Paying for an illusion

The Malta Independent

Paying for an illusion

By consistently avoiding reality government is shooting itself in the foot and hypothecating our future economic sustainability. Hearing comments as that by the Minister of Finance that the deficit will shrink to Lm85 million by budget day can only send messages that all is well with our public finances and no restraint need be made in making fresh demands on such future resources.

The truth is quite different. The public deficit is not being addressed. In the seven months January to July it was more than what it was in the same period of 1998. Making comparisons with the purposely inflated budget deficit for the whole of 1998 suggests that we are on the mend. Reality is that government cannot control its expenditure and keeps applying increased tax revenues to finance more expenditure rather than to address the deficit.` Consequently the national debt and its burden keep rising at alarming speed.

But this week the mad habit of avoiding reality reached new heights. Replying` to an economic commentator who accused the government of hiding payments by using the Treasury Clearance Fund,` the Acting Director of Information replied verbatim `This fund provides for temporary payments intended to be repaid to government within stipulated times.Freeport received an advance of Lm8.35 million to fund its long term loan interest payment..These payments were funded from the Treasury Clearance Fund as they will be repaid to government from privatisation revenues of the same entity`.

If not financial misrepresentation this is financial management mediocrity.` When funds are advanced from the Treasury Clearance Funds to finance the operations and financial charges of Freeport, they ought to be repaid from Freeport`s normal revenue streams. ` Normally such payments are funded through the banking system. The fact that recourse had to be made to the government as shareholder for funding indicates that the prospects of payback are very obscure if not downright non-existent. Consequently` the case for such funding from the Treasury Clearance Funds rather than the Consolidated Fund is very dubious.` But with government`s DOI spokesperson admitting black on white that these will not be repaid from Freeport in the normal course of operations but from privatisation revenues of Freeport, than the matter becomes` financial heresy.

In simple terms this means that we are spending privatisation revenues well before they materialise. That when privatisation revenues do materialise rather than financing the budgetary gap in the consolidated accounts they have to be addressed to repay the temporary loans in the Treasury Clearance Fund and in the banking system in the form `government guaranteed debts which will never be repaid from the normal assets they were meant to finance in the first instance.

My calculation is that a funding gap of nearly Lm400 million exists outside the budget. The medium term financial strategy 1999- 2004 indicated gross privatisation revenues of Lm220 million during the period of which Lm82million` have already been consumed in 1999/2000 through the sale of Mid-Med Bank.

So my question is who is going to address this other black hole` Are we going to be constrained to sell all we have under financial crisis purely to address the hidden black holes as the government official spokesperson unashamedly suggests.

Once the illusion disappears, as illusions unavoidably do, the private individual made artificially richer by the money no problem culture whilst the state coffers were being impoverished, will have to pay through his nose and ears for the horrible cost of a tragic illusion.