2nd December 2002
Point 1 – How We Have Been Squeezed!
On25th November 1998 Minister Dalli found himself unexpectedly in charge of sorting out the financial mess he had created in his first term as Minister of Finance between 1992 -1996 and which he had been denying during the 22 months of Labour government.
He found a rare dose of sobriety and tried to work out a medium term plan to get us out of the financial mess. In his budget speech for 1999 he admitted for the first time that the deficit had been built up layer upon layer over a long term period through politically opportune but economically irresponsible decisions. He even laid out a six year plan 1999-2004 explaining how the deficit had to be brought down to 4% of the GDP (before extraordinary and privatisation revenues) by 2004.
On
He found a rare dose of sobriety and tried to work out a medium term plan to get us out of the financial mess. In his budget speech for 1999 he admitted for the first time that the deficit had been built up layer upon layer over a long term period through politically opportune but economically irresponsible decisions. He even laid out a six year plan 1999-2004 explaining how the deficit had to be brought down to 4% of the GDP (before extraordinary and privatisation revenues) by 2004.
“So Lm240 million tax revenue increases have served for nothing but to finance new expenditure which the Minister cannot control”
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Ordinary revenue for 2002 was then projected to reach Lm666 million. Latest revised estimates of ordinary revenue for 2002 is Lm Lm746 million i.e. Lm80 higher than projected.
The Minister argues that this revenue increase is due to superior economic growth. The nominal growth rates projected in 1998 were:
1999 – 6.5% actual was 6.9%
2000 – 6.5% actual was 7.0%
2001 - 6.0% actual was 4.7%
2002 – 6.0% actual will be 5.0%
So cumulatively these 4 years economic growth was (in nominal terms) slightly inferior to that projected.
The Lm80 million higher projected revenues did not flow from superior growth. They came in from Lm21 million exceptional revenue from the structured MIA sale and leaseback deal and the balance of Lm59 million from higher taxation than projected.
So you would expect that the deficit should be Lm80 million less than what was projected. The deficit for 2002 was projected to be Lm124 million. With Lm80 million extra revenue it should in effect have come down to Lm44 million. Yet with luck and further manipulation we are told the deficit will be Lm78 million.
So the extra Lm80 million revenues extracted out of an economy performing at below expected growth rates have been applied, Lm46 million to reduce deficit from where it was projected and Lm34 to finance additional expenditure.
Oh how we have been squeezed!
The Minister argues that this revenue increase is due to superior economic growth. The nominal growth rates projected in 1998 were:
1999 – 6.5% actual was 6.9%
2000 – 6.5% actual was 7.0%
2001 - 6.0% actual was 4.7%
2002 – 6.0% actual will be 5.0%
So cumulatively these 4 years economic growth was (in nominal terms) slightly inferior to that projected.
The Lm80 million higher projected revenues did not flow from superior growth. They came in from Lm21 million exceptional revenue from the structured MIA sale and leaseback deal and the balance of Lm59 million from higher taxation than projected.
So you would expect that the deficit should be Lm80 million less than what was projected. The deficit for 2002 was projected to be Lm124 million. With Lm80 million extra revenue it should in effect have come down to Lm44 million. Yet with luck and further manipulation we are told the deficit will be Lm78 million.
So the extra Lm80 million revenues extracted out of an economy performing at below expected growth rates have been applied, Lm46 million to reduce deficit from where it was projected and Lm34 to finance additional expenditure.
Oh how we have been squeezed!
Point 2 - Secret Chambers
I have proven with facts and figures that structural deficit has not been addressed and the Minister’s energies are unfortunately focussed on fudging the issue not on addressing the problem. If you deduct from the 1998 deficit the hotchpotch changes effected in the last quarter as the Minister moved in and purposely jacked upon the deficit to Lm150 million, and add on the extraordinary revenue of Lm21 million taken as ordinary revenue in 2002 you will find that the deficit, at least in nominal terms, is very much where it really was in 1998.
So Lm240 million tax revenue increases have served for nothing but to finance new expenditure which the Minister cannot control.
But magic is expected to hit us in 2003. In 2003 the deficit is nominally expected to reduce by Lm14 million. But as 2002 had Lm28 million extraordinary unrepeatable revenues (the Lm21 million from MIA structured deal and the Lm7 million Investment Registration Scheme) the deficit is in reality expected to reduce by Lm32 million.
Taking into account grant revenue of Lm14 million from the Italian Financial protocol which is a special item in 2003 that did not feature in 2002, there is still Lm18 million real reductions projected for 2003.
So when he was increasing tax revenues by Lm60 million p.a. the Minister did not manage to address the deficit. But now that election necessities demand that revenue increases will be only Lm24 million the Minister expects us to be believe that he can effectively reduce the deficit by Lm14 million. Secret chambers!
I have proven with facts and figures that structural deficit has not been addressed and the Minister’s energies are unfortunately focussed on fudging the issue not on addressing the problem. If you deduct from the 1998 deficit the hotchpotch changes effected in the last quarter as the Minister moved in and purposely jacked upon the deficit to Lm150 million, and add on the extraordinary revenue of Lm21 million taken as ordinary revenue in 2002 you will find that the deficit, at least in nominal terms, is very much where it really was in 1998.
So Lm240 million tax revenue increases have served for nothing but to finance new expenditure which the Minister cannot control.
But magic is expected to hit us in 2003. In 2003 the deficit is nominally expected to reduce by Lm14 million. But as 2002 had Lm28 million extraordinary unrepeatable revenues (the Lm21 million from MIA structured deal and the Lm7 million Investment Registration Scheme) the deficit is in reality expected to reduce by Lm32 million.
Taking into account grant revenue of Lm14 million from the Italian Financial protocol which is a special item in 2003 that did not feature in 2002, there is still Lm18 million real reductions projected for 2003.
So when he was increasing tax revenues by Lm60 million p.a. the Minister did not manage to address the deficit. But now that election necessities demand that revenue increases will be only Lm24 million the Minister expects us to be believe that he can effectively reduce the deficit by Lm14 million. Secret chambers!
“The concept of ‘Ahleb Guz!’ has well and truly been replaced by the concept of ‘Erda’ Gan!’”
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Point 3 – Problems Linger On
If proof is needed how problems are allowed to linger on just consider the following votes in the budget
CAPITAL VOTE:
Foundation for Tomorrow’s School Lm 3.1 million
To pay interest (and running expenses) on bank loans to finance social expenditure guaranteed by the government which should be financed from the consolidated fund.
Malta Freeport Lm3.7 million
To reimburseFreeport
Gozo Ferries – Lm4 million
To finance interest on loans to build the new Gozo ferries on which the company gets no income as the income goes to Gozo Channel which in any event is losing money on operations
Malta Shipbuilding – Lm4 million
Yet more money for operational losses and early retirement schemes
MDC & MIMCOL – Lm 1.05 million
To finance interest on dead bank loans
RECURRING VOTE
Malta Freeport – Lm7.5 million
To fund the interest payment on the foreign bonds. Even though the Minister said that privatisation talks will soon be concluded the interest burden will stay with the taxpayer.
Malta
To finance a never ending re-structuring that has absorbed already Lm300 million of tax-payers money.
Water Services Corporation – Lm7.5 million
Operational Subsidies
MDC/METCO?MIMCOL – Lm5.4 million
Operational grants
The concept of ‘Ahleb Guz!’ has well and truly been replaced by the concept of ‘Erda’ Gan!’
If proof is needed how problems are allowed to linger on just consider the following votes in the budget
CAPITAL VOTE:
Foundation for Tomorrow’s School Lm 3.1 million
To pay interest (and running expenses) on bank loans to finance social expenditure guaranteed by the government which should be financed from the consolidated fund.
Malta Freeport Lm3.7 million
To reimburse
Gozo Ferries – Lm4 million
To finance interest on loans to build the new Gozo ferries on which the company gets no income as the income goes to Gozo Channel which in any event is losing money on operations
Malta Shipbuilding – Lm4 million
Yet more money for operational losses and early retirement schemes
MDC & MIMCOL – Lm 1.05 million
To finance interest on dead bank loans
RECURRING VOTE
Malta Freeport – Lm7.5 million
To fund the interest payment on the foreign bonds. Even though the Minister said that privatisation talks will soon be concluded the interest burden will stay with the taxpayer.
To finance a never ending re-structuring that has absorbed already Lm300 million of tax-payers money.
Water Services Corporation – Lm7.5 million
Operational Subsidies
MDC/METCO?MIMCOL – Lm5.4 million
Operational grants
The concept of ‘Ahleb Guz!’ has well and truly been replaced by the concept of ‘Erda’ Gan!’
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