Death and Taxes meet Joe Black
by F Oliva
The most commented news of the recent Budget Session was the unexpected ministerial
pronouncement regarding a more severe application of fiscal rules aimed at corporations,
property owners and a heterogenous grouping referred to as “the wealthy”. The insinuation that
this was only the beginning of more to come, was rather unnerving for those who consider the
idea that taxation is the lifeblood of government, the nation or democracy with unreserved
scepticism.
Regrettably a conspicuous scarcity of liberal economists in public life impoverishes the
quality of debate, as no well-argued rejection of the socialist taxation blueprint on philosophical
and political grounds is ever formulated. There is such a dearth of alternative thinking in this
area that policies advocating higher fiscal pressure not just ride through parliament unopposed,
but are elevated to dogmatic, quasi-religious status, and other than sporadic, disjointed
criticisms from trading organisations, no cohesive challenge to the dominant ideological
straitjacket of the current public finances model, breaks out into the surface.
Post 2027 the dim prospect of a hardened socialist administration coming to power on a
ticket of taxation as political heroin, and a heightened interventionist predisposition across all
areas of the administration is not unrealistic. In the absence of Picardo who has been a free
market pragmatist in this regard anything is possible; electoral concerns and fear of being
branded an advocate of ‘the-unmentionable-austerity’ make politicians jittery, and their knee
jerk reaction is always to stampede in the opposite direction.
We ought not lose sight of the fact that the private sector is the engine of the economy and
it cannot be used as a simple inexhaustible repository of funding for the public sector. It has to
be supplied with fuel, not deprived of it.
HIGH TAXES NOT THE PANACEA
High taxes are not the panacea for government finances much less for a territory’s
economic performance, and there are more efficient, empirically proven methods to successfully
balance the books while delivering higher rates of growth, long term financial stability and
prosperity.
Gibraltar is at a historical juncture, ripe for a change in democratic governance. We need a
political party that advocates minimal government intervention in the economy, where public
policy favours low rates of income tax both personal and corporate, a pared down state, and
robust support for small and medium sized enterprise.
Having many consumers with disposable income to invest in property, with capacity to
purchase goods freely in an open market is objectively good for trade and the economy at large.
Government should prioritize money remains in citizens’ pockets rather than indulge an
obsession to fill up the coffers of an ever expanding state.
But the reduced revenue has to be offset against a reduction in Government spending,
against a shrinking of the state to avoid budget deficits and further debt. There are no magic ways round that one. The golden rule that spending should not exceed revenue is common
sense. Value for money, efficiency and savings are also part of the equation toward a rational
fiscal policy.
It is about time individual responsibility in the management of personal financial affairs
was promoted, instead of passive reliance on a predominantly paternalistic state constantly
telling people how to live their lives.
We must also ditch the notion that the Government pays for everything so deeply
embedded in the collective psyche. Universal state benefits are unsustainable, should be strictly
means tested and only available to those who genuinely cannot afford to fend for themselves.
The safety net has to be reserved for genuine cases of hardship only.
SMALLER STATE POLITICS
Conservatives believe in a strong but smaller state, proportionate to our size, covering the
basic needs of citizens not the frills, ensuring respect for private property and the rule of law as
the two fundamental pillars of democratic freedoms.
It is reasonable that the state should provide essential services to the public, but much
more focused and wholly professionalised to ensure the effective allocation of resources.
Justice, health, education, law enforcement, fire and rescue, administrative and audit offices
need to remain under the official umbrella, but much of the rest can be outsourced as long as a
set of targets and standards are met. Gibraltar has a successful history of privatisation of utilities
which has served the public well and that is the direction of travel that should be followed.
Repeating the obvious at times becomes more necessary than ever. Bringing taxes down
is beneficial all round; it encourages domestic and foreign capital investment in new businesses,
generates favourable conditions for entrepreneurs, stimulates greater economic activity and
innovation that in turn creates growth and employment.
The core function of a state has to be funded by the taxpayer, the rest should not be a
burden on public coffers. There may well be disagreement as to the definition of that core
function. This article proposes a non-socialist perspective where cutting expenditure of non-
essential areas is imperative, as is the suppression of the Jacobin fixation with the Leviathan i.e.
the political state.
The grotesque proposals for the micromanagement of culture and entertainment is a case
in point, a policy which seems taken directly out of Castro’s Cuba and does not sit comfortably
with a modern advanced democratic British overseas territory. Unfortunately these measures are
announced to absolute oblivion from public opinion.
STRAIGHTFORWARD SAVINGS
Without even trying, savings of £20m in the Government budget could easily be made by
abolishing the wholly ideological ministries, i.e. Equality, Multi Culturalism, Climate Change,
by outsourcing quangos and agencies that have no reason to be in the public domain. This
would include Gibraltar Cultural Services, the toothless broadcasting division of the Gibraltar
Regulatory Authority, the Environmental Health Agency which would more properly be in
private hands and not funded by the hard earned cash of taxpayers. The obscene £5.7m subsidy
to GBC is a prime example where value for money standards are not met.
A review of the subsidies policy leading to withdrawal of all funding for the promotion of
ideological objectives across Government departments is another urgent requirement.
It brings into focus how negative effects occur when a Government minister fails to make
the transition from activist propelled into the slate of a political party that aspires to office, to
servant of the people. The democratic transmutation that should occur demands the former
forsake that narrow partisan cause to embrace the wider public interest. Unfortunately there are
examples of this across the house.
There should be constitutional safeguards against cases of default, specifically prohibiting the use of public funds to further ANY type of ideological aim.Additionally political parties need to introduce far more stringent candidate selection
procedures to ensure minimum standards, very much like athletes competing in the Olympics.
The current system is bankrupt. Paraphrasing a common slogan of our time, no politician is
better than a bad one.
THE WILE OF PROGRESSIVE TAXATION
The argument about a progressive tax system appears to be misunderstood at root and is
laced with generous doses of hypocrisy. What the socialist Government should do is to remove
persons on low income – a threshold of £20k seems reasonable – altogether from the tax net.
That would be a positive measure to assist those who earn the least in the community. The
sliding scale of taxation where the rich are supposed to pay a higher percentage than the middle
and low earners is also misleading. What really matters is the net total of tax revenue recouped
by the treasury that can then be used to fund public projects, rather than the ideological
emphasis that demands the rich be taxed at a higher rate. By way of example a 5% or 10% rate
to a millionaire will recoup substantially more money than 20% applicable to the ordinary
taxpayer. Insisting on higher tax rates for the rich risks them packing up their bags and leaving
to a lower tax jurisdiction, an outcome that would ultimately be to our financial detriment.
This is the second of two articles by F Oliva following the recent Budget session in Parliament. The first was published in yesterday’s edition.
