Prime Minister Fabian Picardo announced a corporate tax hike from 10% to 12.5% and an increase in electricity tariffs on Tuesday as he tabled a “rebuilding” budget that will affect Gibraltar’s economy and public finances following a “revenue destruction” pandemic to revive.
In an almost four-hour speech in front of the Gibraltar Parliament, Mr Picardo highlighted the developments of Covid and Brexit in the turbulent two years since the last normal budget debate in 2019 and after the Covid emergency budgets in 2020.
In doing so, he left no doubt about the challenges this community will face as it emerges from the pandemic, with rising cases as a reminder that Covid-19 has “not disappeared” and Gibraltar should not be “lulled in the wrong way” Security”.
Five years after the Brexit referendum, Mr Picardo expressed his confidence that a post-Brexit deal could be reached for the future of Gibraltar that would benefit Rock, the Campo de Gibraltar and the EU as a whole.
As he spoke, the European Commission released its long-awaited negotiating mandate, which Picardo again said “leaves much to be desired”.
“This will only be the opening position of the EU, it will not bind us in any way,” said the Prime Minister.
But even before negotiations on the treaty began, Mr Picardo warned that neither Gibraltar nor Great Britain would compromise on British rock sovereignty and, despite their promise to reach an agreement, would continue to prepare for a “no deal” Brexit in parallel .
“We will never tolerate concessions on sovereignty,” he said.
“And we will not allow the presence or function of Spanish national authorities in Gibraltar.”
“Any EU mandate that suggests it will not be what we are ready to agree to in a final treaty.”
And he reiterated that Gibraltar would never enter into a customs agreement that would “impoverish” its business.
Gibraltar wanted to do the opposite and give “a rocket boost” to its economy and, by extension, that of neighboring Campo.
But as he presented the budget, Mr Picardo also added: “In the context of the historical situation we are in, I have no doubt that it is up to me today to present the toughest budget in our history as a people since the shutdown .” the border.”
In analyzing the “war-like annihilation” of the Gibraltar economy last year, Mr Picardo blamed the effects of the Covid pandemic directly and anticipated the criticism of the opposition’s management of public finances in recent years by GSD boss Keith Azopardi later criticized as being “ruthless” and described as laden with “off the books” debt.
The cost of responding to the pandemic had exceeded £ 250 million, most of which was used to fund government revenue deficits.
Gibraltar’s GDP for 2020/21 is projected to be £ 2.44 billion, down 4.9% from £ 2.57 billion last year and £ 2.46 billion in 2018/19.
Mr Picardo said his government was forecasting deficits of £ 158million for fiscal 2020/21 and £ 50million for the following year, with a return to surplus by 2022-23.
He thanked the UK for its support in the vaccination program and for agreeing to a state guarantee that allowed the government to borrow £ 500 million at rates far cheaper than on the open market.
But he also added that the Gibraltar economy had been “x-rayed” by lending banks and that the government had 500 million pounds at its disposal even without the British state guarantee.
“When the banks looked at our economy and our public finances, they thought our public finances and our economy were strong enough to lend us half a billion pounds,” he said.
“The experts are of the opinion that we manage our public finances very well, although of course every country is currently under pressure on public finances and we are in a deficit situation.”
The UK guarantee secured the borrowing at a much lower interest rate, he added.
Covid, Picardo said, is synonymous with “… a wartime catastrophe affecting otherwise reliable government revenues, and there is no one in this House or outside who saw it coming or who could have managed public finances over the ten years “. beforehand in a way that would not have resulted in a deficit and would require reconstruction. ”
Mr Picardo said Gibraltar was one of the fastest growing economies in the world before the pandemic and was well placed to recover most in need.
He said the “sane, sane and realistic” people of Gibraltar understand the changes the government has made.
And he also added a blow to the opposition to “breathe life into the idea” that “necessary measures” were “somehow unfair”.
“That’s why I also know that what awaits us in the coming months is not a winter of discontent,” he said.
“It is a winter for a loud minority of discontented people.”
The decision to increase corporate tax comes against the backdrop of an OECD initiative for international tax reform to ensure that large multinational corporations pay taxes where they operate and make profits.
The initiative, which is still in its infancy, provides for a minimum global corporate tax rate of 15%.
Gibraltar is among the 139 countries and jurisdictions that have registered support for this framework, which will “likely” rule out financial services companies of the type that play a key role in Rock’s business model.
“While I understand that this will challenge this jurisdiction and its taxation model, I don’t think it’s in Gibraltar’s best interest to be the outlier who doesn’t join this framework and would try to fight back,” said Picardo.
“Our future as a leading, innovative, value-added jurisdiction lies on the right side of the global transparency and accountability spectrum, not the opaque side.”
The corporation tax increase means that any business starting a budgeted fiscal period will have to pay 12.5% income tax instead of the current 10%.
“This means that if the new global agenda thrives, the increase will be less significant if we are asked by the OECD to go to 15%,” said the Prime Minister.
At the same time, the Prime Minister announced a series of tax incentives designed to help companies recruit new employees and promote training, as well as capital and green investments.
These measures are limited to June 30, 2023 and include:
• A grant of 50% of the basic salary for each new job created.
• Increase in training allowance by 10% to 60%
• 50% subsidy for marketing costs
• Increase in tax exemptions for systems and machines and a new definition for fully electric vehicles used in a company
There were also changes to the Category 2 system, increasing the minimum tax payable from £ 22,000 to £ 32,000 and the tax cap from £ 27,560 to £ 37,310. The changes will apply from August 1, 2021.
There were also changes to the HEPPS program, which will also apply from next year.
“Nothing to give away”
There were few freebies in the budget announcement – “There’s nothing to give away,” Picardo said – but there were also no increases in personal taxes or changes to tax pensions and an obligation to continue paying tax breaks.
But alongside announcements of social security increases and voluntary contributions ahead of the budget, there were measures to increase electricity costs and raise tariffs on cigarettes by 50p to £ 15.50 for a box of 200 and a levy of 12p per liter on fuel deliveries to pleasure craft and superyachts as a result of the cancellation of a discount of one third of the applicable discount.
Trying to highlight his government’s economic record after 10 years in office, the Prime Minister repeatedly insisted that Covid-19 “wiped out” Gibraltar’s public finances, as did economies around the world.
“Anyone who believes that the government’s fault is the government’s fault the economic and public financial problems we are facing today as a people,” he said, anticipating the opposition’s criticism of his government’s handling of Gibraltar’s finances Years that led to the pandemic.
He tempered news about electricity price increases by reminding the community that tariffs for both commercial and private consumption had remained unchanged since 2010 and were most recently increased by the GSD.
Each will now rise by 20% and 16% respectively – less than the annual rise in inflation over the past 10 years, Picardo said – and inflation beyond that.
There were no changes in the personal allowances except for “modest” targeted increases in areas such as old age allowances for single and married people, the blind and disabled, single parents, kindergarten contributions and families with children in further education.
Disability benefits and old-age pensions were also increased at an inflationary rate.
Likewise, in line with a five-year escalator approved by law in 2019 and despite representations from the Chamber of Commerce and the Small Business Association, the minimum wage will be raised to £ 7.50. In addition, the next two hikes are causing inflation.
“We believe our five-year minimum wage escalator was right and we shouldn’t stop or pause the escalator,” Picardo said.
Other announced measures included giving people renting berths in the Small Boats Marina the option to purchase them at a price between £ 32,000 and £ 40,000, depending on their size.
The purchase price is increased by 10% each April and any subsequent sale at free market value would incur a stamp duty of 5%.
Much of Mr. Picardo’s address underpinned the feeling that Gibraltar has performed well for many years and that Gibraltarians enjoy far-reaching advantages in many areas of life.
The budget is a “carefully calibrated” package of measures to protect the income of the working population, which “only benefits those who need it most”.
“We cannot continue to be the spoiled child of Europe,” said Picardo.
“We have to understand that the pandemic will change a lot.”
“Not any of the sacred cows of our community, but certainly some aspects of life that we are overdue.”