Mr Speaker,

It is with great satisfaction that I rise in this House to present this year’s budget, and to report to this House on the excellent health of the economy, both in respect of the private sector and public finances.

The recurrent revenue and expenditure budget for last year was in surplus (£2.9 million) and a further surplus is estimated for the current year;

Government reserves stand at record levels (£51 million);

Public debt remains low in real economic terms (only 17% of GDP);

The economy grew by 8% in money terms in 2003 and is estimated to have grown by a similar amount in 2004;

Employment stands at record levels (15994 jobs) and continues to rise;

575 extra jobs were created in 2004

Government revenue and expenditure stand at record levels.

Personal Taxation Rates are at the lowest ever.

These are the economic realities, and they contrast sharply with attempts by others, by recourse to a variety of misconceived devices (that I will review later), to make people think otherwise, or to make people think that the Government is short of money, or to make people think that public finances are in a precarious condition, none of which is the case.

The Consolidated Fund budget of annual revenue and expenditure was again in surplus last year. This Government, with its now well established model for prudent stewardship of public finances, has produced Consolidated Fund budget surpluses in 7 out of the 8 annual budgets for which we have been responsible. Our only posted deficit was last year and even that would have been a surplus had we not made a £5 million capital grant to Community Care which, of course, is not an item of recurring expenditure. This record of Consolidated Fund budget surpluses is a noteworthy achievement in itself. The Honourable Members opposite managed it in only 4 out of their 8 Consolidated Fund budgets when they were in office.

Honourable Members will see that the Government has modified the presentation of the Consolidated Fund estimates with effect from the forecast outturn for last year so that the House can see at a glance those major items of expenditure which are one off, exceptional and therefore not recurrent. These are now contained in a separate Head 13. The House can therefore more easily see the recurrent budgetary position and compare one year with another, unaffected by major items of exceptional expenditure which distort the recurrent expenditure picture and comparison of one year with another. The Summary on Page 5 shows these Head 13 items charged below the line directly to the Consolidate Fund Reserve. This enables the House to see at a glance the Consolidated Fund budgetary position both on an overall expenditure basis and on a recurrent expenditure basis.

On a recurrent expenditure basis the Consolidated Fund budgetary surplus last year was £2.9 million. However, as is shown on the Summary Forecast Financial outturn for 2004/05, on Page 5 and Head 13 of the Estimates Book, the Government also spent from the Consolidated Fund an additional £2.2million on three exceptional, non-recurrent items. These were: -

Therefore on an overall expenditure basis, that is, taking these exceptional items into account, the Consolidated Fund surplus last year would be £700,000. So, Mr Speaker, I suppose that you could say that the Consolidated Fund Recurrent Revenue over Recurrent Expenditure was £2.9 million in surplus, but that the surplus of revenue over all Consolidated Fund expenditure was £700,000.

Even though the year ended in surplus, both revenue and expenditure were higher during the year than had been estimated at the start of the year. We have just debated the Supplementary Appropriation Bill for last year relating to that higher expenditure so the House knows that the items of recurrent higher expenditure amounted to £8.1 million composed mainly of : -

This higher than estimated expenditure was covered by higher than estimated revenue, resulting in the £700,000 overall Consolidated Fund surplus. In effect, the Government used the higher than estimated Revenue to clear £6.1 million worth of 2003/04 deficits carried forward by statutory bodies as well as some other departmental overspend.

Mr Speaker, the expenditure last year (ending 31^st March 2005) was £13 million higher than in the previous year (ending March 2004) mainly accounted for by the following items of expenditure: -

These items, less savings elsewhere (including the non recurring £5 million to Community Care), results in the overall net expenditure increase of £13 million. This figure of £13 million increase in Consolidated Fund expenditure includes the £6.1 million in respect of contributions to clear 2003/04 deficits carried forward into 2004/05 by the GHA, the Social Services Agency, the GDC and the Elderly Care Agency. Therefore real growth in expenditure incurred in 2004/5 was £7 million or 4.25%

Mr Speaker, this House will be aware of the Government’s longstanding position that part of the wealth created by our successful economy will be invested in modernising, expanding and improving our public services. The figures that I have just quoted, read together with the expenditure statements for the GHA, the Elderly Care Agency and the Social Services Agency demonstrate that, once again last year, we have complied with this policy, as we have done every year since 1996.

For the current financial year on year Real Consolidated Fund Recurrent Expenditure is estimated to rise by £5.4 million or 3.2%.

However, despite this fact, total consolidated fund expenditure is actually estimated to fall very slightly from £178 million to £177 million. This is because last year’s figure of £178 million contains the £6 million spent on clearing the deficits carried forward by the statutory bodies that I mentioned before and this will not recur, and also because of falling expenditure elsewhere.

The main areas of rising estimated expenditure are as follows: -

The total of these increases is offset by £4.2 million estimated reduced expenditure in other heads to produce the net increase of £5.4 million.

And so, Mr Speaker, we are for the current financial year 2005/06 estimating a surplus of £3.76 million before exceptional, non-recurring, items totalling £560,000, representing an estimated surplus overall of £3 ¼ million.

During the course of this year we will consolidate pension and social security funds to lock in surplus capital into pension funds and thus increase the financial provision for the funding of the elderly persons pensions for our present and future pensioners.

Mr Speaker, our commitment to invest in the modernisation, expansion and improvement of our public care services and education has been borne out, not just in overall public expenditure in those areas, but indeed in the extra staff resources that we have employed in them since 1996.

We are proud of having done so and will, this year, continue to do so. From some quarters of the community we are often called upon to curtail public expenditure and to cut staff. But the public sector an community of Gibraltar is not a business. Government is not a profit organisation. Reducing costs to the minimum in order to maximise profit is not the role or purpose of this Government. Government has a duty and a desire to develop public services for the benefit of the community as a whole and the financially less well off in particular.

And so, we have not hesitated to increase public expenditure and public sector jobs and resources in the most important public services: health, education and social services.

In 1996 we set out to broaden, modernise and improve our health service so that Gibraltar will have the modern, comprehensive and free public health service that it wants and deserves. Investment in our health care services has risen by well over 100% since 1996, from about £20 million p.a. to £46.5 million p.a. last year. This huge extra investment in and commitment to our health service since 1996, has enabled us to employ an extra 52 nurses, an extra 32 doctors and other professional medical staff and an extra 101 other health care support staff. In total an extra 185 health workers, delivering extra and better healthcare to our community introduced in existing and new areas of health care. As a result, and to that same end we now have a new hospital, a new Health Centre and a new professional ambulance service. In this financial year alone, an additional 66 medical staff and other health workers have already been, or will shortly be recruited to staff the expanded and improved health services available at the new hospital. These are real improvements paid for by our investment in our health services, made possible by our economic success.

In 1996 we set about modernising, expanding and improving our social services our children’s homes, our disabled persons homes and facilities, our old peoples homes, our probation and social worker service, our financial provision for the elderly. So that the most dependent and vulnerable members of our community would also share in our economic success. This is the true mark of a modern and caring society. Not a preoccupation with "cutting" the public sector. And so also, we have effectively eliminated taxes for the elderly and we have introduced the Elderly Persons Minimum Income Guarantee. Those things have cost lots of money.

Disability benefits, family benefits, unemployment benefits and social security benefits that had been frozen for many years before 1996 have all been substantially increased. Those things have cost lots of money. Over five hundred publicly paid workers who had no occupational pension before 1996 now have one. That alone is costing the Government nearly an extra £1 million a year.

We now have well over 110 extra staff looking after a greater number of our elderly, and looking after them better, at Mt Alvernia. We have around 50 extra social workers and other carers looking after our children in care, our disabled people, and those of our fellow citizens who are most disadvantaged and in need of help and support; we have staff, where there were none before, providing treatment in Gibraltar to our drug addicts, and providing advice to our citizens at the CAB and relief and support to our citizens at the Ombudsman’s Office. These are the things in which we have invested the fruits of our economic success, as we said we would, to ensure that Gibraltar is a modern, caring and civilised society. This is modern Gibraltar after 8 years of GSD Government.

Annual Public Expenditure in these areas, many of which had been starved of adequate funding and investment before 1996, has much more than doubled and increased by tens of millions of pounds a year.

We set out in 1996 to consolidate and improve our education system. And so, we have increased the number of teachers and permanent classroom aides by over 41 and expenditure has increased from £11.5 million p.a. in 1996 to £21 million last year, or 83%. We have abolished parental contributions, increased grants and allowances and provided much greater resources to those of our children that are in need of special educational support.

There will also be additional staff and resource to operate our excellent new sporting and leisure facilities at Bayside, which are also important social amenities.

And so, Mr Speaker, the Honourable the Leader of the Opposition will understand that I, and most other objective people, will have taken with more than a pinch of salt, his May Day statement that it is his responsibility to make sure that in Gibraltar we do not stand idly by and watch the gains of the past being rolled back to the detriment of future generations of Gibraltarians. Mr Speaker, no Government has done more in recent history to advance those social gains than this Government.

And so, Mr Speaker, I cannot agree with the statement in this year’s Chamber of Commerce Annual Report where is says "It is a matter of concern that the public sector has grown significantly in the past 8 years and there has not been any appreciable improvement in the services it provides". This statement is simply untrue and can only be based on a very narrow view of the extent and role of the public sector.

In those areas where there has been growth of resources, staff and expenditure in expanded services there has indeed been considerable appreciable improvement. One need only ask the families of the residents at Mt Alvernia, or compare the range of health, educational, training and social services now available to this community with those available before the so called "growth in the public sector without appreciable improvement".

Of course that is not to say that other public services do not need to improve, or improve further. Business organisations have historically been most critical of two public services that are most relevant to business activity, the post office and customs. We have invested very substantially in the post office and it has been reformed so that it now provides a service that is among the best in Europe. It is not realistic for those who demanded this of Government to now complain that it has come at a financial cost. All reform and service improvement comes at a cost, everywhere in the world.

This financial year, and with the support and participation of staff and unions, we intend to carry out a "root and branch" review of the Customs Department, including its functions, methods, resources, premises, staff and management structures, roles etc. We hope to improve the service to the business community and other users, and also to improve the Department for the benefit of its staff, and to maximise the effectiveness of its revenue collection.

Large and important areas of the Public Sector are also being reorganised, and arrangements are being entered into so that important economic and social functions are carried out via focused entities, in a way most beneficial to the needs of those activities. And so the Government has set up the Social Services Agency, the Elderly Care Agency, the Electricity Authority, the Port Authority and the Sports & Leisure Authority, all of them with the appropriate management structure, outside of a monolithic civil service, to give them greater flexibility of action and management and to allow people from outside the Government to play in role in the management of those public services. And thus there is a considerable amount of training now going on in the public service, as well as modernisation of premises. There is a huge amount of public sector reform going on.

Nor, Mr Speaker, is there any point in Government being urged to abandon the principle of parity as set out in the parity agreement. The Government is irrevocably committed to it.

And nor, Mr Speaker is it true to say that the public sector is too big. The public sector, widely defined, provides around 3900 out of the 15994 jobs in the economy. That represents about 24% of all the jobs in our economy, the same as in 1996. So the public sector is not growing as a proportion of our economy in terms of its share of jobs. It is growing in precise proportion to the growth in the economy as a whole.

What is more Government expenditure as a percentage of GDP, that is Government expenditure as a proportion of the size of the economy, which is how public expenditure is properly measured, is not growing significantly and is lower in Gibraltar than in UK and elsewhere in Europe. It is therefore a complete myth that the public sector is too big in Gibraltar.

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 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 2^nd 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 effect electricity and water tariffs have fallen hugely in real terms and as a proportion of pay and incomes. That is the inescapeable economic reality. Ordinary people don’t like paying more for anything, but they understand that prices cannot remain static forever.

Let me place the recent tariff increases in some perspective. For example, the electricity tariff increase will raise about an extra £2 million per year for Government. On the other hand, the cost to Government of fuel alone for the generating electricity has risen by more than £2 million in just the last 2 years. Never mind rising salaries and other operating costs. Last year alone the Government subsided the Electricity Authority, and therefore tariffs, to the tune of £4.4 million.

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!

Mr Speaker, I could barely contain my amusement when I read in his May Day message this year, the Leader of the Opposition say "…the huge increase in electricity and water charges and the hundreds of other increases introduced by the Government in the run up to the budget will further erode the standard of living of those who continue to reside in Gibraltar."

"Erode the standard of living." I could barely believe my eyes. The sheer audacity of the bare faced cheek of it! Could this really be the man who between 1989 and 1995 increased by £9.40 per week the social security contribution payable by each and every worker in Gibraltar, however low paid? Could this be the man who, not content with that huge erosion of the standard of living of every worker in Gibraltar, then went on to erode them further by effectively increasing income tax every year through fiscal drag?

Does the Honourable the Leader of the Opposition not know that even adding up the two social Insurance Contribution rises that we have introduced and what he called "the huge increase in electricity and water charges" that we have introduced, we have still added much less to peoples weekly outlay than his social insurance contribution increases did, alone? And does he not know that whereas he then increased peoples other taxes, we have reduced peoples taxes by nearly 40%? Does he not know that?

Mr Speaker, no Government has eroded the living standard of working people in Gibraltar more than the GSLP did. And no Government in recent history has improved the living standard of working people in Gibraltar more than this GSD Government had done.

Mr Speaker, at the time of the tariff increases I heard the Honourable Leader of the Opposition say that it was better to pay for rising costs from taxes and not to increase tariffs for consummation "because if the taxpayer pays those who have most pay more towards the subsidy, but if the consumer has to pay higher tariffs, those who have least pay least".

I have to say to the Honourable Member that he is completely wrong with that somewhat extraordinary logic. Firstly, if Government subsidises electricity and water through general taxation, when an ordinary working household contains several taxpaying workers, as many do, each of them is funding the subsidy, even though there is only one electricity and water bill. So if a home contains two, three or four wage earners, that home is paying two, three or four shares of the subsidy. So that family of ordinary workers is paying more, not less. Secondly, businesses and also temporary residents and others who live in Gibraltar while paying no tax here, consume cheap water and electricity at prices subsidised by taxpaying workers and residents. It is better for people to pay a fair price for what they consume, so that those who choose to be careful with their consumption can continue to pay lower and lower taxes and spend their money as they choose, and not be forced to spend it subsidising the consumption of other, perhaps wealthier people.

So much Mr Speaker, for Government’s budgetary position. We expect to continue to produce budget surpluses. We expect that the economy will continue to grow and that this growth and other economic factors will continue to deliver the bulk of the increases in revenue that Government inevitably needs to sustain public services. Indeed, in the past we have been able to do so, and, at the same time reduce personal taxation rates very substantially. We hope and expect to be able to continue to do so. Nothing on the horizon threatens that scenario, despite the challenges that we face in the finance centre. But increasing revenue raising measures from time to time is a perfectly normal thing to do. To suggest otherwise is to trivialise and distort serious economic debate for the purpose of deceiving the general public.

Mr Speaker, I turn now to Government Cash Reserves, which remain at record levels i.e. £51.2 million compared to £42 million in 1996.

Subject to the level of expenditure from these reserves on the Government’s forthcoming new housing schemes and to transactions that will add to these reserves, the reserves are estimated to end this year at the new record level of about £54 million.

Public Debt is at £93 million, the level estimated at the start of last financial year in the June 2004 Budget. At £93 million it is only £10 million higher than net debt in March 1995 (when it stood at £83.1 million) when the economy was very much smaller. Despite increasing debt only modestly, and increasing cash reserves we have, since 1997, invested more than £163 million in Gibraltar’s infrastructure and capital projects.

In Western economies there are two proper and meaningful measures of public debt. One is debt as a percentage of GDP, that is Government debt relative to the size of the overall economy. The other is debt serving cost, i.e. interest payments, as a percentage of total Government revenue. Both methods produce a figure for Gibraltar which is very, very much lower than the European norm and target. Anecdotally, the House may be interested to know that the EU debt target for all EU Counties under the Maastrict Treaty’s Procedures is 60% of GDP. The Uk is very proud because its debt is only 41.6% of GDP. The Gibraltar Government’s debt is a mere 17.5% of GDP!

Indeed, as our economy has grown, the size of Government debt has become relatively smaller in real economic terms. Furthermore, Mr Speaker, applying the UK Treasury Guidelines for public debt by UK Overseas Territories, our public debt ceiling could be as high as £200 million. We have not reached even the present public debt ceiling of £100 million which was set when our economy was not far from half its present size.

The House may also be interested for me to point out that as a result of the refinancing of the matured £50 million Loan Stock which paid interest at 11 5/8%, with Government Debenture and Bank Loans at around 6%, there is an annual reduction of about £3 million in the cost to Government of servicing its debt.

And therefore, Mr Speaker, whether you look at our record of almost continuous recurrent revenue and expenditure budget surpluses, or at the record level of Government reserves, or the record level of investment in public service modernisation, improvement and expansion that we have been able to fund, year in year out, whilst at the same time lowering taxes; or at the low level of public debt despite investing an average of nearly £20 million a year in capital projects, the economy, insofar as concerns public finances and their management, is in good shape.

But, Mr Speaker, does this mean that Government is a bottomless pit of money? Of course it doesn’t! Does it mean that departments can spend as much as they like without having to keep within approved spending limits without budgetary discipline, and if they are not allowed to, then it must mean that Government is short of money? Does it mean that Government must provide each department with all the money it bids for each year at budget time? Of course it doesn’t! Is that, Mr Speaker, a measure of economic ill health? Of course it isn’t. Who could possibly think that that is the case in any country – even the richest? Does anyone imagine that even in the USA or Japan, the government can spend money with no limit? The very proposition is economically absurd!

Yet, - alas – Mr Speaker, the Opposition appears to have embarked on a sustained campaign to dupe the general public into believing that Gibraltar is an exception to all of this, that in Gibraltar unless the Government says yes to every and all expenditure that someone wants to incur, then it must mean that the Government is short of money! Of course, it was all very different when they were in Government. Then it was all, "there’s no money for this", "there’s no money for that", and ‘annual tax and social security increases!

Any yet, Mr Speaker, the reality is that while they say "the Government is short of money", public expenditure is actually growing, public services are being expanded and improved, and we are investing in more medical staff, more social care workers and more educators for our community and we are making unprecedented investments in making all our social, health and education services truly modern, European 21st Century standard.. If that is "shortage of money" – long may it continue.

Mr Speaker, I said earlier that I would review some of the absurd dialect devices to which the Opposition has recourse to distort and misrepresent the economic realities, and give a picture of doom and gloom when actually the position is the very opposite. There are several.

Perhaps the most absurd is the trick of measuring the Government’s financial position not by comparing one year’s actual performance to another year’s actual performance, or even by analysing Governments actual financial performance in anyone year, but by comparing what the Government estimated at the start of the year would happen with what actually happened during that year – as if that were a measure of anything (except perhaps the accuracy of the estimating techniques). It has recently been said by the Honourable the Leader of the Opposition that in 2003/4 "an estimated surplus of £6.5 million became a deficit of £7.5 million and that this represented a discrepancy in public finances of £15 million! A truly astonishing piece of economic analysis.

Another device, Mr Speaker, is to mix up recurrent expenditure with capital expenditure. So, every time the Government does not spend money on some recurrent annual departmental expenditure or other, the Opposition says, "of course if they hadn’t wasted £3 million on the Theatre Royal they could afford it". £3 million has not been wasted on the Theatre Royal, but in any case that money was spent from Capital Reserve Account (which by the way is still at a record level) and not a consolidated fund annual budget expenditure. If Government had not so far spent £3 million on the Theatre Royal Project nothing else would be different financially. It has not affected or prevented any other expenditure let alone annual departmental expenditure. Of course Mr Speaker, the Opposition knows that, but nevertheless plays on the public’s lack of familiarity with such matters.

But, Mr Speaker, whilst on the subject of the alleged waste of £3 million on the Theatre Royal (or "hole in the ground") as they like to call it – that £3 million represents one eighth (1/8^th) of what it cost to repair their Harbour Views Fiasco, and one quarter of the £12.5 million that it cost this Government to clear up their Incinerator/Water Desalination/Electricity Generator fiasco. However, unlike their lost millions which were literally poured into a black hole, the Theatre Royal will become a reality and give Gibraltar the cultural centre that it deserves.

We would need to organise many many bonfires with taxpayers’ pound notes before coming anywhere close to wasting the millions and millions of pounds of taxpayers money which they wasted in mishandled projects when they were in Government!

Another device, Mr Speaker, is to expect this Government to fund increasing annual expenditure, without increasing any raising revenue measure, even though they of course effectively raised taxes and Social Insurance Contributions every year, when they were in Government! Put another way. If we don’t fund everything it means we are short of money, but if we raise revenue so that we can fund more things, then we are also short of money! Its really is too silly for words.

And so, Mr Speaker, public finances are in good shape. The Opposition can, if they wish, continue to make points which mean little more than that the level of the budget surplus have reduced from previous levels. And so it has, but it has done so by design, as I have explained every year at budget time. It is the natural and inevitable consequence, even in a growing economy, of cutting taxes, investing in more and better public services, and going year after year without increasing revenue raising measures. We have said from the start that we would share the budget surpluses between (1) Increasing Investment in public services; (2) Cutting taxes and (3) capital investment projects – and we have done so. Of course, we could have done as used to happen before 1996! – i.e. annual tax Increases, instead of decreases and practically no investment in public services, resulting in our health and social services having taken on the appearance of those in third world countries. Government would then now be richer, but the citizens would be poorer. Poorer financially and poorer socially and poorer in the public services that our community needs and wants. That is not the GSD way. That is not our vision for Gibraltar.

Mr Speaker, one of the socio-economic challenges facing Gibraltar is the unacceptable and irresponsible manner in which the MOD is seeking to obtain efficiency savings in its operations in Gibraltar. Both the Unions and the Government acknowledge the MOD’s right to seek to make its operations here financially more efficient, but we reject the methodology, namely wholesale, unconsulted and unnegotiated privatisation. There are alternatives, such as in-house negotiated options. It is no good the MOD saying that that privatisation is the "order of the day" in the UK. Gibraltar is not the UK. Our geographic location and our status as an EU Frontier Town means that the adverse socio-economic consequences of privatisation are much more serious in Gibraltar than in the UK.

Mr Speaker, privatisation of the MOD on this grand scale also means effectively an end to parity in the MOD. Therefore, out of 1000 MOD, upto 400 could be lost altogether and the remaining 600 will lose parity. This is economically and socially regressive and unacceptable. The Government therefore fully supports the Union’s campaign against this privatisation, and calls on all of Gibraltar to do so as well.

It is, of course, not possible for the Government to legislate to prevent such privatisation. Nor, contrary to occasional statements to the contrary by the Opposition, have I said that it could or would. What I have said is that Government would legislate and take whatever administrative action was possible and lawful to ensure that the socio-economic consequences to Gibraltar from such privatisation are minimised as far as possible.

For example, it is unacceptable that pensionable jobs should be converted into non-pensionable jobs. I have sought, and not received, from MOD an assurance that any jobs that may be privatised, despite efforts to prevent it, will retain equivalent occupational pension terms going forward into the future. Accordingly, the Government will bring legislation to this House amending the TUPE provisions in our Employment Ordinance to require that employment posts subjected to a Transfer of Undertaking retain at least equivalent value pension terms and conditions.

There are also various financial and fiscal and other exemptions which are enjoyed by the MOD to which a privatised entity should not assume that it will be entitled.

The Government is also liasing closely with Unions and their lawyers on the question of whether the MOD is amenable in the Supreme Court of Gibraltar under the Employment Ordinance and more generally. Union lawyers are confident of the existence of the Supreme Court’s jurisdiction to hear this case and grant the relief sought. Both these issues are of course matters for the Court to decide.

I am sure that this House will not hesitate to legislate to make the MOD fully amenable to the Courts of Gibraltar generally and to the Supreme courts jurisdiction in this particular case should it be necessary to do so.

The Honourable Leader of the Opposition has offered to agree to an emergency convening of the House should it be necessary for this purpose, and I hope that that will remain the case.

Mr Speaker, I turn now to the wider economy and to the various private sectors, where, I am happy to say, as in the case of public finances, Government’s economic policies continue to deliver success.

By every known measure of economic growth our economy continues to grow by a handsome margin. In 2003 the economy grew 7.9% to £507 million. The estimate for 2004 is that is has again grown by between 5% to 7% to around £530 million.

It may interest the House to know that, if Gibraltar were an independent country, our economy would rank in size 156^th out of 186 in the world. Furthermore the prosperity and success of our economy makes Gibraltarians among the best off citizens in the world. At US$32,393 (at 2004 Rates) our GDP per capita stands in 11^th position among all countries in the world.

The number of jobs in the economy continues to grow. Between October 2003 and October 2004 it grew by 575 jobs or 3.7%. It is no small achievement for an economy this size to create so many new jobs year in, year out.

It is perhaps worth noting that, since 1996, the number of jobs in the economy has grown from 12,980 to 15,994, an increase of 3014 extra jobs, or 23%. This represents yet another all time record.

The main sources of the 575 new jobs created in 2004 are the following sectors:-

Gambling - 284

Building Construction & Real Estate Management - 186

Bars & Restaurants - 54

Finance Centre - 78

Vehicle Trade - 21

Public Transport - 21

Health Services - 23

After deducting 47 jobs lost in the MOD and 140 jobs lost in the electrical trade (as a result of the completion of the hew hospital) the new gain was 575 extra jobs.

It may also interest the House to know that the number of Gibraltarians in employment has risen from 9448 in April 1996 to atleast 9864 in October 2004, an increase of 416 Gibraltarian jobs.

Another statistic, the trend in which demonstrates clearly the sustained growth in the economy is tax yields from companies and businesses. This has risen from £10 million in 1997/98 to £27.8 million last year (or £22 million excluding one-off items of revenue. For this reason we are maintaining last year’s figure as the estimate for the current year because last year’s figure contained a couple of one-off items that will not recur this year.

Mr Speaker, average earnings in Gibraltar rose to £17,834 p.a.

Out of the 13,549 full time workers in Gibraltar, 5100 (that is 38%) earn more than £20,000 p.a. Of those, 3458 earn more than £25,000. Less than 2000 earn less than £10,000 p.a.

This substantial economic growth, Mr Speaker, is achieved notwithstanding a number of external factors which impact adversely on our economy. These include current recession or downturn in many western economies; the record high price of oil; the adverse effect of Savings Directive and tax uncertainties on our finance centre; and the ever increasing impact on businesses of EU Environmental and health & safety regulations.

I turn now, Mr Speaker, to the individual sectors of our private sector economy.

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

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.

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.

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 Footsie 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 reputeable 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 reputeable 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.

The Port continues to increase its level of Activity and thus its importance to our economy. Ship calls grew 17% to 6757 in 2004. The number of ship calls has now nearly doubled (98% increase) since 1996. Bunkering visits increased by 7%.

The establishment of a new Port Authority has now been agreed with staff. This will enable a more commercial focus in our port without undermining the rights and status of employees as public sector workers. There is also new port legislation to regulate commercial activities within it.

Mr Speaker, that Tourism remains a success story under the stewardship of Joe Holliday is a self evident reality that most people can see with their own eyes. There are days when we local residents are almost driven from our streets by the sheer number of tourists. This has not prevented one local pundit, with obvious political ambitions of his own, from saying last week in an interview with a local weekly newspaper that Mr Holliday is the worst tourism minister ever. Mr Speaker, "hell hath no fury like a prospective candidate scorned".

Visitor arrivals by cruise ship are at an all time record high of 162,780 p.a. (2004). Arrivals by air stand at 134,497 (2004). This is more than double (103%) of the number in 1996. Visitors by land remain just short of the record achieved in 2003. Hotel Room Occupancy is at the highest level since records begun in 1978 at 68%, although there are times of the year in which it is impossible to obtain hotel accommodation in Gibraltar. If all this represents Mr Holliday’s failure as Tourism Minister, then long may he continue to fail, or else there will be no room in Gibraltar for those of us who live here. Mr Speaker, I have no doubt that Gibraltar currently has its best ever tourism minister.

In the Improvement & Development Fund last year we had estimated that we would spend £18.4 million, whereas we actually spent £15.3 million, a strike rate of 83%. Of these £15.3 million, £2.6 million were spent on refurbishment of public housing, £1.4 million on the extension and refurbishment of Mt Alvernia, £2.4 million on the New Sports Complex at Bayside, nearly £1 million on educational equipment and buildings, £1 million on investment in the environment, roads and utilities; £2 million on equipment for the essential services and on public buildings and £3.5 million on other infrastructure projects with the balance on a variety of other projects.

These were funded mainly from the sale of Government Properties (£7.2 million) and the proceeds of public debt (£5 million).

This current year we are estimating to spend £24.6 million in the Improvement and Development Fund. The main expenditure items will be as follows: -

We are estimating that upto £21 million of this expenditure will be funded from the proceeds of sale of Government properties.

Construction of one of the Government’s new housing scheme, now known as Waterport Terraces, gets seriously under way VERY soon and will be funded Mainly from that part of Government reserves held in Companies, as shown on Page 6 of the Estimates book. Details of the scheme, prices and other literature wil be issued during July.

Mr Speaker, despite the large sums of money that we have spent on upgrading the public housing stock, building Bishop Canilla House, and refurbishing Edinburgh House for rental stock, the Government is rightly criticised for not moving quickly enough to put more affordable housing on the market. I accept this criticism. Government is now moving quickly on several fronts to rectify this policy failure.

However, this justifiable criticism, should not be abused by some, and misunderstood by others, to justify criticism of the huge amount of private investment that there is in real estate projects. Apart from reflecting huge international investor confidence in and support for Gibraltar, it represents massive present and future economic benefit for Gibraltar, in very significant Government revenue, in jobs and in investment in our commercial, urban and utility infrastructure.

The economic benefit to Gibraltar of projects like the Eastside, Mid-Town and Mid Harbour Projects is truly huge and will guarantee this community’s economic and social prosperity, and therefore political prosperity for a long time to come.

International investment is vital to our economy, to people’s employment, to people’s businesses, to Government revenue (and thus to public servants and to users of public services) in short to each and every person in Gibraltar now and in the future.

It is therefore unforgiveable to trivialise this investment by pitting it in people’s minds against the environmental, social or housing needs of current local residents. The Government will ensure at all times that these investments deliver the economic benefit to Gibraltar, while also ensuring that local needs and interests are protected.

Mr Speaker I move now to this year’s budget measures which continue this Government’s policy of tax reductions.

Once again it gives me considerable satisfaction to announce measures that will reduce taxation for a very substantial number of taxpayers in Gibraltar. Since 1996 we have abolished capital games tax, reduced income tax rates by atleast 40% and we have abolished income tax for most senior citizens. This year,

1. Tax on Savings Income is abolished

(b) interest paid directly or indirectly –

2. All Senior Citizens’ Allowances increased to £10,000

3. Personal Allowances

4. Child Abroad Allowance

5. Disability Allowance

8. Unilateral Tax Relief

9. IBNR Deductible

1. Rates payable by Clubs & Societies

2. Rates Payable on Commercial Premises

3. Gaming Tax

4. The Elderly

6. Stamp Duty

7. Annuities