Of fraudsters and freeloaders and other demons to come in 2025 Budget

By Roy Clinton, Shadow Minister for Public Finance

When a Government starts to blame an imaginary enemy of the people for their own failures you know you live in difficult times. The Chief Minister in trying to cover up the ham-fisted scholarship entitlement mess has resorted to pointing the finger at ‘fraudsters and freeloaders’ as being the culprits that he is trying to protect us from.

The malaise it appears is so deep that these culprits must also be rooted out from our medical and housing benefits system so as to protect future generations of Gibraltarians. Such was the thrust of the Chief Minister’s New Year’s message. It is not credible that after 13 years in power the GSLP/Liberals have only just discovered that our system of medical, educational and housing benefits is rife with fraudsters and freeloaders. People are not so easily fooled.

In my budget address last year I warned that Gibraltar’s public finances were in a ‘dangerous tailspin’ and proposed a roadmap for recovery. The main issues of debt and unrealistic budgeting and waste still have not been addressed by the Chief Minister as Minister for Public Finance. The painful truth is that the coming 2025 budget will have to address the cumulative financial failures of this GSLP/Liberal government. These are the real financial demons that we must face.

DIRECT DEBT

The total direct official gross debt of the Government (confirmed in Parliament) as at January 1, 2025, stands at £872.7 million. This is made up of bank debt of £500 million and government debentures of £372.7 million purchased by the Gibraltar Savings Bank.

Whereas bank debt has not increased since October 1, 2022, the servicing costs on this debt have increased significantly as interest rates increased from 0.5 % in February 2022 to 4.5% in February 2025 putting additional pressure on the consolidated fund. All of the bank debt is with NatWest but under two agreements namely: £425 million under the £500 million UK guaranteed facility and £75 million under a pre-Covid five-year facility that expires on March 31, 2025. The Chief Minister has advised Parliament that repayment of the £75 million facility is under negotiation and will not provide any further information. If the repayment of the £75 million is achieved by drawing down what is left under the £500 million facility then the Government will have no headroom left with NatWest in the absence of new borrowing facilities.

There is still no roadmap as to how the Covid era debt will be repaid. In 2024, £10 million from the debt sinking fund was released back into the consolidated fund, as the 2023/24 finances were so bad, such that it stands now at only £18 million. No debt has yet been repaid.

The £372.7 million borrowed from the Savings Bank had its interest reduced on April 1, 2023, such that the Government is now paying below Bank of England rates (currently 4.5%) at 3.5% on £100 million and 2.7% on £272.7 million. This gives the Government a subsidy of around £7 million given that the money the Savings Bank raises by issuing debentures to the public costs it around 5%. So the lending to Government is now causing a loss to be incurred by the Savings Bank despite Sir Joe Bossano’s boasts of his financial genius.

The Government has some serious issues to address on direct debt repayment and the servicing of existing direct debt and no amount of spin or deflection, or creative bookkeeping, can exorcise that demon.

INDIRECT DEBT

Since I last wrote about this in January 2024, the Government has, through its companies, borrowed a further £133 million from the Savings Bank. This is £7.5 million by GAH Limited to purchase AquaGib, £55.8 million by GSBA Limited for the National Economic Plan and £70 million by GEP Limited for which the Chief Minister has refused to give information to Parliament as to the reason this money has been borrowed. The Savings Bank is now owed £725 million by Government companies in indirect debt.

When you add the £300 million mortgage of the housing estates, £92 million for the power station and others the total of indirect borrowing I estimate is around £1.3 billion. All of this needs to be repaid together with £872.7 million of direct debt i.e. around £2.2 billion. This is the true scale of the demon.

CONSOLIDATED FUND

All Government recurrent revenue and expenditure need to be recorded through the consolidated fund making it a many-headed serpent with competing demands.

On the revenue side the main sources of this are income tax, corporation tax and import duty. I have been monitoring each of these on a monthly basis in Parliament and both income tax and import duty as at December 2024 appear to be on target to meet the 2025 estimate. Corporation tax at the same time does appear to have achieved 90% of the estimate with a lump due yet in February 2025. Minister Feetham’s boast of a higher corporate tax revenue does bear scrutiny, but it may not be enough to satisfy the spending needs. The Chief Minister has refused to provide Parliament with any further monthly tax collection numbers beyond December, so for now we will remain in the dark until the Budget debate.

On the spending side, Parliament was given the position as at September 30, 2024, the half way point for the financial year ended March 31, 2025. This showed departmental expenditure of £321 million which is £21 million above the pro-rata estimate of £300 million for the half year. Of this notional £21 million overspend £16.6 million was in Health and Care which has an annual budget of £207.7 million having spent £120.4 million as at September 30, 2024. In the past we have criticised the estimate for Health on the basis that it was unrealistically low given past experience and the likelihood of increasing demands. It remains to be seen whether the new internal audit department at the GHA will be able to make any impact on the highest spending area of Government. But of course when the GSD spoke of the importance of audit in order to reduce waste we were mocked, only for the GSLP to now embrace it by rebranding it as an aid to ‘enhancing operational efficiency’ in order to ‘drive cost savings’. It is perhaps no coincidence that the internal audit function has been created under a GHA director general with finance experience.

Achieving a balance between revenue and expenditure in a sustainable way is the ultimate objective in public finance. There is a limit as to how much people and businesses are willing to be taxed and yet there are unlimited demands for spending. To arrive at a compromise that is acceptable to the community requires honesty and prudence from the Government as well as leading by example.

SOCIAL CONTRACT

Taxpayers are generally good citizens and pay their taxes to Government because we collectively recognize that only by doing so can we benefit from education, healthcare, shelter and security. In return we expect Government to provide the services we have collectively paid for in the most cost efficient and effective manner possible.

This Government has squandered money in the past (over £16 million on music festivals) and you need only to read the Principal Auditor’s report for 2018 to weep as to the wanton abuse and waste of money, so much for prudence. As to leading by example, the Chief Minister is adamant that his hiring of a private jet to fly back to Gibraltar from Brussels on April 12, 2024, was justified.

It is thus somewhat rich that the Chief Minister is now gaslighting the good citizens of Gibraltar by pointing the finger at us collectively accusing some of us of being fraudsters and freeloaders.

Given that none of the demons of public finance have been addressed by the GSLP, we now have the prospect of the tightening of the provision of benefits such that the burden of proof now rests on all citizens to show they are not defrauding the public purse.

WHY NOW?

So why now you may ask? Why the sudden rush to tighten the provision of benefits and identify fraudsters and freeloaders. The simple truth is that the budget is round the corner and money is tight, probably tighter than ever. Minister Feetham may bring in more corporate tax money and Minister Arias-Vasquez might be able to bring GHA costs under more control, despite the known overspend, but will any of this be enough when the fundamental issues still remain unaddressed?

As Robert Burns wrote: ‘The best-laid plans of mice and men/Often go awry’

Gibraltar’s public finances are awry but this Government never even had a plan. Beware the demons to come in the 2025 Budget.