Who pays the bill?

In the Chief Minister’s Easter message broadcast on Easter Saturday, which thanked key workers and all citizens for the positive outcome in Gibraltar to the global pandemic so far, he also gave the following economic warning.

“We are certainly about to face the worst economic downturn in living memory.

Gibraltar will not be immune from its effects – although we will fight to ensure our size protects us from its worst effects.

We must ensure that economic downturn does not lead to social inequality or injustice.

And we must ensure that we take forward the positive changes that we have made to how you interact with government during this period.

These will be a strength for our future.

So, to all my fellow Gibraltarians I say this:

The policy that has driven my politics is that Gibraltar’s greatest asset is you, its people.
Today, I am demanding of you social distancing.
Tomorrow, Gibraltar will demand of you social responsibility.
Let me be clear.
Gibraltar has done and is doing what it can do for you and all of us.
From now, you too must do more for Gibraltar.
There can be no more free rides.
I call on you to play your part in our recovery.
To work for the common good and not just for selfish gain.
Working together.
Working harder than ever.
Together, we will overcome the heavy cost that these unprecedented times will impose on all of us.
Together, we will restart and recover.
Together, we will seize the future for our children”

Undoubtedly we are all in this together and the economic cost to Gibraltar of the scaling up of the GHA in preparation for a surge in cases coupled with the lockdown is going to be high. Four thousand inactive workers in April will cost the taxpayer £4.2m whereas normally those four thousand workers would have generated PAYE income for government together with salaries and profits for the businesses they work for. The deferment or cancellation of rent, rates, PAYE across all sectors will cost significant sums too.

Excise duty on tobacco and alcohol, import duty on a whole range of goods commercially imported across the border and stamp duty on property transactions have plummeted during this economic pause whereas salaries on additional health staff and costs of new medical equipment will cost more millions.

So does Gibraltar just suffer a dent in its finances, a loss of reserves for another rainy day, or does it seek to recoup the money spent on surviving this pandemic with additional taxes or money raising measures? Or, cut taxes further to stimulate economic growth?

What is the low hanging fruit where taxes could be changed or laws amended to reduce costs or increase the public purse? Here’s a few which might be considered:

Car tax

In my 2016 article entitled All Clogged Up I argued for a car tax as one of a few measures to help stem the year on year increase in the number of cars circulating on Gibraltar’s limited road network.

Whether for traffic or emission reasons, the unpopular truth is that we need to have less cars on the roads. Buses are free and we have all enjoyed cleaner air these last few weeks. And an annual car tax process ensures that the MOT and insurance is up to date, otherwise there is no proper checking of those requirements.

18,000 cars @ £100 (say) plus 2,500 commercial vehicles @ £200 and 12,000 motorbikes @ £50 would raise £2.9m per annum.

In reality, the tax could be introduced as an environmental measure to discourage the high polluters who should pay more and lower emission vehicles paying less.

If this is unpalatable, then perhaps a tax on second cars registered at the same address, albeit the ease with which this could be circumvented is quite high.

Retirement age

In Gibraltar the normal retirement age is 60 (women) and 65 (men). Sorry ladies but if there is to be equality then like most of the rest of Europe these ages need to be equalised and then if we follow other major economies, extended.

UK is currently at 65 extending to 68 by 2046, Spain is at 65 and 3 months and will be at 67 by 2027 and Germany is 65 and 7 months extending to 67 by 2029. Changing the rules in Gibraltar is easily justified if necessary on the basis of equality and international comparison. And changing the rules would save taxpayer money.

Gibraltar Music Festival

Already cancelled this year, the annual event could be culled for the foreseeable future. According to the GSD, last year’s 4 days of music, which included Take That, Andrea Bocelli and David Guetta cost the public purse c £5m.

This figure decreases once ticket sales and the wider boost to the economy are taken into account, however, the net cost is still significant. Has the festival gone forever or in the words of Take That, do we want you back for good and willing to pay the true cost?

Tax increases

How many companies would suffer terribly or seek to relocate to another jurisdiction if, say, corporation tax was increased from 10% to 12.5% (same as Ireland) for, say, a 2 year period only as a COVID-19 premium? £163m in corporation tax was collected in 2018/19 so a crude assessment is that an additional 2.5% might collect another £40m, however, we must assume that company profits will decrease in this current year so the net take would be less, but still significant.

Duty on tobacco is an easy target but this has already been factored in within the Memorandum of Understanding on Tobacco and Other Products with Spain.

Subsidies could be reduced, for example we do not pay the full cost for the electricity we consume. Masked as an environmental move, this subsidy could be removed and we start to think twice about leaving lights on or running air-conditioning unnecessarily.

If we are all to share the cost then income tax would increase too. However, I think that’s less likely as the economy also needs expenditure and maintaining local disposable income will be a key objective.

Low tax rates or no tax on capital gains, wealth and interest attracts wealth from abroad and I doubt this fiscal pillar of the economy will be overly disturbed.

Stamp duty on property purchases has been maintained at the same level for many years and ensures a fluid property market. When Chancellor George Osborne increased stamp duty in the UK, the total tax take in the following year reduced. The property development industry is a key economic driver in Gibraltar and I doubt government will wish to change something that could have a ripple effect across the economy. Employment levels need to be maintained.

Tax decreases

Government will no doubt seek to attract business from abroad and if there is one good thing about Brexit, we will have the flexibility to do so in the future with different fiscal measures. Hence tax rates could be set at much lower levels for a limited period of time for new entrants to the Gibraltar economy which bring profitable businesses and employment.

Deregulation and efficiency

We have all learned to work from home in the last few weeks, whether business owners or employees. Interaction with public services has gone online. There should be no going back. No need to queue up and waste time at any public counter unless you really want to. We need the economy to be efficient, productivity to soar and unnecessary bureaucracy to plummet so that the private sector can re-energise and focus on creating the highest income possible for the public services to repair the dent in its finances and save up for the next emergency, which hopefully, is another generation away, or better still, never.

How many doctor’s appointments could be online now? Indeed, could there be a charge for late or missed appointments? Can we avoid queuing at the MOT centre for administration purposes once and for all?

Spend locally

Finally, once we are allowed out we will want to party and it is in every Gibraltar citizen’s interest for the unleashed expenditure to be local. Morrisons not Carrefour, Main Street not La Canada, local restaurants not La Linea.

This cannot be regulated for, however, soon it will be time to restore our local businesses back to health and it is in all of our interests that as much money as possible is spent locally, to help repair the economic deficit. Every pound spent locally supports local public services financially. Gibraltar needs your pound!

Praise

The government’s expert handling of this global pandemic in Gibraltar is widely appreciated based on social media and hearsay evidence. When the tougher times come and we all have to pay a bit more, or take a bit less, we must remember how safe we were made to feel in Gibraltar by the rapid increase in resource to take care of us during this lockdown.

NOTE: Mike Nicholls is the managing director Chestertons (Gibraltar). This article was first published on the Chestertons blog and has been reproduced with kind permission.