Lessons to learn from another small Rock?

So we have to give credit where credit is due – our politicians have worked hard to tackle our economic difficulties, and we are gradually witnessing the results of their efforts. Heaven forbid that this should make us complacent, but we can look to the future with some degree of confidence.

However I was brought back to some of the much harsher realities of life while watching Gibraltar’s budget debate live on television this week.

Yes, while we have to make do with listening to our parliament on the radio, the tiny Crown Colony now broadcasts debates in its parliament live on TV and around the world via the internet. I will leave it to readers to decide whether they think this is progress or not.

What really surprised me about the debate was not that Gibraltar appears more technologically advanced than we are, but that the tiny colony which is not much bigger than the Rock itself, appears ahead of Jersey in many other respects.

With a population of just 30,000, few natural resources and surrounded by a less than cooperative neighbour, you might imagine that Gibraltar was being hammered by the same cruel winds that are buffeting Jersey’s economy.

After all our economies are both based mainly on financial services and tourism, we both have the benefits of British protection and we are tiny territories trying to make our way in the big, wide world.

However the budget figures suggest that Gibraltar may be doing better in this respect than Jersey.

The Rock’s chief minister was able to tell parliament and anyone watching on TV, that this year they have achieved a record budget surplus of just over £37m. Gross domestic product grew last year by 7.8 per cent (you will remember that Jersey’s economy is actually getting smaller) and that GDP per capita was up from ninth in the world to fourth, according to the IMF.

It’s true that unlike Jersey, the British overseas territory has had to borrow to help the economy and guarantee welfare benefits, but even here the chief minister had some good news. Gross debt was down by 27.5% to just £376m, twice the target the government set itself a year ago for reducing debt.

These headline figures provide a fairly dramatic contrast between Jersey and Gibraltar, and will make some people conclude that Gibraltar has got its policies right and is showing Jersey a thing or two.

But these figures hide a lot of detail, and in other respects Jersey is doing much better than Gibraltar. For example, direct taxation is higher on the Rock, although the chief minister was able to reduce the tax rate from 30% to 24% for 3,800 tax payers and take 2,100 out of the tax net altogether.

That still doesn’t mean that everyone is better off living in Gibraltar. I simply think that the experience of the Crown Colony shows that different policies can work and Jersey isn’t right all of the time. So perhaps we can learn something from Gibraltar and other examples. It’s a recurring theme of mine – we should try to learn from the experiences of similar jurisdictions to ours, instead of being constantly inward-looking and concentrating more about things like CSR rather than what our competitors are up to.

Even if we don’t find any ideas that are worth copying, making international comparisons at least tests what we are doing against what others are achieving.

For example, the difference in income tax rates between Jersey and Gibraltar might make Islanders conclude that we’ve got it right, because our rates are lower for most people. Similarly, we might think we’re better off because we’re not saddled with any debt at all, unlike Gibraltar. Yet the Gibraltar experience shows that higher rates of income tax have certainly not held back the economy and that perhaps low taxes are not the panacea many Islanders seem to think they are.

There are many other jurisdictions with higher taxes but better rates of economic growth and a higher ranking in the OECD’s Better Life Index than Jersey. It’s not just the rate of tax, but where it comes from and where it’s spent that really matters. As Gibraltar is showing it’s also possible to have a modest amount of debt and still have a successful economy.

But there are a lot of other ways in which what jurisdictions like Gibraltar do could either be held up as a useful example for Jersey to follow, or else one that we should steer well clear of.

For example, this week’s Gibraltar budget had quite a lot to say about the state-supported Gibraltar Savings Bank, which among other things provides loans for small businesses, something that Jersey is only now getting to grips with. The bank has introduced a new Senior Citizens ten-year Debenture at 5% for residents, and a Children’s Bond has also been introduced at the same rate for all children under 10 until the age of 18.

The government will also deposit £500 per child for every child born after midnight on Monday 24^th, June 2013. Is that a good idea, or not?

I’ll skip over the 2.9% increase in civil service salaries from 1st August and the increase in the minimum wage from £5.70 to £6 from September, however the chief minister announced several other measures to help the economy, including a freeze on electricity prices this year and rate subsidies for new businesses. And that’s for an economy that continues to grow.

There are indeed significant differences between Jersey and Gibraltar, of course, and the overseas territory obviously has an advantage in being able to import workers daily from across the Spanish border.

Also I’m not sure whether we would consider Gibraltar’s position in the EU as an advantage or a disadvantage but it’s certainly not doing them any harm.

They have realised that their economy depends heavily on complying with EU regulations and so they might just as well get the benefits that membership brings.

Jersey also has to comply with EU rules in order to protect a vital part of the financial services industry (in fact the biggest part of the funds industry according to the recent McKinsey research). Yet we have none of the benefits of membership.

Obviously it’s not an example from Gibraltar that many Islanders appear to want to follow. But let’s hope we’ve at least looked at it.