Madam Chairperson, Distinguished fellow guests, ladies and gentlemen given the wholly misleading assessment made recently by the Opposition about the state of our economy, I welcome this appropriate opportunity to speak about that, to review the state of the economy and to comment on related current issues.

Every year since 1996, I have explained the underlying philosophy and core elements of our economic policy. These remain the same. They are to pursue policies that create an environment that promotes increased levels of business activity and investment (that is to ensure economic growth) not least by promoting international investor confidence in Gibraltar. Thereafter, to share the proceeds of that success in three parts. First, in reducing personal taxation (which we have done every year since 1996). Second, by investing in improving our essential public services (of which I will say more in just a moment); and third in making capital investments in our future, our city and its public, economic and social infrastructure.

The economy of Gibraltar has never, in the entire history of Gibraltar, been more prosperous and successful than it is to-day. This is clearly shown by all relevant and usual economic indicators.

The economy (GDP) has grown overall in size by more than half, that is by 55% since 1996, from £327 million to £507 as at March 2003. The figures for 2003/4 and 2004/5 will show that it has grown still more. In 2002/3, the last year for which figures are available, it grew by 7.9%. The number of jobs in the economy it is at an all time high, and still growing; the unemployment rate (unemployed as a percentage of jobs in the economy) is at a record low at less than 2 %, which is in structural terms full employment; the tax yield from Company profits is at an all time high; ship visits and bunkering volumes are at record levels. Visitor numbers to Gibraltar are at record or near recent record levels; Average earnings have risen by more than 30% since 1996 and take-home pay by even more, since we have, at the same time substantially cut levels of personal taxation; the gaming sector is growing fabulously and now employs about 1000 people. Gibraltar has become a global leader in the virtual gaming industry; even in the finance centre, which has faced its challenges, employment levels have risen by more than 25% in the last 6 years alone.

This hugely successful economic performance has been, as we promised it would be, reflected in things that benefit the whole community. I have already mentioned the record number of jobs and the rising average earning levels. But this is not all. Government revenue is at an all time record level. This has allowed us to invest a sum in excess of £150 million over 8 years in publicly funded capital projects. This is itself a record which has allowed us to increase recurrent public spending in important public services such as health (in which spending has doubled in 8 years on such things as a dedicated ambulance service, many more doctors and nurses, new medical services etc.) education (where we have been able to invest in new school buildings; in a huge amount of community wide training; in increasing student grants and in abolishing parental contributions contribution) and not least in social services, that is the provisions for those in our community most in need of help and support (here we have been able to establish a drug and substance abuse rehabilitation centre in Gibraltar; vastly upgraded the service at Mt Alvernia; introduced a domiciliary care scheme, and a minimum income guarantee for the elderly; all but abolished tax for our elderly; introduced modern principles of care and accommodation for children and disabled persons in the care of the state; hugely increased the level of disability and social allowance and benefits (which had been frozen for many years); increased the wages and given occupational pensions to hundreds of low paid and pensionless publicly funded workers; established a modern, safe and reliable public bus service; established facilities for our citizens to better exercise their rights, such as the Ombudsman and the Citizens Advice Bureau. These are just some of the fruits that have been made possible by our economic success as a community. Individually each is important. Collectively, together with others that I have not mentioned, they have transformed many aspects of life in Gibraltar and Gibraltar itself, physically and economically.

And despite the very considerable capital and recurring annual budgetary cost of doing all those things, we have been able to reduce personal taxation in Gibraltar by more than 36%.

These are the true measures of our economic performance. The facts speak for themselves. You will therefore understand the degree of bemusement with which we hear the accusation levelled at Government recently by the Opposition that "the present Government has no economic policies and no sense of direction". No-body with sufficient knowledge of economic matters could possibly come to that conclusion honestly. Indeed no-one could do so who has eyes to see, even if they are not economists.

Nor could that judgement be justified by reference to the state of public finances. Public debt is forecast to end this financial year at £93 million. This is just £10 million more than it was in 1995. As a percentage of GDP, which is the usual way of measuring public debt all over the developed world, ours has fallen from over 25% to less than 19% of GDP and that is using 2002/3 GDP figures. If you allow just 5% growth in GDP for each of 2003 and 2004, current debt as a percentage of current GDP is a mere 16.5%. This is very low by any standards in the world. Government reserves are forecast to stand at £35 million as at march 2005. This is higher than in the year 2000, despite the huge amounts of capital investments made since then.

Nor can the Government be said to have no economic policy or sense of deviation or be short of money because Government operated a budget deficit last year, and will probably operate one this year. Unless, of course, all European countries have "no economic policies and no sense of direction" and are short of money, given that almost all european countries operate a budget deficit. Nor unless the previous Gibraltar Government also had "no economic policies or sense of direction" and was short of money because they estimated and actually produced consolidated fund budget deficits in 4 of their 8 years in office. No economically literate person would regard small, temporary budget deficits as a sign of lack of economic policies or sense of direction – still less as a sign of "shortage of money".

It has become fashionable for the Opposition to say that Government is short of money. If Government decides not to throw away a motorbike just because it suffers a breakdown and needs a repair, and instead chooses to repair it rather than buy a new one, this is presented as evidence of shortage of money! If Government exercises normal and prudent budget discipline, by requiring departments to stick to the spending authorised by the House of Assembly (which, by the way, is a legal requirement), this too is presented as "shortage of money".

If government departments overspend and Government requires them to bring under control just part of this over expenditure, this is presented as "spending cuts" and are said to be the result of shortage of money.

Apparently, as far as the Opposition is concerned, the definition of financial health and what the Leader of the Opposition called in his New Year address "sound management of our collective finances" is to allow everybody to spend as much public money as they like every year, year in year out, regardless of the effect on tax rates. How many of you would be willing to run your own businesses on that ridiculous basis. This is not serious economics. This is not a serious political economic debate or commentary. This is not even "kitchen economics".

Well Madame Chairperson, in addition to everything else that I have just described, this directionless Government with no economic policy has just signed an agreement for Gibraltar’s largest ever inward investment project. Clearly those willing to invest in excess of £1 billion in Gibraltar do not share the Opposition’s assessment of the Government’s handling of our economy, or of Gibraltar’s future prospects.

You will already have read of the scale and content of this project. The positive effects on our economy, business levels and employment and government revenue will be very significant for many years to come. The gain in infrastructure is also huge – 2400 houses (200 affordable to local first time buyers), a 300 room hotel, a 300 large yacht marina, a cruise terminal, a doubling of the size of our two beaches and their protection by offshore underwater breakwaters; a new 30 mega watt generating station to replace and double the size of Waterport; a new sewer network and much else.

In terms of capital premium value to Government alone this project is worth £70 million and (depending on how many houses are built) upto around £100 million.

I’m sorry that the Leader of the Opposition should think that I am managing the affairs of Gibraltar inadequately. People will have to judge for themselves whether this statement is justified by what they see going on around them or whether it is the somewhat "tongue in check" political wishful thinking of my political rival.

Whilst on the subject of the Eastside Development. I have read the reports of the comments by Snr Juarez, the Mayor of La Linea, in which he hopes that there will be an environmental impact assessment of La Linea’s coastline and that there will be discussion of this. There are, of course, EU Directives which stipulate when environmental impact assessments are required and how these should be carried out, both domestically and in relation to one’s neighbours. Gibraltar will of course comply with its legal obligations, such as they may be. However, I think that it is worth pointing out that Gibraltar has not been made aware of any environmental impact assessment of the effects on our coastline of any of the reclamation’s that have taken place nearby in Spain recently. These include the huge expansion of Algeciras Port, the Crisnavis dockworks in San Roque; the marina, wharfs and jetties within the Bay of Gibraltar at La Linea, nor the fishing port on the mediterranean coast of La Linea.

Madame Chairperson, since 1996 the Government has pursued a policy of reasonable and safe dialogue with Spain. We have steadfastly refused to participate in bilateral negotiations between the UK and Spain because that is neither reasonable nor safe. Nor indeed is such dialogue consistent with our political rights as a people in our homeland. But we didn’t just say "no" to bilateral negotiations, for example under the Brussels Agreement. We said no, while at the same time publicly and confidently proposing a reasonable alternative structure for acceptable dialogue. Last autumn we were finally able to usher in a new process or forum for dialogue that meets all of the Gibraltar Government’s long standing and well known terms for dialogue. Through this safe and trilateral process, where we take part on the same basis as the other participants, with our own separate voice and with our agreement needed for all agreements, we will be working to improve relations and co-operation with Spain and to enhance the economic and social prosperity of the people of Gibraltar and of the Campo.

Spain has asked for the Spanish Pensions issue to be discussed as part of this new process of dialogue. The Gibraltar Government is, as is has always been, happy and willing to provide information and also explanations and reasons for its well known position on this issue. This position will not change. But we welcome this fresh opportunity to explain our position directly to our Spanish interlocutors and thus help to ensure that Spanish public opinion, especially in the Campo, does not hold Gibraltar culpable or responsible, with consequent ill effect on cross border relations.

Another issue for early discussion in this new trilateral forum is the possibility of reaching a new, different agreement, acceptable to all sides, that brings about expanded use of Gibraltar’s airport and air terminal. We hope that that will be possible. Spanish airlines are of course free to use the airport to-day, but we look forward to the possibility of reaching an expanded use agreement that will enable our airport to contribute more to the social and economic development of the Campo. However, any such agreement would need to be free of adverse Sovereignty implications for us. We look forward to exploring these possibilities to see if an agreement acceptable to all sides is possible.

Madame Chairperson these last few days has also seen the ratification by the full EU Commission of the agreement negotiated by the Gibraltar Government in relation to the continuation of tax exempt status on agreed terms. This agreement, while not containing everything that we wanted, delivers sufficient certainty and stability to avoid the worst consequences for Gibraltar. Compared to what the economic position would have been if we had not reached an agreement, this is an excellent agreement.

Our political opponents cannot decide whether to blame us for the original problem; to acknowledge the true extent of the threat that we faced and criticise the agreement for not delivering a "seamless transition" or to accuse us of exaggerating the problem to try and prevent the Government gaining political brownie points when we deliver an agreement that sufficiently protects Gibraltar. And because they cannot decide which to do, they do all three, despite the obvious contradictions involved. After all, if they think that we were exaggerating the state aid threat to our finance centre, in the first place, why nit pick about whether the agreement delivers a "seamless transition". Either there was a significant threat or there wasn’t.

No-one who understands the issues involved and the consequences for our economy of the position that we faced, could possibly believe that we have exaggerated the threat. It is not possible to exaggerate the threat. Gibraltar can certainly choose to move from one competitive tax regime to another. But Gibraltar could not have withstood ending the current competitive tax regime (the exempt company) if it is prohibited from replacing it with another one (which is the effect of the regional selectivity issue). That is the threat that we faced. That is precisely the position in which the Commission fully intended to place us, and would have placed us in December, had we not reached this agreement. In fact, if the Government can be accused of anything, it is of down playing the threat, which we did in order not to inflict upon ourselves premature and unnecessary economic harm.

The negotiating priority for the Government was to secure for existing exempt companies continuity until after the Court case, thus saving exist business economic activity and the many hundreds of jobs that it sustains. This objective has been achieved.

Then second objective was to secure the ability to do new exempt company business in the future or as it is called in the EU jargon – new entrants. This proved to be very tall order because the EU Commission has not allowed new entrants in any other case. In the end we were able to obtain the right to new entrants until June 2006. Its less than we wanted but better than anybody else has managed to do.

Madame President, there are many other issues which I know are of interest to your members. Last time I tried to deal with too many issues in one after dinner speech it lasted nearly two hours! I know you don’t want to suffer that! I would however, just mention two other issues.

I am glad to see that a robust debate is taking place in the community about the pros and cons of the proposed Funicular Project. This demonstrates the need for and the success of our policy to introduce a public consultation phase in the planning process. For too long in Gibraltar, important and potentially controversial projects had been approved by Governments and DPC behind closed doors and presented to the public as a "fait accompli" when all decisions had already been made.

The open planning process that we introduced was designed to avoid precisely this. I am delighted that it is working well in relation to this project.

As Trade and Industry Minister Joe Holliday has said recently, the Government has an open mind on the project. The Government is not against it in principle, but subject to heritage and environmental factors which the Government has not yet considered or taken a decision about. The project would also need DPC approval. It is too soon to say whether Government will approve the project or not or whether DPC will approve it. But it is right and helpful that everyone has been able to have their say about it at a time when they can still influence the decision makers.

I understand that some established Gibraltar businesses feel that their own commercial interests are not helped by this competition. That, by itself, could not justify rejection of the project. The Government has to balance the private interests of some established businesses against the overall economic interests of Gibraltar as a whole. The Government believes that the increase in economic benefits to Gibraltar would be considerable.

I have also noted in letters written and public statements made by opponents of the scheme, remarks to the effect that, a further argument against the scheme is that most of the investors are "not from Gibraltar anyway". I think that this xenophobic argument has no merit whatsoever, since the same can be said of all inward investment. All countries seek inward investment into Gibraltar. Such inward investment is vital to our economic prosperity and development. To suggest that outside investors are not welcome is a huge error of judgement which would cost Gibraltar dearly in the future. Would we say it of those who are about to invest £1 billion in the Eastside Development? Obviously not – but they are not from Gibraltar either.

As far as the Government is concerned the relevant question is whether this project would on balance of all relevant factors, be in Gibraltar’s interests. There are many factors that must be taken into account in making that judgement – economic and commercial factors, environmental factors, heritage factors, public safety factors, traffic management factors. The Government, and within its area of responsibility the DPC as well, will now balance these factors and make a decision – in doing so we will not be taking into account the nationality or the country of origin of the investors.

Another issue, that I know concerns your Board is the arrears of taxes and other payments due by some companies to Government. Your Board, rightly in my opinion, takes the view that this results in unfair competition with those companies that pay their dues on time. I am happy to say that a much more aggressive process of arrears recovery is now well under way. It is also Government’s intention to introduce this year legislation to allow the Courts, in appropriate cases, to disqualify persons who preside over a company that goes into liquidation leaving debts from being involved in the management of any other new business afterwards. We will of course consult with your Board about that legislation.

By way of closing remark, Madam President please allow me to make this observation.

Time and time again Gibraltar demonstrates an extraordinary ability to overcome political and economic threats thrown in our path by others and which would long ago have "done for" much larger and richer communities than us. Some of the credit must go to Gibraltar’s politicians; some of the credit must go to the people of Gibraltar as a whole for our dignity and resolve in standing up for our rights and aspirations as a people. But a share of the credit must also go to Gibraltar’s businessmen, professionals and tradesmen for the skill and resourcefulness that they have shown for decades, and continue to this day to show, thus allowing us to prosper economically.

Last year was especially full of major issues. The MOD lands agreement, the new tripartite forum for dialogue, the EU State Aid negotiations, the start of Constitutional Reform talks with the UK, the Eastside negotiations, the Health services review and the preparations for the New Hospital. 2005 will see the major focus of domestic policy on housing.