Sunday, 14 January 2001

Tripod Solutions

The Malta Independent on Sunday

Tripod solutions

The opening new year` headlines of the print media of the two political camps could hardly have encapsulated better the source of the economic problems which have been plaguing us these last five years.

In-Nazzjon proudly announced that thirty thousand public sector employees will as of 1st January this year enjoy an average wage increase of some 20%. The` tone of this announcement called for wine and champagne to flow and celebrate this happening.

Il-KullHadd on the hand other headlined that as of January 1st a wide segment of the productive sector has to carry a substantial burden of new taxes or enforcement of dormant ones.

Both views are tragically true and give rise to the logical question ` Does it make economic sense to continue draining resources from the productive sector to feed the unproductive sector` Is this the real way to address our deficit problems`

The separation` of private sector being` productive whilst the` public sector being unproductive is probably too bland. Surely there are pockets of strong productivity in the public sector and patches of inefficiencies in the private sector.` However by and large the environment in the public sector is much more tolerant for inefficiencies and there is no question that our public sector is generally over-manned and under-utilised.

So the middle manager at the factory now has to pay tax on his company car, given to him in recognition of the many long hours he spends at his job without any overtime compensation. In the meantime` the middle manager in the public sector who enjoys his summer half days, rests peacefully at night comforted by the security of tenure of his post quite immaterial of his performance, enjoys his wage increase bonanza.

I have repeatedly maintained that those who have created the financial mess the country is in do not have what it takes to get us out of it. Clearly their creativity does not go beyond the logic of taxing faster than` they can spend without making any real effort to control the spending. Clearly one cannot control public expenditure on consumption if the first thing one does once` elected is sign away generous salary increases to the public sector without any serious attempt to improve productivity.

Productivity only increases if more work is done with less people. The very minimum that one would expect is for the government to make a serious attempt to retrain its idle resources in order to place them in posts` which become vacant through natural wastage. Instead public payroll headcount keeps increasing as not only retiring personnel is fully replaced but no effort is spared to invent new public sector posts.

I was astonished recently to learn that the ETC has found quite a few tens of thousand of liri to buy three new Alfa`s for its senior executives. When I was Chairman at Mid-Med Bank the Chairman`s car was a gas guzzler Rover beyond its economic life costing hell to maintain.` I am sure that no one should make an issue if the Chairman of a Bank making Lm15 million liri profit each year and quoted on the Stock Exchange` were to drive an Alfa if not a Mercedes.` But as it so happened tough measures to control expenditure issued by the OPM applicable to all government controlled institutions meant I had to settle for a KIA Clarus, a nice car loaded with much more value than you would expect from its nine thousand odd price including all extras.

Does one solve the deficit problem by buying Kia`s rather than Alfa`s. Certainly not. This was meant I am sure purely as a symbolic gesture to cascade a culture through the ranks that expenditure has to be economised.

But it is certainly s no solution to tax people, especially the productive sector,` to their bones` to ensure that enough revenue is generated to fund the expenditure largesse` whilst addressing the deficit. The solution has to be in the form of a tripod. It has to stand on three legs.

Certainly fiscal enforcement has to be one of those tripod legs. Revenue must not come from new taxes. There needs to be a moratorium on all new tax measures and focus on enforcement of existing ones. The habit of introducing new fees and taxes out of budget declarations` must be stopped.

The second tripod leg must be serious expenditure control. Not only there must be a freeze on public sector employment but resources should be invested not in rewarding the unproductive but in re-training them to get them ready for a productive job in the private sector. Retraining gives confidence which increases labour mobility making public sector employees believe that there is a job out there in the private sector which is more rewarding and more satisfying. Schemes to motivate public sector employees to go for this option needs to be urgently devised and implemented with the agreement of the unions who will be told in no uncertain terms that failure to move in this direction will inevitably result in more taxes.

The last and probably most important tripod leg is economic growth.` The country must embark on an economic rate of growth of a real 6% pa. based principally on production and not on consumption. This can only be achieved by introducing imaginative public / private sector partnership for undertaking infrastructure projects financed out of budget, and for attracting private direct investment on a massive scale related to export of new economy products. This rate of growth would increase demand for labour in the private sector making the shift of human resources from the public to the private sector easier to administer and giving a double bonanza to the deficit problem. Control expenditure through headcount reduction and increase tax revenues from economic growth.

So simple to say. So much leadership and dynamism needed to get the whole country focussed on such a clear and unavoidable objective. Leadership and dynamism are unfortunately in scarce supply.

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