Cooking `budget` deception

The Malta Independent on Sunday



The national debt as at the end of September 1998 where Labour handed over to the present government stood at Lm726 million.` Four years later, as at the end of September 2002, the national debt stands at Lm1043 million.

The increase in the national debt amounting to Lm317 during 4 years of the PN administration went to finance recurring budget deficits. Similarly an additional Lm104 million from privatisation revenues (Lm85 million from sale of Mid-Med Bank and Lm19 million from sale of MIA) were applied for the same purpose.

Yet even more. Lm37 million were whisked away from the sinking funds covering local loans and used as a financing item. Government argued that local loans will never be repaid and will just be rolled over. Consequently sinking funds there against are unnecessary. Each time a loan matures the sinking fund built against it is just taken over by government and used to finance the deficit.

`The increase in the national debt amounting to Lm317 during 4 years of the PN administration went to finance recurring budget deficits` Yet there is even more. Lm21 million extraordinary revenue invented through a structured deal involving the sale and leaseback of the airport terminal land were taken by the government as an item of ordinary revenue rather than as a financing extraordinary item in line with international standards.

Yet there is even more and more. Government is this year financing no less than Lm15 million in public school up-grading and development. Nothing`s wrong with that. What`s wrong is that this perfectly social expenditure which will never produce any revenue streams is being financed off-budget through commercial bank borrowing covered by government guarantee.` This is expenditure which belongs to the consolidated fund and is being financed outside it purely for deception purposes.

Similar loans to cover the Gozo Ferries investment amounting to Lm45 million has been financed off budget when it is clear that they will never generate sufficient revenue streams to cover the interest (which is subsidized annually from the consolidated fund) let alone to pay for the capital. `And I would bet my last dollar that there is much more than meets the eye through unpaid supplier bills, deferred expenditure and items financed off budgets through guaranteed bank loans and funding from the supposedly temporary Treasury Clearance Funds.`

(Lm317 + Lm104 + Lm37 + Lm21 + Lm15 +Lm45) million amount to a whopping Lm539 million` in just four years giving an average of Lm135 million deficit p.a. if viewed from the financing side.` And I would bet my last dollar that there is much more than meets the eye through unpaid supplier bills, deferred expenditure and items financed off budgets through guaranteed bank loans and funding from the supposedly temporary Treasury Clearance Funds.

And this in no way takes into account hidden expenditure incurred in prior years which is still hidden ` including Water Services Corporation loans from commercial bank of some Lm32 million, Freeport foreign bond of USD 250 million, and some Lm90million advanced from the Treasury Clearance Funds which will never ever be recovered and sooner or later will have to be accounted through the Consolidated Fund. These are still the legacy of John Dalli`s first term as Finance Minister between 1992 -1996.` The average of Lm135 million I explained above are new transactions related to the first four years of this second term of John Dalli as responsible for the public budget.

So when on the 25th November John Dalli will pompously relate to the nation during the budget speech that the fiscal target of Lm77 million announced last year will be met you shed like me draw a wry smile and shed a tear for the torture anyone seriously trying to make sense let alone address the country`s financial problems would eventually have to go through. `for those who might think that in quoting EIU I am quoting myself I am sorry to inform them that they give me undue credit`

And you can just as well bear in mind that during the first 9 months of this year John Dalli had Lm123 million more in real ordinary revenue than a Labour Government had in the first 9 months of 1998.` These are tax money extracted out of our pocket which have been frittered away in uncontrolled spending. In spite of this astronomical increase in tax revenues which has been squeezed out of the private sector of the economy the underlying true deficit increased from Lm82 million in the first 9 months of 1998 to Lm106 million in the first nine months of 2002.

So when John Dalli will pompously announce that the government will be loosening the tax stranglehold on the economy which he was forced to impose these last four years just remember two simple points: he is giving back only a small part of what he has already taken and he will not be there to account for the hotchpotch figures that he will produce to show that a deficit sky-rocketing out of control is in fact reducing enough to afford pre-electoral largesse with tax rebates.

When seen from the financing side, at least the parts of it which came to the surface, the real average deficit of the last four years is Lm135 million not the Lm77 million the Minister will declare. And financing is more reliable than straight deficit measurement as deficit, even if hidden, still has to be financed.

And it seems that it is not just us who are getting confused by government statistics.` Unable to explain how the first quarter shows GDP growth through a 6.4% increase in private consumption when all indicators, including VAT revenues prove otherwise the EIU latest report says `(this) is difficult to explain given that employment actually fell over that period and joblessness is on the rise. Furthermore, the private consumption data do not tally with consumption tax inflows - during the first quarter this source of revenue was marginally lower than the level recorded in the same period of the previous year.`

And for those who might think that in quoting EIU I am quoting myself I am sorry to inform them that they give me undue credit. I have a habit of signing my writings.