Govt’s approach to public finance ‘fails the smell test’, Clinton says

The Gibraltar Government is “flattering” its accounts by including as revenue “artificial” transactions with its own companies and entities it controls, including the Gibraltar Savings Bank, GSD MP Roy Clinton said in a budget address.
Mr Clinton said the government’s £75.8m surplus and its cash balance of £122.8m relied in large part on transactions such as stamp duty, property sales and the purchase of public assets by the savings bank.
Not only that, it had used the Gibraltar Savings Bank and Credit Finance Company to create “a back door funding method” for government companies to borrow for projects or buy assets from the government.
Those transactions were not included in government debt, meaning the snapshot of public finances presented by the Gibraltar Government in Parliament was not accurate, Mr Clinton argued.
The government’s interpretation of the rules on public finance and borrowing by government-owned companies “utterly fail the smell test”, Mr Clinton said.
“The numbers never lie, but it is much too easy for this Government to distort and hide the real numbers,” he added.
Mr Clinton identified, for example, the sale of 14 government properties from one government company to another for “rationalisation” purposes, in a £40.3m transaction that generated £1.4m in stamp duty.
In another transaction between government companies, the Eastside reclamation site was sold for £75.5m, raising £2.6m in stamp duty.
Mr Clinton listed several other examples and said in the last two financial years, the government had created “artificial stamp duty income” of at least £21m “…purely from transactions originated and directed by itself and not from independent economic activity in the private property sector.”
“It flatters the revenue of the Government and extracts cash from Government companies,” he added.
Mr Clinton also questioned £153.5m of government property sales in the three years prior to this financial year.
“Unless all this property has been sold on to the private sector by those Government owned companies all that has happened is that the Government has extracted cash from its companies and replaced it with property in the books of those companies while recording a sale in its books,” he said.
The GSD MP raised concerns about the government’s use of the Gibraltar Savings Bank to purchase government assets and take on its obligations.
He cited by way of example the GSB’s purchase Telekom Solvenije’s 50% share of Gibtelecom – which the Gibraltar Government had said in 2014 it would buy back – and Credit Finance Company’s 49% share in Shell LNG Gibraltar.
“This together with the other types of transactions I have identified brings the running total to £246.1m which, if reversed, would wipe out not just this years projected surplus of £75.8m but also the entire combined cash balances of the Consolidated and Improvement and Development Funds of £122.9m and theoretically leave us in a loss making position,” he said.
Mr Clinton estimated that “indirect” debt through government companies amounted to £772m which, coupled to the “official” gross debt figure of £447.7m, pushed gross public debt to £1.2bn, far higher than the Gibraltar Government’s figures.
“When the Chief Minister claims that the Government’s direct net debt is falling let’s not forget that he has loaded up on indirect debt at almost twice the amount,” he said, adding that a debt management plan and forecast was needed.
The government’s record on financial transparency also came under attack, with Mr Clinton insisting that it had no detailed oversight of public spending.
“How can we hold the government to account when so much of its activity is deliberately structured and financed via government-owned companies outside the remit even of the Principal Auditor?,” he asked.
“How can we know the true level of our indebtedness or otherwise as a community?”
Mr Clinton did have some words of congratulation for the government, welcoming news for example that Housing Minister Samantha Sacramento’s ministry had recovered £1m in rent arrears.
But he cautioned that such progress must also been seen against other factors including overspend by the Ministry of Culture of £1.6m alone on last year’s Gibraltar Music Festival.
Mr Clinton also reflected on inward investment, asking why major projects had yet to come to fruition, and analysed recent developments in financial services, small businesses and heritage, all of which he shadows.