Balanced budget marred by disappointment over corporate tax.

The Chamber has now had time to contact many of its members following June’s budget announcement. Based on soundings taken from members across most of the business sectors, the Chamber’s Board believe that it was a balanced budget in social terms.

The Board is glad to see that the Government has continued its policy of progressive reductions in personal taxation although Gibraltar remains a high tax jurisdiction. The Chamber also believes that personal tax thresholds are still very low compared to other jurisdictions and these should be raised each year at least by inflation.

In the Chamber’s recently completed Trading Conditions survey one quarter of respondents said that staff recruitment and retention was the issue most likely to have the biggest impact on their business in the future. The high cost of recruiting and employing people from elsewhere to come and work in Gibraltar continues to be a burden on employers. The Chamber welcomes the introduction of the Dual tax system which will go some way towards alleviating this although it remains to be seen whether this will be enough especially since personal tax rates will still be higher in Gibraltar than in the UK from where Gibraltar historically recruits…

The biggest disappointment, particularly for members in the finance centre, is that corporation tax rates have not been cut by as much as was expected. Nevertheless the Board is re-assured to some degree that the Government has made a public commitment to introduce a low corporate tax rate by mid 2011. If there is a favourable early outcome to the ECJ case the Chamber would of course welcome the introduction of a lower rate in advance of the mid-2010 deadline. Budget surpluses could help to subsidise a lower corporate tax rate in the interim.

Many members have commented to us that the minimal cut in corporation tax will make Gibraltar less competitive and less attractive to companies looking to set up operations in a European jurisdiction. These companies are now more likely to choose other centres. Further more those company’s already in Gibraltar whose tax exempt certificates expire before 2011 will be pondering their future in Gibraltar. The Chamber strongly encourages the Government to meet with the various sectors that are affected to see what measures it can introduce to smooth the way until the introduction of the low tax rate on 1st January 2011. The minimal cut in corporation tax also puts local companies at a significant cost disadvantage against those competing from outside as, for example, the Gibraltar tax rate continues to be above the UK rate.

Other measures announced, such as the increases in duty on fuel and tobacco will boost Government revenues significantly as these two items make up by far the largest proportion of import duty. We would encourage the Government to go further in future and streamline the duty system for traders by abolishing import duty on all imported goods except tobacco, fuel and alcohol. Personal imports of all goods other than food would continue to dutiable but at a single flat rate.

The Board is encouraged by the Government’s commitment to continue improving Gibraltar’s heritage infrastructure and supports the initiatives to make Gibraltar an attractive and unique tourist destination. The Chamber encourages the Government to invest further in improving the Tourist product and in particular in the Upper Rock Nature Reserve.

The Chamber welcomes the Government’s commitment to working with the Board to address the many issues affecting local business and looks forward to meeting with the Government at the earliest opportunity.

In the media lull of a longsuffocating summer, a story broke in the local press that grabbed the attention of many. Residents in the area of the Queen’s Cinema were objecting to proposals by a local developer to build a tower block on the site. The objections were nothing new for a project like this. They ranged from concerns about the impact of the construction phase on already-saturated roads, to fears that the tower would ruin the views of residents of Gardiner’s Road. There was nothing unexpected, but the story nonetheless resonated with a wide section of the community.

This was the latest in a string of planning applications to generate a negative response and reignite the debate about development and planning on the Rock. Gibraltar is undergoing a construction boom that has largely divided public opinion into two camps. On one side are those who view the bustle of lorries, cranes and workers as an inevitable short-term pain in exchange for Gibraltar’s long-term economic gain. On the other side are those who believe development is out of control, that many projects do not necessarily benefit the community as a whole.

As the summer comes to an end, a number of recent developments may go some way to address many lingering questions about Gibraltar’s future. Behind the dust and grime of physical construction work, the Gibraltar Government has instigated a profound shake-up of the regulatory framework for housing, and set down proposals for new guidelines for development projects. This wide-ranging overhaul of housing laws and planning policy will set new parameters for the changing face of Gibraltar in years to come.

Development plan for the next decade
In August, the Government launched its much-awaited, and somewhat delayed, proposal for a new Development Plan.

Joe Holliday, Minister for Trade, Industry and Communication, said in launching the document: “The new plan will provide the framework for land use planning in Gibraltar for the next decade.”

“It also has a long-term vision and certainty on how Gibraltar will develop over this period.”

This is a complex, multi-faceted document that covers everything from how Gibraltar will meet its future transportation needs, to whether or not a shop in the Old Town can use sandwich boards to advertise its wares. There are key themes and buzzwords that are repeated throughout the Development Plan, which runs into hundreds of pages. Prominent among them are words such as sustainability and concepts such as environmental protection.

The Development Plan, once adopted, will replace the existing 1991 plan and is intended to guide land use in Gibraltar for the next decade.

It is comprised of three sections. The first is a written statement outlining general and areaspecific policies and proposals. It includes detailed policy statements relating to both the use of individual sites and on broader concepts such as building height and the ecological impact of development. The other two sections relate to the Old Town, an area recognised to be in need of radical improvement.

The plan takes into account the evolution of Gibraltar as a finance centre and tourist destination, and the impact that servicing the needs of these sectors will have on the Rock’s core social fabric. Among other issues, the plan factors in variables such as the demand for housing and transport infrastructure; the availability of land, not least given the release of military land as the Ministry of Defence redefines Gibraltar’s changing strategic role; and the vital importance protecting heritage and the natural environment.

“This Plan takes into account these different competing demands on Gibraltar’s scarce land resources and has created a coordinated set of policies and proposals to manage Gibraltar’s future growth,” the document states.

The Development Plan will provide guidance to developers and, once approved, will form the foundation on which the Government will assess planning applications in the future.

Given the intensity of feeling that planning issues can generate in the community, the Government has opened a two-month public consultation period to solicit feedback from Gibraltar as a whole.

The Government wants the new planning framework to be one that has the backing of the community as a whole, a plan that finds an equitable balance between the many disparate demands on the finite space that is available.

“The Plan will therefore be an essential tool in development control and proposals will be expected to conform fully to the policies and proposals contained within it,” the document states.

“As the Plan will have been the subject of extensive public participation it must be seen as a plan that has the support of the community.”

“Great weight will therefore be given to the contents of the Plan in determining applications and it is not expected that the policies and proposals contained within it shall be set aside without very significant reasons for doing so.”

The guiding principles of future development
In preparing the Development Plan, Government officials gave careful consideration to the many different and competing demands on Gibraltar’s limited land area, together with those aspects of Gibraltar that are considered of great value.

The plan aims to achieve a fine balancing act that will allow for the future economic prosperity for Gibraltar without jeopardising those aspects of most value to Gibraltar. In seeking this balance the following strategic principles were followed for each of these key areas of life in Gibraltar:

* Environment – to recognise the special character of Gibraltar’s natural, built and cultural environment and to ensure that this is not significantly adversely affected by new development.

* Employment- to encourage and provide opportunities for the creation of new employment and the expansion of existing employment.

* Population and housing – to ensure that Gibraltar’s population remains stable and that sufficient housing opportunities to meet the different housing requirements and expectations of the community, are met.

* Quality of life – to enhance the social, community, recreational and cultural facilities for the benefit of the local population and visitors.

* Transport – to cater for the needs of private transport but to facilitate and encourage alternative means of transport including the use of public transport.

* Tourism – to ensure that tourist infrastructure and facilities are enhanced, and to ensure that the unique tourist attractions are protected and developed sensitively, so as to promote Gibraltar’s attraction as a tourist destination.

* Shopping – to ensure the provision of a quality shopping environment for the benefit of the local population and to further enhance Gibraltar’s role as an important shopping centre in the wider area.

Environmental impact
An important element of the Development Plan is an environmental impact assessment [EIA] carried out by an independent UK consultant in line with EU requirements.

The EIA analysed the various policies detailed in the Development Plan to ensure they complied with wider EU policies on sustainability and environmental protection. It provided input to officials working on planning policy and was published together with the Development Plan itself.

The EIA addressed fundamental questions at the core of town planning deliberations, assessing the impact of development on Gibraltar’s urban and natural environments.

Underlying it all is the complex premise: What represents the ultimate capacity of Gibraltar to absorb continuing demand for growth? And over what timescale is this capacity to be reached?

The EIA leaves little doubt as to the importance of the issues at stake and the risks of inaction.

“It is sometimes said that governments only take decisions based on expediency and related to what can be achieved during their term of office,” the document states.

“However, in Gibraltar, strategic planning has always been a key to its survival.”

“It is argued in the remainder of this report that the time has now been reached when bold decisions need to be made to establish the future direction for development, with a purpose and a vision that will last 50 years.”

“Failure to establish that overall vision will not prevent individual developments from succeeding but it could foreclose on the opportunities to make Gibraltar a truly sustainable entity, with a prosperous economy, outstanding environment and high quality of life for all.”

The study repeatedly highlights the importance of reliable baseline data in making longterm forecasts, but notes that such information is sometimes unavailable in respect of key issues in Gibraltar.

The Development Plan acknowledges this and includes proposals for closer cooperation between various Government departments and agencies to enable officials to collect the necessary data to enable them to make accurate forecasts on crucial matters such as population size, housing demands and employment.

The EIA makes interesting reading and, while broadly supportive of the policies in the Government’s Development Plan, draws attention to underlying tensions that will have to be carefully monitored in the future. This is particularly so in the case of protecting the environment in such as small place as the Rock.

“Whilst all the policies are generally compatible with sustainability objectives it has to be recognised that strong tensions exist between the protection of the environment, and inappropriate development and housing.”

“This condition is exacerbated by the restricted size of the peninsula and the demand for further growth.”

“It is important that the Plan counteracts a widely held view that the environment of the Rock is robust and can continue to withstand the same levels of disturbance and intrusion from development as it has in the past.”

“As Gibraltar continues to develop, the remaining open spaces for nature conservation and for public access will become increasingly precious and should be accorded the highest possible levels of protection.”

“The enhanced status given to environmental policies will increase quality of life on Gibraltar and will also help to strengthen the economy through the contribution that the Rock already makes to tourism.”

Planning for housing
Housing polices and proposals invariably generate the greatest debate and interest since they impact on every member of the community.

The limited availability of land means housing has always been a problem in Gibraltar. Historically there has always been a shortage of suitable housing to meet the demands and needs of the local population.

These needs, the Development Plan notes, have shifted dramatically since the mid 20th Century. Driving this shift are changes in the aspirations of the local population, most of whom wish to have their own home rather than sharing. Household sizes are also deceasing, with the average dropping form 3.4 in 1981 to 2.8 in 2001. Increasing numbers of single parents, higher divorce rates and longer life expectancies all contribute towards smaller household size, and in turn hike the overall demand for properties. There is also a growing market for people who require properties in Gibraltar for just a few months a year.

According to the Development Plan, the structure of the housing market has undergone significant structural changes since the 1980s. In 1981 the Government rented sector accounted for 65%, private rented for 29.8%, and owner occupied for only 5.2%. By 2001 the figure for Government rented had dropped to 44%, private rented to 13.8% and owner occupation had risen to

Major work is to commence this autumn to expand cruise facilities at the port of Gibraltar and allow larger vessels to dock at the Western Arm.

A key element of the project is to dredge the inner berths of the Western Arm to around 10m, the same draught available at the outer berths.

This will allow the port to accommodate two or more of the latest-generation passenger ships at the same time.

The cruise industry has seen a marked trend toward larger ships over recent years.

Any port committed to handling this business must ensure it can cope with these vessels or risk losing business.

In 2004 Cunard was forced to postpone a visit by its flagship Queen Mary 2 after plans to dredge the outer berth of the Western Arm were shelved due to rising costs over unforeseen technical difficulties.

The vessel has since called at Gibraltar several times, anchoring in the bay and ferrying passengers to land on small boats using the ferry terminal.

Larger vessels are good news for Gibraltar too because they can carry more passengers, in turn bringing knock-on benefits to a wide cross-section of the community ranging from tour operators to Main Street shops.

The number of annual cruise calls is expected to rise significantly this year, but the sharpest rise will be in passenger numbers.

Joe Holliday, Gibraltar’s minister for trade, industry and communications, told Parliament during the last budget session that the number of cruise ships expected to call at Gibraltar in 2007 is around 236, up from 202 in 2006.

At full capacity those vessels can carry a potential of approximately 301,000 passengers, which would represent an increase of 43% on passenger figures for 2006.

The work in the port, commissioned by the Government’s Technical Services Department, will also include dredging the approach channel for the inner berths.

There will also be developments on land.

Storage warehouses at the rear of the existing cruise terminal are to be demolished and two businesses relocated.

That will allow the cruise facility to be extended to accommodate growth.

The new area will also be paved in line with the existing terminal.

In broader terms, Mr Holliday said Gibraltar’s maritime sector enjoyed an “outstanding” year in 2006, handling an all-time record of 8,988 ships, representing 223m gross tonnes.

Local bunker suppliers delivered almost 4m tonnes of fuel and supply figures for the first quarter of 2007 show a year-on-year increase of 4.6% for that period.

The ship register is also showing strong growth and currently has 243 ships on its books, representing nearly 1.5m gross tonnes.

The growth has been achieved without a drop in quality, with the average age of the Gibraltar fleet currently 10 years.

The register is on the international White List of quality flags and will this year become one of the first to be inspected by the International Maritime Organisation under a voluntary audit scheme.

Tarifa-based ferry operator FRS Iberia is exploring plans to increase the frequency of its service between Gibraltar and the Moroccan port of Tangier.

The service has been operated on a weekly basis for some time but company officials believe there may be scope for daily sailings. Their rationale hinges on the increase in flights at Gibraltar airport, particularly to the Spanish capital.

The idea is to target tourist traffic from the Spanish hinterland – and from the UK - and use Gibraltar as a stepping stone to North Africa. “We are working to develop the commercial plan to capture traffic from these areas,” said FRS managing director Luis Mora during the summer. “We are looking to see if it’s viable.”

The company, set up by a group of travel agencies several years ago, already offers all-in packages to Moroccan destinations from Spanish ports and similar trips could be run from here.

The company has for some time been looking at ways to boost its Gibraltar schedule. But the results of an initial trial earlier this year were less than heartening. FRS operated daily services during a two-week stint at the beginning of the summer and passenger figures were disappointing. “Apart from the Friday and Sunday regular users, averaging around 180 passengers per trip, there were ten occasions when the ferry arrived from Tangier in the morning with no passengers and also left in the evening with no passengers,” said Turner, the company’s Gibraltar agent, in a statement to the local press. “The remaining days the ferry carried an average of 26 passengers to Tangier and brought back an average of 10 passengers per trip from Tangier. It does not take a degree in rocket science to see that, with passenger figures like these, a daily service is not a viable proposition to any operator, and especially those like FRS who operate fast, high consumption vessels.”

The company, which remains committed to the project, has met with Joe Holliday, Gibraltar’s Minister for Trade, Industry and Communications, to discuss various options relating to the daily service. The context to these discussions is the major investment in tourism and trade infrastructure currently in progress in northern Morocco.

The commercial development of northern Morocco is attracting substantial foreign investment to the region and the Gibraltar Government has, since last year, explored possible opportunities for joint initiatives. Mr Holliday himself travelled to Morocco last summer and held meetings with ministers and officials there.

Even at that early point, the possibility of expanded maritime links was already being explored. Earlier this year, key executives from the Tangier Mediterranean Special Agency have visited Gibraltar to brief the local business community on the various projects under way.

The growth of major trade and port developments in and around Tangier could also generate business for the new ferry link, offering the opportunity for businessmen to use Gibraltar as a stepping stone across the Strait to North Africa.

The Language Studio has been teaching Spanish to people from different countries since 2003. Many of these people either live or work in Gibraltar. Learning a language is not as difficult as it seems and as well as being fun, it can also make your life easier and more interesting here in southern Europe.

We use a mixture of communication and grammar teaching techniques with experienced native Spanish teachers. This makes it a perfect way of enabling people to communicate effectively and confidently in Spanish whether it is from a standing start or to brush up and improve the knowledge they already have.

The Language Studio provides both office tuition and private home tuition. Our qualified and experienced teachers will come directly to your premises, either at work or home. We also make it easier for you as we are very flexible about the time and duration of the lessons.

Chamber members who are interested in offering their staff the opportunity of improving or learning Spanish should contact The Language Studio at: thelanguagestudio@yahoo.co.uk or 0034 658685072. Be sure to mention that you read about this offer in the Chamber’s B2B magazine.

The introduction of mandatory Private Sector Pensions remains firmly on the political horizon and the expectation is that when a new Government is sworn-in, following the elections, we will see the start of a consultation process which will likely have only one outcome.

It is anticipated that the party manifesto’s will indicate the need to address the issue. It would be a mistake however if the debate is limited to the social benefit of having, or not having, work pensions for all employees. There is no argument with the merits of having a work pension. The political question however should be: do the advantages that employees derive from a work pension sufficiently outweigh the disadvantages, namely the long term risks of adopting additional costs, to entitle our legislature to make the practice mandatory? The temptation to interfere is strong but the economic sclerosis that follows interventionist practices have deterred previous administrations.

Mandatory or otherwise there are a number of Private Sector companies which have already introduced pension provisions for their employees. These pension schemes fall into two distinct categories, and the lessons learnt from the experience of both deserves close scrutiny. The two classes of pensions are termed “defined benefits” and “defined contributions”. The first class, which has now largely been superseded by the second, is designed to pay out a sum equal (to say) 2/3 rds final salary. The second class ‘defined contributions’ have been more successful. The employer (and the employee) pay into a retirement scheme which pays out based on the schemes performance in a typical ‘defined contribution, pension the employer contributes between 5 % / 7½ % of basic salary and the employee is free to contribute in whatever proportion chosen. The tax benefits only apply to the employee’s personal contribution. The employers’ contribution is deemed a ‘benefit in kind’. Most frequently these are personal pensions: personal to the employee who can transfer the pension to another company in the event of a change of employment. In brief ‘defined benefits’ have proved to be unsustainable. Especially in a Private Sector, which is required to remain competitive, and which operates on ‘open market’ basis.

Regardless of whether the pension schemes are ‘defined benefits’ or ‘defined contributions’ the Private Sector has shown that it is unwilling to enter into mandatory pension commitments, which could eventually threaten the long-term future of the company. To underline the need for caution one should look to those companies with pension schemes for employees who have paid dearly for their generosity to one generation of employees when the accumulated commitments prove unsustainable. Ford is just the latest example of a once successful company, which finds itself over-burdened at a time, when the company is facing difficulties and needs to shed overhead costs to regain flexibility and maintain its competitive edge. Current analysis of Ford’s financial predicament points strongly at the company’s pension obligations as the black hole’ which is consuming its resources. The problem extends equally to the Public Sector, although, its effects remain hidden for longer. In Gibraltar the Public Sector pensions have been structured on the 2/3rd final salary formula albeit the cost may be unsustainable going forward. This actuarial predicament applies equally to the United Kingdom and the recent Turner Report has served to spell out the risks associated with a Government policy that is based on ducking hard decisions and leaving the problem to accumulate to the disadvantage of future generations.

It may be that the Private Sector will concede the need to introduce pension schemes but for Government to hold the moral high ground it would be as well to see a radical overhaul of the Public Sector pensions scheme to ensure that civil servants of less that 5 years standing and all future entrants are placed on a ‘defined contribution’ scheme which is sustainable on an actuarial basis.

Currently those Private Sector companies that choose to introduce a pension schemes are very limited in the options available to them. In theory a company may apply to the Income Tax Department for approval of a specific investment scheme but in reality the Income Tax Department is not yet resourced to discharge this function. The only remaining alternative therefore is Provident No 3. A pension investment scheme administered by the Crown Agents. Provident No 3 has performed adequately to date but does not meet the requirements for flexibility and diversity, which may attract local companies looking for a pension solution, which meets additional objectives. In particular being able to achieve two goals at once, for example buying a property in the name of the pension scheme and renting the property to the company. Investing in property in Gibraltar is also a benefit to the Gibraltar economy as a whole and there should be sufficient discretion in the Government department responsible for approving individual pension schemes to take into account both the needs of the company and the benefit to the Gibraltar economy. Pension schemes for the Private Sector should not be limited for the benefit of employees only but also for the retiring directors. Currently the legislation prohibits owner/managers who own 20%+ of a company from being a member of a pension scheme in Gibraltar. Not only is this discriminatory but if mandatory pensions were to be introduced such legislation would need to be amended. (see George Olivera letter to CM Edward to write up). These measures, if introduced, should further increase the number of companies entering into Pension Schemes on a voluntary basis.

Assuming that flexibility and diversity are introduced into the Pension formula, the question still remains whether the Private Sector, as a whole can afford to meet the cost of mandatory pensions? Not all branches of the Private sector are buoyant, for example: retail is in the doldrums and hotels are struggling. It is not a good time to add additional costs to their infrastructure. In fact there is unlikely to be a time when the economy is proving equally strong for all branches of the Private Sector. Additionally for existing business their financial models are based on the current cost of doing business in Gibraltar today. The models take into account the considerable tax burden, which we have inherited from the closed frontier and the enlarged Public Sector that ensued. It would seem therefore that there is little room for manoeuvre to allow business to take on pension obligations other than on a voluntary basis, which in turn can be encouraged by a more consumer conscious government able to supervise ‘a la carte’ pension schemes.

There is however one major opportunity ahead: the prospect of reduced corporation taxes pursuant to a favourable ruling from the European Union on our ability to have our own tax laws. This could provide for a reduction in existing overheads, which could be re directed for the benefit of employees without the spectre of unsustainability. This means therefore that where Government introduce substantive tax reductions equal to approximately 5% of turnover this saving could be applied by the company to fund a Pension Scheme for its employees. It would be more encouraging however to the Private Sector to see the issue of Pensions being tackled across the board and to see Government showing a lead by ending the practice of offering Public Sector employees ‘defined benefits’ pensions and giving a strong indication that long term Government spending commitments are structured on a sustainable basis and are not a time bomb waiting to happen. In this scenario the prospects of mandatory Pension requirements for the Private Sector might gain the support of employers without whose consent a mandatory scheme would be politically irresponsible.