Chief Minister on TaX & ReyulatiOn

A new two-tier system of personal taxation which will encourage the recruitment of expatriates for jobs in Gibraltar's finance sector is to be introduced next year, Chief Minister Peter Caruana told the "finance" lunch which forms part of the Gibraltar Day extravaganza held in London every October. Raised eyebrows and delighted smiles greeted Caruana s announcement to the record 140 financial and property development figures who attended the lunch.

Details of the proposals have still to be finalised, but they will provide similar tax revenue to that reaching the Government's coffers at present while giving employers — and their expatriate employees — a chance to enjoy similar tax advantages that a string of conces sions related to factors such as in surance and home ownership offer Gibraltarians and other permanent residents, Caruana told me later.

Historically, Gibraltar's fiscal structure was based on low tax for non-residents and high tax for residents whose burden was eased by a range of allowances and the new measures were an attempt to "eliminate the difference" and re-balance the tax demands, he told his lunchtime audience. The tax burden on residents which had been reduced in recent years would continue to be lowered... particularly in view of the fact that there would be a general election "within the next 18 months", he remarked later.

The promises of tax changes were part of an up-beat and optimistic speech that Caruana was to echo later when he spoke to almost 1200 guests packed like proverbial sardines into the central hall of the historic Royal Courts of Justice. In both addresses he stressed the successful outcome ofSeptember's Cordoba talks. These were part of a past year which had been good for Gibraltar both economically and politically, Caruana told the lunch.

As well as producing an annual GDP (gross domestic product) of £602 million — which has grown at a rate between 5 per cent and 7 per cent each year for the past decade — the economy was producing record surpluses, record capital investments yet at the same time allowing tax cuts and record Gov ernment savings to create a "won derful" economic equilibrium.

"If he asks, I'll tell Gordon [Brown, Britain's Chancellor of the Exchequer) how to do it," Caruana quipped to the amused delight of British financial pundits at the lunch.

Politically the past year had been particularly good, he said. After two years of negotiation a new relationship with Britain and a new constitution had given the Gibral tar government responsibility for every aspect of the Rock's affairs other than in matters of defence and foreign policy. It was "as far as you can go without actual inde pendence — which is something Gibraltar does not want." not mine," he joked.

At the same time, though there had been no shift in either side's position on the issue of sover eignty, there had been a change in the nature of management of the relationship between Gibraltar and Spain. It had taken ten years "to persuade Spain, and I suppose Britain, to behave democratically" but the years of work had brought about a wide range of change.

The Cordoba tripartite agree ment meant that"we got rid of the last vestiges of the abnormality of life" which Gibraltar and visitors to the Rock had experienced for so long, he added. It would create a further economic boom, Caruana predicted... "though how we will manage to service it in terms of space and labour, is your problem.

Returning to the broader eco nomic pattern, the Chief Minister stressed that Gibraltar was "com mitted to a low-tax environment and a competitive tax environ ment." However any new tax regime would challenge none of the interests of companies already established on the Rock.In the light ofthe recent ruling by the European court in the 'Azores case' he an ticipated that changes in Gibraltar's tax structures would be made"dur ing the course of next year" bring ing about a system of greater parity and eliminating the ring fencing of offshore businesses.

Indirectly acknowledging local concerns about the Rock's increas ing regulatory and compliance requirements, Caruana stressed that while the Government un derstood the importance of a good and sound regulatory system it also recognised "the need to do the business and strike the proper balance."

"Regulatory objectives should be done in such a way that they do the least damage and must encourage rather than discourage businesses," he said. Gibraltar, he added,had established an excellent mix between good regulation and a 'user-friendly' system.