Falklands : Falklands LEGCO Part 2: Motion 7/2008 Debate
Submitted by Falkland Islands News Network (Juanita Brock) 17.11.2008 (Article Archived on 01.12.2008)
“This House notes the concern the continuing world financial crisis and the inevitable affect it will have on the Falkland Islands. It commends the Government Green Paper on the Budget for 2009/2010 and invites all members of the public to join the debate on our future budget strategy.”
LEGISLATIVE COUNCIL FRIDAY, 14 NOVEMBER 2008
Part 2: Motion 7/2008 Debate
By J. Brock (FINN)
CAP: Motion No 7/2008 by the Hon Michael Summers –
“This House notes the concern the continuing world financial crisis and the inevitable affect it will have on the Falkland Islands. It commends the Government Green Paper on the Budget for 2009/2010 and invites all members of the public to join the debate on our future budget strategy.”
This Motion will be seconded by the Honourable Janet Robertson.
MS: The first part of this Motion, Mr Speaker, is an important part because it is a fact that the Falkland Islands will be affected by the current financial crisis and turmoil in all sorts of areas in the world as it currently is.
We have seen today in Standing Finance Committee the level of inflation currently existing in the Falklands. It is very substantial. And, we seem to be in a position at the moment in the world which is unusual at least in a number of respects and one of them is we can expect high inflation and low interest rates. Those two together are not normal but that is currently how it is and exacerbates many of the difficulties that we as a country will have and many individuals in the community will have.
We also have unstable financial markets which has effect on the level of our reserves. Again, we’ve had information today that the value of the reserves has decreased and they have decreased by a significant amount but not to the extent that it needs to concern us too, too much. But it will have effects on some of the budget strategy because the relatively long standing plan to keep reserves at a level of 2.5 times operating expenditure is probably going to have to be reviewed in this budget strategy. That is a concern and there will continue to be concern in the banking sector and a number of industrial sectors that will inevitable affect the Falklands in ways that we don’t yet know. So it is a concern and we must be vigilant to changes in world markets.
In respect of the Green Paper, I think it’s a good piece of work and an ideal opportunity to try to engage the community in the reality of these issues. I think there are still an awful lot of people who think that actually this is all a bit of a fuss and it will pass by and we will end up without too much difficulty in May next year passing another balanced budget or somewhere near it and everything will be fine. I am sorry to disappoint all those people but it just will not be like that. The situation is more difficult.
And, the purpose of the Green Paper is to stimulate some debate and raise the overall level of understanding of everyone about financial issues and the choices that face the Islands. And, major choices do need to be made about the level of public service. And, we do wish to encourage everyone to have a say before these decisions are made.
I will just repeat one or two points from the Green Paper for the benefit of the wider audience, we do expect a lot from our public services and we know what’s achieved overseas and we expect to replicate that. That’s an issue we may have to examine.
The Government is required to achieve ever increasing international and UK Standards for some of the services that it provides and I think the UK Government, working together with all the Overseas Territories, needs to think about the degree to which it pushes international standards on the overseas territories.
We do need to continue to invest in economic growth and infrastructure and I think this is a crucial issue. Simply cutting investment in the future is not a realistic option for anybody. And therefore those who think that actually all you really need to do is to cut the Capital Budget or cut FIDC or cut support for investment in tourism – that is a very short-term recipe. It goes deeper than that.
We have, over many years had strong revenues in the fishery but it is certainly the case that Illex revenues have reduced over time. And, the long-term budget strategy or the medium-term financial plan at least and part of the long-term budget strategy is for the Government to be able to discount the affect of Illex revenues in particular, which have been fluctuating widely over recent years and cannot be expected to reach the levels that they were previously.
So we are in a very different financial situation. And, I would make the point that Government has been cutting back for several years and improving its efficiency and the Green paper does shop in real graphical terms that the Government has in fact been reducing recurrent expenditure year on year for at least the last five years in real terms.
So those who say that all the Government has been doing is spending more and more money and we should just stop doing so – that’s not correct, either. In real terms expenditure has been decreasing already for the last five years but regrettably, so has income.
So the real challenge of the Medium-term Financial Plan is to dispose of – in our planning scenarios – the Illex income and that is effectively £5Million a year as it currently stands so we need to recreate that gap between revenue and expenditure so that we are making continual contributions to the reserves. Because, of course, the reserves simply stay at the level that they are, in the longer term – in real terms - they will be worth less and less or we will not be in the strong position that we currently are.
If the choices that were facing us were simple, they’d all have been done by now. It is not a simple thing. And, I did make the comment here at the Public Meeting the other day that simply cutting Government Expenditure is not necessarily the recipe for economic success because if you cut economic expenditure there is less disposable income available both to individuals and to the community as a whole. And, of course, that results in a smaller economy and the same sort of recession that we are now seeing reported widely in Europe, in the Americas and, indeed, some places in the Far East.
So, simply cutting expenditure without having real thought for its effect is not the way to go. I do not discount that we should be cutting expenditure but we must be careful to bare in mind that there are still people in the community who require to receive a salary of some sort to exist and we still need to have a capital programme, which is one of the elements that has driven our economy for so many years. So, when we cut expenditure, we should be seriously thinking about how that reduction in expenditure will affect people who are in the community.
Reductions in purchases from overseas should be the prime target for reductions if we can do that – or the payment for services overseas – and that has considerably less affect on the community on the whole.
There has been a suggestion from some quarters that all we really need to do is to lower the rate of income tax and this will miraculously increase investment and increase the size of the economy. Sorry, but I don’t believe it. I have seen no evidence of it since the tax reforms in 2002 and I’ve seen no evidence from anybody that all we need to do is that and investment will flow. And, of course, in these current climates that is highly unlikely.
I have made the point to colleagues and others that the economic development strategy that we are working on should be evidence based. And so if it is a fact or it is a contention that reducing the rate of tax will stimulate the economy in some way and we will need some evidence of it then by all means we should be thinking seriously about that.
And, I have also made the point to colleagues in the Secretariat that the other work that we are producing in terms of the Economic Development Strategy needs to be evidence based. It is no good simply producing a whole list of assertions and beliefs and views unless they can be supported by evidence.
So both the Medium-term Financial Plan and the Long-term Economic Development Strategy must be supported by the evidence available to us.
Mr Speaker, I think that is probably sufficient from me. There are a large number of questions raised by the Green Paper on the Budget. There are no easy answers but we would like to engage with the General Public in finding the best way forward. It is our intention that next week there will be a panel discussion on the Radio followed the week after probably by a phone-in to give people from the Camp and other people the opportunity to contribute. And, there will be another public discussion on this before we wind-up consultation on the 19th of December. I encourage colleagues to make contributions on this important issue and all members of the public to join the discussion on how we carry our budgets forward.
Thank-you
LC: The Honourable Janet Robertson if you wish you can simply rise to second the motion then reserve your position to speak later during the debate.
JR: Mr Speaker, Honourable members, in rising to support the Motion I will take the opportunity to speak now, thank you.
Councillor Summers has given an overview of the situation of where we are today. I don’t think I need to repeat any of that. I would just like to point out that whilst the Motion does make reference to the current financial crisis it is also true that these issues that we were looking at before the crisis – the current crisis occurred a few of us made reference during the May Budget Session to the fact that we needed more and a better time to prepare the public for some of the decisions that we are going to have to be making. In fact, this Green Paper rises as much out of that decision as it does from the crisis that we are now in which – as Councillor Summers rightly said – is already going to have some affect on us. We had an interesting public meeting on Tuesday evening. I felt perhaps we didn’t get quite as much discussion as we could have hoped but I hope that will change now that it’s properly a fairly new way to approach things. We have not really been accustomed to producing Green Papers in the past and the point was made at the meeting was essentially what we had done with this Green Paper is give a list of options and ask people to choose between those options
I think it’s worth reminding people that if they look carefully at the paper it does say – state examples and the word, “examples” is used and it is quite clear that if anyone has got a particular view of a particular government expenditure and they can put it forward sensibly and rationally then, of course it will always be considered. It’s not confined to the areas that were mentioned in the Green Paper. They were examples.
Quite Clearly any suggestions that are put forward and it’s the things that we have to take into consideration in looking at all of this – is that nebulous concept – the national interest. A bit of a difficult term because one person’s national interest is not another person’s national interest. But certainly there has to be a demonstrable interest in the wider benefits for the whole community and not just the specific parts of it.
The suggestions put forward in the Green Paper – I mean quite clearly what most people will have latched on to are issues about health and education. Everyone will be aware that those have been subjects of discussion for us for – certainly ever since I’ve been on Council and obviously they are areas that are very dear to people’s hearts. However, they are services which take a large part of the budget. They are very important services but it is also true to say that we benefit from excellent services that are well classed, if not above in both those areas. Anyone who has ever visited the Islands from abroad will tell us all that our standards of health and education are really very, very good in the Islands.
And there are very few places left in the world where these services are entirely, universally free. We have had the benefit of not having to make any contributions to either of these services for some time and it is definitely time now to look at it and see if there are ways that we can make contributions. Although the National Health Service exists in England there are not many other countries where the same applies.
This is probably the reason why those two have been put forward and we have mentioned before that there is a review of the financing of the Health Service going on. And, that will obviously have to be as wide ranging as possible. The Medical Services Levy was discussed last year but this also – we can look at a number of areas or a number of areas including – one presumes – insurance and tax will have to be considered as well.
With regard to tax, there is reference made to increasing both asking for views on increasing either personal or company tax. I think it is important with regard to company tax to fully understand any implications of tax increases. And, I take Councillor Summers’ point that the last review of tax did not visibly lead to great increase in investments and I think the point about tax breaks and certainly I hope they are looking at this in terms of – in the context of the Rural Development Strategy the tax breaks have to be specific and have to have a certain principle aim in mind. It cannot be just cutting the tax rate and hoping that it will have an affect.
So the company tax, I think, should be considered in the light of the outcomes from the Rural Development Strategy – the National Economic Strategy and, of course the tax review. This will be happening later in the year. I think we - it would be foolish for us to make a decision on that now.
Comments were made the other evening at the public meeting about cost-benefit analysis. I would just like to reiterate Councillor Summers’ point he made earlier on about investment. We cannot invest in the future – it is not an option. We cannot close off investments into areas that don’t immediately seem to be providing a return now. If we did a cost-benefit analysis of all government expenditure we probably wouldn’t be spending anything on anything at all. We have not conducted cost-benefit analysis on street lighting or the Leisure Centre or any other host of areas – they are not exactly in investment areas either. If we did a cost-benefit analysis on the port, I doubt very much that it would lead us to go and build a port.
But without investment there is stagnation. Without investment we do not move forward. And, the critical reason for the strategies that we are putting in place now precisely in order to identify those areas of investment that will lead to greater long – term growth.
I don’t think I will say anything more at the moment but I am hoping, Mr Speaker, that you will allow us to respond and speak more than once in this debate as it is such an important one.
Cllr the Hon Mr Richard Cockwell:
Mr Speaker, Honourable Members, I rise to support the motion and before I say anything else I would like to commend everybody who had input into this Green Paper. It’s a huge document – it may not be very large compared to some documents we have but a lot of very hard work gone into it. And I do commend that.
I think that the Proposer and Seconder have said most of the things which I wanted to say but if I could just re-emphasise one or two issues – I think investment in the future is absolutely vital for the Falklands and I am totally committed to that concept and I hope that we all are. We cannot stop investment in the future because the Islands will just revert back to what we had many years ago. And so this must happen and I hope that it will be, in the long run, a private and public sector joint venture to make sure that the development of the Falklands goes ahead in the way we have to see it go.
We do have difficult questions to ask – difficult choices to make at this stage. And, I noted in the newspaper today that the issue – these options were spelled out on the front page. I would like to reassure people that these aren’t proposals which are going to happen – won’t necessarily happen and that things will have to – they will all have to be looked at.
And the question of cutting back on medical services overseas – would we actually have to increase the size of the hospital - all these things have got to be looked at very carefully. Closing the Abattoir – it may seem a quick fix but we’d have all the problems in the Camp that people are starting to rely on the income from the Abattoir and hopefully the Abattoir will be able to become self-sustaining – at least making a significant contribution to our economy, which I believe it is starting to do so.
So all these things, which appear to be – they sort of jump back at me when I looked at the newspaper this morning – well yes, these are options but what we are really trying to say is we’ve got to look at our whole economy based on this Green Paper and take it into public consultation. And I really do believe that’s what we really need.
Sir, I beg to support the Motion.
Cllr the Hon Mr Ian Hansen (IH):
Mr Speaker, Honourable Members, those who commented previously addressed many of the issues in this document and I do support the Motion taking this document forward. I think my view certainly would be that the affect on the population of the Falklands as a whole is going to be the most difficult to bottom out because I know it won’t be easy to make a decision on which services should be cut or on how to increase revenue.
That certainly won’t be easy –r what to do with tax or whatever – that certainly won’t be easy but the affect it will have on the community – and the Falklands as a whole is going to be extremely difficult to put into prospective because if you take the extreme examples perhaps that were put into this paper – the health and education cuts, closing the Ferry and Abattoir, perhaps one that should have been there – closing the Leisure Centre, they affect very different levels of the sector of the sector of the Falklands.
Health and Education obviously perhaps would affect everyone but at different levels. Closing the Ferry and the Abattoir would mainly affect the rural community. If you closed the Leisure Centre – that would mainly affect the Stanley community. So it’s all this mix of how we handle the affect and that certainly won’t be easy.
I, at the moment, don’t have any answer to that, obviously. I think there has to be a long-term – definitely has to be a long term issue. We just don’t want quick fixes otherwise it’s pointless doing it.
And, I think probably the only other thing I would say at the moment is without doubt why the public consultation and debate – that is of paramount importance in this issue and that’s all I have at the moment, Mr Speaker.
Thank you
Cllr the Hon. Mr Richard Stevens:
Mr Speaker, Honourable Members, in rising to support this Motion I look at this Green Paper on the Budget as the start of a process of us as Government trying to involve all of the community. It’s a communications process where we are trying to allow people to understand where we are and why we have to make difficult decisions.
Education, for example, we’ve been debating how to save money in further education and higher education – well the process started before this Council and we have taken it on. We have been lucky enough up till now not to look for contributions from parents and students. And, it looks as though we are going to have to look at all the issues again and put them out into the public domain so everybody can discuss them and hopefully contribute. Perhaps people will be able to – well not only understand but can contribute perhaps alternative ways of finding money. That would be great.
But this whole procedure of Green Papers starting, with this budget and going on into other areas to me are the most important part is bringing everybody along with us. I know we talked and we do have means testing working within the community today in certain selected areas and in this paper its called wealth related payment. I know that a lot of people find it sort of a distasteful mechanism and others think it’s a really valuable one but hopefully that the Green Paper, when it comes out, will unravel all the difficulties and the complexities of how you bring means testing without making another group of people in the Falklands under financial pressure – how people in that first threshold – if that’s how it works. It isn’t liable to pay for a number of services. A good example to try and put it across is if you have three children close together in higher education and further education then it is a possibility if we were to do means testing its possible that a family will be hit three different ways. Of course, that’s a very simplistic way of explaining what I am trying to say. But we have to be sure it’s thought through and I am sure members of the public will be able to contribute.
That’s all I have to say at this present time.
I support this Motion.
Cllr the Hon Mr John Birmingham:
Mr Speaker, Honourable Members, in rising to speak to this Motion there really aren’t that many more things to cover that hasn’t already said but I am trying my best. Taxes – everybody seems to hate taxes. If we look at some of the countries in Europe with the highest standards of living, they also pay the highest taxes, for instance Sweden and Denmark but they also have a very high level of service and very often you do read in the large countries right wing politicians declaring that I can, if you let me, lower taxes and increase services especially by efficiency savings and cost cutting for instance in National Health Service we have seen that happen and some contracts have been cut to the bone and they now decided that some of the diseases that are coming into the hospitals are because they haven’t been properly maintained and cleaned and possibly weren’t worth the cut.
I don’t have a problem paying taxes. I look upon taxes as being payment for services and so if it came to the crunch I certainly wouldn’t have a great difficulty in raising taxes as long as they were fairly raised and across the board.
Reducing services – selected services – the Falkland Island(s) Government has a whole range of services they provide to the public. Serious decisions will have to be made. I don’t have a problem with making serious decisions. What I don’t want is – my grandson when he grows up and is able to come at me to ask that when I was there (in Council) why I didn’t make those decisions. By not agreeing to any hard time decision making because it was unpopular then has had an affect now which would be many years down the road.
It sounds as if we are in a terrible pickle. We are not in a terrible pickle as they said in Lafonia last week. There is a flip side to this. What it will do is make us think that this Green Paper that’s going out – the editorial and the front page of the newspaper that was out today hopefully will be a start to a lot of debate without the Council, the departments and the population at large to understand that we do have a problem and it’s not going to hit us straight away big time but we have to deal with it sooner rather than later.
And, it’s been said recently in this room about development projects and we must continue with development projects and I agree with that. But in this room at the public meeting it was also said that we should learn from our mistakes. And hopefully we will try and do that. But the idea that we would go ahead with a major development when the cost-benefit analysis suggested that actually it won’t make any money – I don’t see how I would be able to agree with that. And I think this would all get very complicated but I really think that Councillors – surely this Council will learn from recent development projects.
One department – probably the first on the list of changes – and if you like, some would say a “slimming” of the way the service is delivered is FIGAS. Two weeks – maybe three weeks ago the Penguin News did a survey – and actually although there are complaints about the way FIGAS have changed. The changes have only been in operation just over the month. The majority of the employees at FIGAS – certainly when I go down there – are willing to give it a shot. It hopefully will save money and increase revenue. Nobody knows until later on in the season how that’s going to develop but we have to give it a chance. And I thank the colleagues here for supporting me as the portfolio holder when I have to answer some of the critics. But FIGAS is one area where it’s very, very important that we have an air service but it’s costing £1Million a year to subsidise that. So the point that was made earlier on there about the best way forward – I would suggest what we have to do is chose the right way forward. I think one thing the Falkland Islands should never do – should never as an Overseas Territory of the United Kingdom – we should never allow ourselves to get to the point where we have to go and ask the United Kingdom’s Treasury for any financial assistance.
Mr Speaker I support the Motion.
Cllr the Hon Mr Mike Rendell:
Mr Speaker, Honourable Members, in rising to support the Motion I make the general comment that I think a lot of speaking has already taken place on this subject and I’d like to pick up on a few areas. I think the important thing about this Green Paper is that it’s just getting the ball rolling. Hopefully it is making people realise that we have a really serious issue and we’ve really got to try and sort it out together.
We’ve never really taken this road before. We have always waited for decisions to be taken probably in the last 10 minutes of a budget select committee, which allows to balance the budget and that is definitely not the way to do it. And I think we have now come to that recognition. And, I see a few frowning faces around the table but there are. In every other budget session I have attended decisions that are taken in the last 10 minutes in order to achieve the outcome that we want regardless of what we might wishfully to think. And this is the way forward. Hopefully the public at large will engage.
It was interesting at the public meeting that there was a level of engagement in some quarters and in others there wasn’t. I haven’t read the front page of the newspaper yet but from what colleagues are saying it appears that it will certainly be thought provoking to get people thinking about it and that’s the important thing.
A few comments that colleagues have made – means testing for example – I understand the Honourable Richard Stevens’ thoughts about particular circumstances he raised. I’m sure those sorts of issues will be addressed in the Green paper on wealth testing but surely we can’t have a situation where somebody that’s earning £100,000.00 a year gets exactly the same benefits as somebody that’s getting £20,000.00 a year. We have to do something about it - it is just grossly irregular and unfair so we have to look at means testing. There can be absolutely no doubt about that.
I think we are going to end up with a broad range of solutions – I am quite sure there are a broad range of solutions to try to achieve the aims of the Medium Term Financial Plan. And some of those more thought provoking pieces that were put in like closing the Abattoir and stopping the Ferry are clearly there to make people just think about the serious circumstances which we could come face to face with if things went really bad.
I am quite convinced that, that was just a mischievous entry in the paper because there is no way at all in which either of those things can close because the long-term conclusions of either or both of those things would mean that the Camp would completely collapse and it will cost much, much more money than keeping them going, so they are completely ridiculous.
I support the Motion
JB: Point of Order Mr Speaker. I disagree with that word, ridiculous
LC: Honourable Members, the Honourable Janet Robertson asked if I would consider waiving or agreeing to Members speaking a second time. I am not sure perhaps that’s really necessary at this point given that you were opening up the debate – the wider debate. If you wish to speak a second time I am prepared to allow it.
MS: Mr Speaker, can I exercise my right to wind up?
LC: You certainly can.
MS: Mr Speaker I thank colleagues for their valuable contributions to this question. And, there are a number of ways of looking at the issue we have at hand. And that is exactly the point, of course that there are a number of ways of approaching these issues and a constructive debate between members of the government and members of the public.
I had an amazing piece of correspondence from one of our well known media outlets (Over the tape) …paper were the most difficult because then when we came to some slightly less difficult issues to balance the budget it will all be terribly simple. Sorry, no. It is not like that. Big ticket issues do need to be addressed.
But we also need to address some of the wider issues. The only way that this country is going to succeed and continue to succeed as it has done in the future (past) is if we have a vibrant private sector supported by appropriate government regulation and legislation policies.
We have a successful fishery; we have a successful tourism industry, which is heavily supported by a semi-successful agricultural industry.
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