The Malta Independent on Sunday
It is quite unfortunate that the budget has been popularly ridiculed as the ballet or ballerina budget. On its own the measure to exempt without credit cultural learning activities like ballet and piano is quite commendable though hardly worth a specific mention in a national budget.
So many taxes are introduced in between budgets that people generally laughed at having such trivialities reserved for the pompous oratory in the highest chamber on the important day. But for me what should have stolen the show is the following extract from the budget speech under fiscal measures:
`The Vat rate in the tourism sector will remain at 5% on accommodation as at present`
`Since when doing nothing has become a measure worth mentioning in the budget Since when doing nothing has become a measure worth mentioning in the budget` With tourism declining for the second consecutive year and with little progress being registered to re-structure our tourism in line with our areas of strengths (cultural, history and other quality short break visits) and away from our areas of weakness (price sensitive mass sun and sea tourism) no responsible Minister would even dare think of loading the industry with additional taxes.
If the Minister wants credit for not raising taxes then he could just as well demand it for not raising petrol, diesel, telephone, water, electricity, gas etc.
But hold on. Don`t be too sure about not raising taxes on utilities such as gas and electricity.` These have been subject to a creative fudge-it. The Minister announced that as from next year electricity bills will be subject to 5% VAT and gas cylinders will be subject to 15% VAT. In spite of such measures fattening his Treasury be some Lm4 million p.a. we are told that the consumer will not be worse off. This is typical Harry Potter`s magic. Taxes are raised, tax revenue flows increase but the electorate does not feel the pain of paying these taxes.
The pain will be felt by Enemalta whom the Minister informed us in the budget speech will be `covering` the 5% VAT on electricity and `absorbing` the 15% VAT on gas cylinders.
I don`t know if covering and absorbing mean effectively the same thing.` But expecting Enemalta to take a charge of Lm4 million liri p.a. when in 2001 it lost a net Lm7 million in its latest published financial statements is clearly a pious unsustainable hope. `Don`t be too sure about not raising taxes on utilities such as gas and electricity.` These have been subject to a creative fudge-it.`
I have no doubt that this creative fudge will have to face the test of reality after the elections but in the meantime it would have served its purpose of artificially containing the` deficit whilst placing no burdens on the electorate.` The burden will come after the vote slips into the ballot box.
But this is hardly creative either.` It is a perfect replica of what had happened when VAT was introduced in 1995 on retailed fuel and on telephone bills. We were told this would not affect the consumer as the VAT will be absorbed by the respective national corporations. Two years of such absorption enriched the national Treasury but impoverished the national corporations to the point of unsustainability. Reality had to be faced and today VAT on both is charged to the consumer.
But to be realistic the budget should not be judged on the basis of this or that individual measure. It has to be judged in its totality on whether it really addresses the problems which are now widely acknowledged ` fiscal deficit, anaemic economic growth and environmental degradation.
This is a deficient budget as it does not address the three chronic problems and it does not even succeed in putting pre-electoral juice except in postponing the pain for later. The positive measures of cola increases and income tax ceiling revision are too mild compared to the tax oppression suffered these last four years.
Anybody who claims that the deficit is being addressed just needs a calculator. The deficit of Lm78 million for 2002 will only be reached if at all by further creative accounting. But even if it is adding back the extraordinary Lm21 from MIA structured deal will take the deficit to Lm99 million and adding the one `off Lm7 million from the investment registration scheme will take it further up to Lm 106 million. This is exactly where the budget would have finished in 1998 had the Minister not used creative accounting to inflate it to Lm150 million in the last quarter as he started fudging the figures. So Lm240 million additional tax revenues later we are just where we started from.
As to next year the budget deficit is projected to stay at around Lm75 million but only after grant revenue of Lm23 million (back payments of the EU pre-accession funds for 2000-2003 amount to Lm9 million and advance payment of the Italian financial protocol is expected to rake in Lm14 million) and unexplained miscellaneous receipts of Lm7 million.` What are these ` taxes to be announced after the elections` `Anybody who claims that the deficit is being addressed just needs a calculator.`
Furthermore it is nothing but an unrealistic fudge to expect that government ordinary expenditure will next year increase by only Lm20 million of which Lm6 million are net new funds for the agriculture and fisheries sector.` How will ordinary recurrent expenditure be contained within Lm14 million when in 2002 it increased Lm43 million over 2001 And it is to be remembered that 2002 was a wage freeze year for the public sector whereas 2003 will have to account for wage increases just accorded.
How can the budget be considered positive when it is expecting real growth at the same anaemic real rate of around 2.5% p.a. again mostly fuelled by government expenditure and personal consumption rather than by the real productive sectors of the economy.
And as to environmental degradation nothing is being suggested to address its two main sources ` the Marsa power station and the excessive traffic.` If the Marsa plant is to start burning low sulphur fuel to reduce its poisonous emissions Enemalta need financial support not charges to pay VAT which it cannot pass to the consumer. And if we are to solve the traffic problem what is needed is not fiscal incentives for electricity cars but fiscal imagination to render public transport clean efficient reliable and inexpensive.
This was a budget of short-termism.` The message is just to get the government through to the next elections without much changes or pain and then expect the wizard of Oz to come down from Brussels to administer the measures which we have been avoiding to administer for ourselves.
It is quite unfortunate that the budget has been popularly ridiculed as the ballet or ballerina budget. On its own the measure to exempt without credit cultural learning activities like ballet and piano is quite commendable though hardly worth a specific mention in a national budget.
So many taxes are introduced in between budgets that people generally laughed at having such trivialities reserved for the pompous oratory in the highest chamber on the important day. But for me what should have stolen the show is the following extract from the budget speech under fiscal measures:
`The Vat rate in the tourism sector will remain at 5% on accommodation as at present`
`Since when doing nothing has become a measure worth mentioning in the budget Since when doing nothing has become a measure worth mentioning in the budget` With tourism declining for the second consecutive year and with little progress being registered to re-structure our tourism in line with our areas of strengths (cultural, history and other quality short break visits) and away from our areas of weakness (price sensitive mass sun and sea tourism) no responsible Minister would even dare think of loading the industry with additional taxes.
If the Minister wants credit for not raising taxes then he could just as well demand it for not raising petrol, diesel, telephone, water, electricity, gas etc.
But hold on. Don`t be too sure about not raising taxes on utilities such as gas and electricity.` These have been subject to a creative fudge-it. The Minister announced that as from next year electricity bills will be subject to 5% VAT and gas cylinders will be subject to 15% VAT. In spite of such measures fattening his Treasury be some Lm4 million p.a. we are told that the consumer will not be worse off. This is typical Harry Potter`s magic. Taxes are raised, tax revenue flows increase but the electorate does not feel the pain of paying these taxes.
The pain will be felt by Enemalta whom the Minister informed us in the budget speech will be `covering` the 5% VAT on electricity and `absorbing` the 15% VAT on gas cylinders.
I don`t know if covering and absorbing mean effectively the same thing.` But expecting Enemalta to take a charge of Lm4 million liri p.a. when in 2001 it lost a net Lm7 million in its latest published financial statements is clearly a pious unsustainable hope. `Don`t be too sure about not raising taxes on utilities such as gas and electricity.` These have been subject to a creative fudge-it.`
I have no doubt that this creative fudge will have to face the test of reality after the elections but in the meantime it would have served its purpose of artificially containing the` deficit whilst placing no burdens on the electorate.` The burden will come after the vote slips into the ballot box.
But this is hardly creative either.` It is a perfect replica of what had happened when VAT was introduced in 1995 on retailed fuel and on telephone bills. We were told this would not affect the consumer as the VAT will be absorbed by the respective national corporations. Two years of such absorption enriched the national Treasury but impoverished the national corporations to the point of unsustainability. Reality had to be faced and today VAT on both is charged to the consumer.
But to be realistic the budget should not be judged on the basis of this or that individual measure. It has to be judged in its totality on whether it really addresses the problems which are now widely acknowledged ` fiscal deficit, anaemic economic growth and environmental degradation.
This is a deficient budget as it does not address the three chronic problems and it does not even succeed in putting pre-electoral juice except in postponing the pain for later. The positive measures of cola increases and income tax ceiling revision are too mild compared to the tax oppression suffered these last four years.
Anybody who claims that the deficit is being addressed just needs a calculator. The deficit of Lm78 million for 2002 will only be reached if at all by further creative accounting. But even if it is adding back the extraordinary Lm21 from MIA structured deal will take the deficit to Lm99 million and adding the one `off Lm7 million from the investment registration scheme will take it further up to Lm 106 million. This is exactly where the budget would have finished in 1998 had the Minister not used creative accounting to inflate it to Lm150 million in the last quarter as he started fudging the figures. So Lm240 million additional tax revenues later we are just where we started from.
As to next year the budget deficit is projected to stay at around Lm75 million but only after grant revenue of Lm23 million (back payments of the EU pre-accession funds for 2000-2003 amount to Lm9 million and advance payment of the Italian financial protocol is expected to rake in Lm14 million) and unexplained miscellaneous receipts of Lm7 million.` What are these ` taxes to be announced after the elections` `Anybody who claims that the deficit is being addressed just needs a calculator.`
Furthermore it is nothing but an unrealistic fudge to expect that government ordinary expenditure will next year increase by only Lm20 million of which Lm6 million are net new funds for the agriculture and fisheries sector.` How will ordinary recurrent expenditure be contained within Lm14 million when in 2002 it increased Lm43 million over 2001 And it is to be remembered that 2002 was a wage freeze year for the public sector whereas 2003 will have to account for wage increases just accorded.
How can the budget be considered positive when it is expecting real growth at the same anaemic real rate of around 2.5% p.a. again mostly fuelled by government expenditure and personal consumption rather than by the real productive sectors of the economy.
And as to environmental degradation nothing is being suggested to address its two main sources ` the Marsa power station and the excessive traffic.` If the Marsa plant is to start burning low sulphur fuel to reduce its poisonous emissions Enemalta need financial support not charges to pay VAT which it cannot pass to the consumer. And if we are to solve the traffic problem what is needed is not fiscal incentives for electricity cars but fiscal imagination to render public transport clean efficient reliable and inexpensive.
This was a budget of short-termism.` The message is just to get the government through to the next elections without much changes or pain and then expect the wizard of Oz to come down from Brussels to administer the measures which we have been avoiding to administer for ourselves.
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