobs will be amended to £ 21,674 per annum, an enhancement of 16.61% for lower earners in the lowest entry point of these grades. Coupled with the (6.64%) Public Sector Support payment, this will equal a 23.25% increase in the salary of the lowest entry point in the service. The Administrative Assistant (AA) external recruitment process will commence this week.

• Water and electricity bills should increase by a further 6.2% “at least”, following the 8% hike last year, but will not be increased by the Gibraltar Government while inflation remains above 5%. Against the backdrop of the Ukraine war, the Government said increases in electricity charges in Europe and the UK have exceeded 300% in some cases.

• The import duties on fitness trackers, on bicycles, bicycles accessories or spare parts, treadmills and all other gym or fitness equipment will be reduced to zero to encourage healthy lifestyles.

• Duty on tobacco goes up by £25 per master case, or 50p per carton, 5p per box of 20 cigarettes. Duty on vapes and all associated products will be half that on a box of 20 cigarettes.

• Individuals who are enrolled in a gym or who contract a personal trainer who is registered with the tax office, will be able to deduct 10% of the verified cost against the bottom line of their tax bill.

• Parents who are funding private school tuition for their children in Gibraltar will now be able to set off 10% of the cost of that education against the bottom line of their tax bill.

Mr Picardo described how his government’s spending over the past 12 years has changed Gibraltar “beyond recognition” through investment in new schools, improved healthcare and housing.

The Government has so far spent £160m on new schools that Mr Picardo called the envy of every nation in the world.

He highlighted spending on mental health services and Government housing estates, adding more refurbishments to estates are to come, and said GSD criticism of the spending was an attempt to scare Gibraltarians into choosing stagnation over progress.

His budget address also saw the announcement of a “significant overhaul” of the entrance to St Bernard’s Hospital and Primary Care Centre, which will become one and the same.

The project will include new waiting areas for the entire Hospital, with digital checking in facilities, and with meeting spaces adjacent to the new entrance for patients and visitors.

“This change will mean that waiting areas and administration areas around the entire Hospital will be released for clinical use and centralised within the new facilities,” Mr Picardo said.

Mr Picardo described how the tourist trade in Gibraltar has generally increased post-Covid, and this year saw the highest revenue in tourism and tourist site receipts in Gibraltar’s history which have more than doubled over the receipts inherited from the GSD.

Average earnings for Gibraltar employees increased too over the past year by 5.1% to £34,105 with a record 31,150 employed locally, representing a 2.5% increase.

Revenue from import duty, however, was found to be disappointing at £93m, around £30m under the year’s estimates.

Cash reserves at the Gibraltar Savings Bank now stand at £67.5m and are estimated to increase to £70m, which Mr Picardo called “remarkable” after the GSD “left the kitty bone dry”.

Mr Picardo also hit out at the GSD for depleting the reserves of the Community Care Charitable Trust, which now has £38m in its reserves.

“Because however much they preach and pontificate about prudence, the fact is that the one time they got their hands on the purse strings they stripped the rainy-day funds bare,” Mr Picardo said.

He added his government has navigated Gibraltar successfully through the storm of the past few years.

“We have safely reached the shore with deficits behind us,” he said.

“We have kept Gibraltar safe.”

“And in doing so we have confirmed the confidence that the People of Gibraltar deposited in us as the team that could keep Gibraltar safe.”