Recently we have witnessed an escalation of the struggle between the United Kingdom and Spain over a small territory of Gibraltar. Although the roots of this conflict are almost 300 years old, the real reason for it is still very much alive.
Gibraltar is a British Overseas Territory located on the southern end of the Iberian Peninsula at the entrance of the Mediterranean. Spain controlled the territory from 1462 to 1704 when it was captured by the Anglo-Dutch forces during the War of the Spanish Succession. It was formally ceded to the Britain in 1713 under Article X of the Treaty of Utrecht. The Gibraltar Constitution was introduced in 1969 and stipulated that sovereign status cannot be change without the consent of the Gibraltar’s people. In the 2002 sovereignty referendum, voters overwhelmingly rejected a plan to share sovereignty over Gibraltar between the UK and Spain. (1)
One may pose a question ‘what is so special about this small piece of land that creates so much friction between Spain and Great Britain?’ Is it the strategic location? Is it the touristic value? Or maybe it is only about the principle of the matter?
As a self-governing part of the United Kingdom, Gibraltar enjoys separate legal and tax systems. Although remains within the European Union, it is exempt from the Common external tariff, the Common Agricultural Policy and the requirement to levy Value added tax. Yet still Gibraltar licensed or authorised financial institutions can provide services throughout the EU subject to notifying the Commissioner, who must be satisfied that they comply with the relevant EU legislation. (2)
In terms of taxation the territory constitutes a free island on the sea of socialist policies. In Gibraltar there is no capital gains tax, wealth tax, sales tax or value added tax (3). The income tax is between 8% and 29%. That attracts loads of people from neighbouring Spain where the income tax varies from 24% to 52% (4) whereas the VAT is at level of 21%. (5) The unemployment remains at the level of 27%. (6)
Now we can see what it is about. Money. It seems that the Spanish Government is simply jealous of the Gibraltar’s economy which makes theirs look even worse. Instead of fixing the actual problem which is the Spanish taxation system, the Government attempts to incorporate Gibraltar and destroy its wealth so the comparison will not be possible anymore. This ridiculous strategy is rightly blocked by the UK Government.
This situation proves one more thing, namely that people, when given free choice, always prefer living under the Government which levies lower taxes. The economic strength of Gibraltar illustrates how free market, which is not restricted by the taxation, grows and people can do well because their hands are not tied. It is something that should be copied, not destroyed out of jealousy.