Friday, 1 December 2000

Tackling the Problem at the Edges

The Malta Independent

Tackling the Problem at the Edges

The most serious flaw in the general economic orientation of the 2001 Budget is that it seeks to address the imbalances by pressing on the accelerator of tax collection. I continue to maintain that the real solution has to be a tripod.

Tax enforcement and efficient collection is one of the tripod legs but it cannot be the only one. Equally important are the legs of expenditure control and economic growth. With these three forces working together the budget deficit could have been controlled over a period of three to four years.` Yet five budgets later we are still grappling with the deficit problem because the only attempt made to solving it has been simply through tax increases and enforcement.

Some commentators` re-converted to socialism criticise me when they manipulate my argument as if I were defending tax evaders. Would they classify bank employees enjoying cheap house loans as tax evaders` Is` a company car for a senior executive who works on average 12 hours a day and is always at the beck and call of his boss a tax crime meriting the wrought of an administration suddenly discovering what was being practised within its own ranks`

I do not defend tax evaders.` I am simply pointing out the truism that our economic problems are too complex to be resolved simply by swelling government`s tax revenues. This is attacking the problem at its edges. It will keep pumping more and more imbalances from its core.

The core of the problem is government lax expenditure. Of course it is quite easy signing generous collective agreements giving senior civil servants 30% increase in their salary. Of course it is easy sub-contracting various functions out of government leaving the employees who should be doing the job in the first place with pretty nothing to do. Of course it is easy recruiting new employees in the public sector rather than re-train and re-organise human resources to obtain maximum mileage from resources already being expensed.` Of course it is easy spending Lm 1 million on Expo 2000 and Lm10 million on the NPAA. Spending other people`s money always comes easy.

The problem is that all this requires additional tax revenue to finance. We can no longer rely on foreign grants. The Lm10` million annually we used to receive from the Italian Financial Protocol have also vanished into thin air.` The Lm100 million from the EU do no longer merit a mention.` All this expenditure has to come from our taxes.

What we should be doing is offering incentives to public sector employees in grades where there is a surplus headcount to true operational requirement,` to seek a productive job in the private sector. As a minimum we could offer such employees three year leave of absence from the public sector where the state continues to pay 50% of their salary. If they can find a job earning 70% of their salary they would get a 20% increase, save 50% of their cost to the government and provide competitively priced human resources to the private sector. Such schemes were recommended in 1997 and heavily criticised by the Nationalist Party then in opposition. Four years have been wasted until we have now re-discovered the need to study public-private partnerships! What sheer waste of time and money for political opportunism.

If this` scheme were to be launched government will have to do a root and branch exercise to see what functions could be economically outsourced to the private sector in order to create demand for private sector employment. Such imaginative measures would reduce government expenditure, increase the income of idling employees and produce economic growth by putting idle resources to work.` Together with tax enforcement it would form the tripod of a real lasting solution.

The 2001 budget instead castigates the middle class on whose efforts, dedication and commitment the well being of this country substantially depends.

Alfred Mifsud

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