The Houdini Way

The Malta Independent



Two statistics issued this week by the NSO keep mounting evidence of the structural fault which has developed into our economy.

The Labour Force Survey for March 2002 show that real (as against registered) unemployment has now reached nearly 12000 exceeding 8% of the labour force and showing a 2% rise over the unemployment figure of the Labour Force Survey of March 2001. The comparison March to March avoids risk of comparing figures in different seasons. What`s more, employment reductions were mostly registered in the productive sector with the public sector continuing to act as a cushion for today`s ills whilst storing bigger problems for the future. ` It`s like a family selling the car and considering the proceeds as ordinary salary revenue and adjusting its life style as if they can continue to depend on such revenue every year.`

Then we had the public finance figures for the month of July and the first seven months of the year. Sweeping aside the scandalous allocation to ordinary revenue of Lm21 million from the privatisation of MIA, the figures continue to show mounting deficit and out of control public finances. The deficit for July alone was Lm15 million compared to Lm14.1 million for July 2001.` The deficit for the seven months to July was Lm93.5 million compared to Lm68 million last year and Lm55 million in the same period of 2000.

Add to these the evident deterioration being registered in the tourism sector and the general dearth of private sector investment in new export based initiatives and you have a formidable mix of ingredients which could lead to an economic breakdown with all the consequences of a stalling economy.

Yet what is even more worrying is government`s approach to such problems.` The Labour Force Survey is largely ignored by government that continues to focus on the more manipulative registered unemployment figures. The public deficit figures are scandalously patched up by Worldcom type of accounting which considers one-off privatisation revenues as ordinary recurrent revenue, rather than treat same as a financing item. `Nowhere in the books of economics or in human logic can one meet any instance where one can solve a deficit by hiding it.`

This is like having an aparthotel and the owner decides to sell some units to third parties and treat the proceeds of such sale as ordinary room revenue rather than proceeds from a capital sale.` It`s like a family selling the car and considering the proceeds as ordinary salary revenue and adjusting its life style as if they can continue to depend on such revenue every year.

There are three ways to solve a deficit. The most efficient and less painful is creation of economic growth so that the deficit even if not reducing in absolute terms gets smaller and more manageable in percentage terms compared to a larger economy. It can be addressed by curtailing expenditure, especially the recurrent and wasteful one which does not lead to economic growth.` And it can be reduced by revenue growth through more efficient tax collection or by increasing taxation, though this would generally work against the economic growth objective.

It is generally accepted that a true solution for solving the deficit has to be a tripod involving all three measures in a reasonably and equitably balanced way. Nowhere in the books of economics or in human logic can one meet any instance where one can solve a deficit by hiding it.

Yet the government, unable or incapable of devising a true solution to our deficit, has decided that the best way to `solve` the deficit is the Houdini way ` hiding it.

Alfred Mifsud