Social Pact

The Malta Independent

Social Pact

The Governor`s Statement in the Central Bank Annual Report for 1999 has admirable attributes of condensed wisdom. We were aptly reminded of the unsustainability of productive investment drought, excessive public deficit, merchandise and services trade deficit, rising unemployment, inflation above that of our trading partners, and wage settlements twice as large as the rate of inflation without comparable efficiency gains.

Yours truly and others have been repeating this to the point of boring repetition. It is good to see the Governor adding the weight of his office to these arguments. What we are missing is an action programme to pass from problem identification to problem resolution.

This country wasted almost the whole of the 22 months Labour administration arguing whether the problem really exists. This when it was glaringly visible with roots going back to the gross miscalculation of introducing VAT fiscal changes in the last two years of the political administration. VAT needed strong enforcement which` was impossible at a time so sensitive to voting preferences.

A Nationalist administration, forced to early election before revealing the financial mess in the 1997 budget,` found it comfortable to deny from the cold seats of the Opposition the very same financial problems which brought it down.

We have now had 19 months` old consensus about the existence of the financial problem. In the year 2000 Budget the Minister has started to address it and the pain is there for all to see. Everybody thinks there are better ways. Unions urge` tax enforcement whereas the government opts for` tax increases.

Both unfortunately miss the point that it would be suicidially wrong to address the problem purely from the revenue side. The source of the problem is the expenditure side and this has to bear the brunt of delivering true solutions.

Government has now come out with the rally cry of the Social Pact. It is re-cycling of failed ideas which politicians normally resort to when seeing the situation spinning out of control.

More than a Social Pact` the country` needs a Government with electoral authority enshrined in its manifesto to deliver a medium-term but unavoidably painful solution to our problems, to render this country again competitive in a globalised world.

Everything else can wait including the European Union.

The Central Bank has a role to play in this. It must be ready to use the interest rate policy if wage increases continue to exceed` productivity levels. It must be ready to review its` exchange rate policy if the economy continues to perform below its maximum potential. Central Bank`s readiness to use these instruments more flexibly and autonomously will hopefully force the parties to start seeking real solutions and abandon the sickly games of finger-pointing as to who is responsible for the mess we find ourselves in.

Alfred Mifsud