Gibraltar Budget Reflects The Territory's Economic Succes, Caruana Announces

by Jason Gorringe, Tax-News.com, London

28 June 2005

In his 2005 budget speech, Peter Caruana, Gibraltar's Chief Minister, derided opposition claims that the need to raise additional tax revenues is a reflection of the government's economic mismanagement, and noted that the jurisdiction's Finance Centre and e-gaming industry remain in healthy condition.

"Mr Speaker, it is self evident that even in a growing economy it is not possible to indefinitely sustain increases in public expenditure, whether due to the inevitable effect of rising costs, or the expansion or improvement in public services, without ever increasing any revenue raising measure," Mr Caruana told the House in last week's speech.

He went on to add that:

"Mr Speaker, I think that no other Government in the world, and certainly no other Government in Gibraltar, has reduced income taxes every year for nine years!"

"Whilst continuing the nine year old downward trend in taxation rates, we have recently taken steps to increase some revenue items to ensure that public finances will remain sound and balanced as between tax and other revenue streams, into the future. It is absurd for the Honourable Members Opposite to pretend that increasing revenue raising measures is a sign of economic weakness or shortage of money. Every country in the world, including the richest, does it, and much more frequently and regularly than we do. To suggest that it is a sign of financial ill health is as ridiculous as it is economic illiteracy."

"This year, we have increased Social Insurance contributions by 10%, for only the 2nd time in Nine years! The increase amounted to £1.88 per week for employees and £2.38 per week for employers The Honourable members opposite, when they were in Government, used to increase it every year by a compound 10%! Our Social Insurance Contribution increases have not even kept pace with inflation over those 9 years, so, in effect we have decreased them in real terms and as a proportion of people’s pay. Mr Speaker, serious economic debate cannot take place on the basis of whether things are going up in cost. It needs to take account of how things are going up in relation to inflation and rising incomes and in real terms."

"We have also increased a wide range of Government fees and charges which had not been increased for many many years. Most of them are not paid by the average citizen. They are specialist or business fees and charges. It really is quite absurd to expect Government to fund rising costs of public services, without ever addressing revenue items. Ordinary people in Gibraltar know that, despite the politically opportunistic commentary of the political Opposition."

"Indeed, it is only because our economy has been and continues to be so successful that we have been able to avoid the frequency and regularity of increases which are the norm in every other developed country. Increased Government revenue resulting from economic growth enables Government to defer revenue raising measures, but not for ever unless you stop investing in improved public services. It is sheer disingenuity to profess or pretend the contrary however politically expedient it may be to do so."

"We have also raised electricity and water tariffs by 12% and 17% respectively. They had not risen since the mid eighties! In the UK, for example, these tariffs have risen by more than that over a period of just the last 2 years or so! What we have raised after 20 years the UK has increased to reflect only a couple or so years cost increases! Our increases in tariffs do not even come close to maintaining the inflation adjusted price of the tariffs or the cost of delivering the service."

"In real economic terms all these increases in Revenue Rising Measures have been relatively modest. It is not a case of failure demonstrated by having to have raised tariffs – but of extraordinary success in having been able to hold them unchanged for 21 years! This is a unique achievement, unrepeated, anywhere in the whole planet!"

Caruana also noted that Gibraltar's Finance Centre continues to grow and remains in healthy shape despite the challenges brought by both the EU's insistence that the territory change its offshore tax regime and the impending Savings Tax Directive, which is due to be implemented in July.

"The Finance Centre continues to grow, and performs remarkably well, despite the well known challenges that it presently faces," he observed.

Caruana added:

"Last year we welcomed the first new bank for a number of years. Employment in banks has risen from 644 in March 2004 to 683 in March 2005, an increase of 39 jobs in the year. Bank assets and deposits have also grown substantially over the last year. This is most encouraging and satisfactory given that the banking sector is the area most affected by the Savings Directive."

"The number of Insurance companies continues to grow, making this the biggest growth area in our finance centre. Last year they grew in number from 39 to 45. Their number has doubled since 2002 and very nearly quadrupled since 1999. Employment in the insurance industry grew by 42 persons in the year to March 2005. It has increased to 232, an increase of 40% since June 2001 when it stood at 165. Needless to say all these figures are at record level. The Government will continue to work closely with the insurance industry to market Gibraltar’s attractions to the insurance industry and thus to continue to grow our participation in this sector."

"Levels of activity are also being either maintained or increased in the various Company/Trustee management sector activities and also in the Investment management sectors. Government will shortly introduce new legislation to boost our competitiveness in the collective Investment Management sector, which we hope will provide another important growth area our finance centre, which continues to reshape and reposition itself for a prosperous future."

With the Gibraltar-based e-gaming firm Party Gaming, which runs the globally successful PartyPoker website, currently floating on the London Stock Exchange, Caruana also observed that the industry is becoming one of the most significant pillars of the jurisdiction's economy and one of the major players in e-gaming on the world stage.

"The Gaming industry continues to grow impressively and has now become a significant part our economy. As at April 2005, there are now 15 operators employing 1107 people, compared to 11 operators employing 837 people in June last year. This represents a 32% increase in jobs in less than 1 year," he explained, adding:

"Two of Gibraltar’s gaming companies are shortly to float on the London Stock Exchange. Party Gaming will next week become the first ever Gibraltar domiciled company to float on the London Exchange. It will go straight into the FTSE 100 Index, that is the index of the largest 100 companies quoted on the London Stock Exchange. Cassava’s float follows later in the year. This is a significant achievement for our economy."

"2004 also saw the issue of the first two licences for fixed-odd Betting Exchanges and also the first spread betting licence."

"Gibraltar has undoubtedly become of one the world’s leading and reputable locations for on-line gaming. This has been achieved by a commitment on the Government’s part to high standards in the industry, and by limiting entrants to proven or reputable operators."

"In order to ensure that in the light of the growth of this activity, Government is able to continue to protect both the reputation of Gibraltar and of the Companies established here, a revision of our antiquated Gaming legislation has been undertaken and Government is presently consulting the industry on a new Gambling Bill. I hope to bring the Bill to the House at the first meeting after the summer recess. The Bill provides, amongst other things for a new and more sophisticated licensing and regulatory regime, structure and resources."

"This growth in the gaming industry has produced not just 1107 jobs, but also a substantial increase in Government revenue. Not only do those 1107 people pay income tax to Government, but the industry also paid £4.3 million to Government last year in Gaming Tax. This is up from £1.8 million in 2000/01, an increase of 138%. This yield is expected to rise this year as Government increases, not the rate of Gaming Tax, but the cap to which it is subject."

"The government will remain highly selective of any further new entrants. The jurisdiction’s reputation must continue to be protected, existing operators must be protected from unsustainable pressure in the jobs market and Gibraltar’s telecommunications capacity cannot be put under strain in a way which prejudices existing established operations."

"We were also able to persuade the UK Government to amend their new Gambling Bill so that Gibraltar Gaming Companies were treated as eligible to advertise into the UK."

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