5 Ways to Reduce Gibraltar’s Debt without paying for it Ourselves?
While Gibraltar has so far managed to escape the worse of the COVID19 crisis, the economic crisis that will follow will not be easy to escape. While Government has done a great job in stopping the virus from spreading wildly in our community and in preparing the GHA to be able to cope with a surge in the number of infections, the cost of this operation has been substantial. Such cost is likely to be a fraction of the cost it will take to ensure our economy will continue to operate in the coming months as large sectors of our economy such as tourism, retail and events are expected to take a big hit. Already the BEAT COVID19 measures have cost Government millions of pounds in payments to inactive employees, with the cost expected to escalate rapidly once we take into account lost income from Government rents, lost PAYE and Social Insurance payments, a fall in tax receipts and other potential income loss from new business and projects that will not happen. Government will also need to beef-up its support measures to assist self-employed and other affected businesses and individuals who otherwise may not be able to survive. The inevitable rise in Government debt has already been mentioned widely in the press and Government already has plans to increase public debt to 40% of GDP or even a higher ceiling should it be required. Such high rates of public debt are not sustainable in a small economy like Gibraltar and so sooner or later Government will have to find ways to recoup the funds it has been losing in order to balance the books. The most common tool available for Government to generate income is Taxation- both Direct and Indirect taxation. And guess who will have to fork-out these extra taxes…? You and me off-course; all of us who live and work in Gibraltar.
This however, doesn’t need to be the case. I believe there are ways for Government to raise funds whilst not putting the burden on the local community. Here are 5 ways Government can raise money whilst not generating it from the local community:
- Non-Resident Company “special levy”
For many years, thousands of Non-Resident Companies incorporated in Gibraltar have been enjoying the benefits of Gibraltar’s low tax regime, many not even paying a single penny in tax over here. Now it’s the time for Government to introduce a Special COVID19 Levy for all Non-Resident Companies. Non-Resident Companies should be expected to play a role in assisting Gibraltar, who has been their safe harbour for many years.
- Non-Resident property tax
A sizeable section of the Gibraltar property market is owned by individuals who do not ordinarily reside in Gibraltar, but use these properties as a holiday home, an investment or as a way to avoid tax residency in another country. Such properties can be subject to a special non-resident tax which will be calculated as a percentage of the annual rates they pay. Spain, for example, has implemented a non-resident property tax since the financial crisis of 2008-9 whereby owners pay just because they own a property in Spain. If done correctly, such tax is unlikely to affect the demand to buy a property here.
- Vehicle entrance fee
According to the 2018 Gibraltar Tourism Survey, over 94% of all visitors to Gibraltar have come through the land frontier, recording over 2.7 million vehicle entrances. While tourism is undoubtedly one of the worst hit sectors and we should do our utmost to encourage tourism back to Gibraltar, now is also an opportunity to change the way tourism is managed in Gibraltar. We suggest a small charge for visitors who wish to enter Gibraltar with their car (e.g. £5 per car). There will be NO charge for anyone coming in on foot, moped, bicycle, coach or arriving by air or by sea.
There will also be NO charge for any resident of Andalucía, to prevent any uproar from our neighbours across the frontier. Such fee will reduce the volume of traffic on our crowded roads, reduce pressure on parking spaces, reduce border queues and contribute towards lowering pollution. Funds raised can also be used to improve public transport from the Frontier to town centre, which will become more essential once the tunnel under the runway opens. Charging visitor vehicles is done in several countries around the world such as in Switzerland and Andorra, and through Congestion Charges in London and other cities. And for those who think this will create more queues at the border, we can encourage people to pay this online in advance as they do in other countries, thereby eliminating on spot payment. We can even include an hour of free parking for those who pay in advance. Charging can also be done on the way OUT from Gibraltar with numerous payment kiosk across Gibraltar (in shops, petrol stations etc), with Recognition technologies deployed to read car plate numbers or ticket receipts to prevent queues. Where there is a will there is a way!
- Higher levies on shipping Bunkering
Gibraltar is the biggest bunkering port in the Mediterranean Sea and is known for the low price of fuel. Around 9,000 shipping vessels come to Gibraltar every year, and over 4 million tonnes of bunkers are delivered. Some of these vessels also anchor off-port and receive services there at a reduced cost. Increasing the levy on bunkers and other port duties can be a useful source of revenue for the Government whilst still maintaining the port’s competitiveness.
- Debt Securitisation
Securitisation of public debt through the issuance of Government bonds and offering them on the capital markets has been practised by many governments around the world. As most countries will find their economies in deep crisis after COVID19, investors may not find their bonds attractive anymore. Gibraltar on the other hand has a good story to tell in terms of being able to contain the spread of the virus and its strong economic track record can be showcased to attract foreign investors to buy Government Bonds, as investors look for lower-risk higher-return financial products.
The above measures should start being implemented as soon as possible, be it through preparing the required legislation and putting in place the necessary processes and procedures. If Government waits with this long after the Corona virus is gone, we risk losing the sympathy and understanding that the world currently has towards COVID-19 measures- unusual times call for unusual measures.
By: Eran Shay, Managing Director, Benefit Business Solutions Ltd, www.benefitgibraltar.com