Budget Analysis 2003 - Part 3 - Beyond the Deficit

The Times of Malta



Addressing the deficit is a must. But it cannot be the only objective of government`s fiscal policy. The budget policy must also stimulate growth, promote environmental development and spread the growing wealth in a socially responsible way without suffocating entrepreneurship and initiative.

The budget has a deficit also when measured on all these criteria.

A projected real growth rate of 2.8% is modest coming after two years where the combined growth was less than 2%. If we are to catch up with benchmarks like Cyprus and Singapore that came from behind and overtook us as they based economic growth on serious productive investment whereas we based ours on unsustainable consumption, we need real growth rates of 6% p.a. and beyond.

`we need to (i) seriously restructure our economy and (ii) attract much higher flows of FDI.` For this to happen we need to (i) seriously restructure our economy and (ii) attract much higher flows of FDI.

The budget does not even attempt to address these issues. Measures taken to promote efficiency at the micro level are good in so far as they go but they go very very little.` No initiatives are taken to stimulate the migration from overhead public sector jobs to productive jobs in the real economy. No measures are taken to re-balance the rights and obligations of the employees in different sectors of the economy thus facilitating mobility and efficient use of resources. No measures are taken to launch re-training initiatives to keep our workforce skilled in current technologies, enhancing their employability and forming a great attraction for FDI.

Environmentally the announced measures can only make a difference at the edges leaving the core of the problem untouched. To address environment problems in a serious manner one has to set clear objectives for closure of the Marsa power station and re-development of the priceless site, and to launch new initiatives to render public transport clean, efficient, reliable and cheap.

If the Minister`s creativity for hiding the deficit were to be applied in the direction of new initiatives the results would be more tangible and beneficial for one and all and would enhance his chances of inheriting the party leadership.` But the Minister rather than helping Enemalta to strengthen its financial structures to fund the early closure of the Marsa power station (a commitment taken In Chapter 14 of the Acquis unless we start burning expensive Low Sulphur fuel from day one of accession) loads Enemalta with the obligation to absorb VAT charges on electricity and gas cylinders.

Instead of addressing the public transport issues to avoid the need for families to have the second (and sometimes the third or fourth) car,` the Minister continues to project increased flows of customs duty and registration fees on new cars. We have become financially addictive to environmentally unsustainable policies!

And when it comes to entrepreneurship there is nothing to stimulate it especially where it matters. Seeing the film industry growing on its own steam is not enough. What is needed is a set of incentives to give the industry a shot in the arm and leverage its growth and proliferation. `Announcing that the VAT rate on tourism will be maintained at 5% hardly constitute a measure.` Since when doing nothing has become a measure

Announcing that the VAT rate on tourism will be maintained at 5% hardly constitute a measure.` Since when doing nothing has become a measure` Spending more money on advertising might help but will not solve our problems. Tourism needs to be re-engineered to maximise our strengths and cushion our weaknesses. We must attract tourists that spend Lm100 a day not Lm100 a week.` We must become the preferred location in the central Mediterranean for conferences, incentive travel and cruise-liner head station.

Clearly the Minister has run out of ideas.` He is fatigued.` His creativity is reserved for fudging issues not resolving them, building upon them and turning problems into opportunities. His legacy of 9 budgets in 10 years is one of a mountain of debris and a valley of debts which make Argentina`s and Brazil look quite respectable ` the only difference is that the people`s thrift culture over here make it easy for the Minister to finance his largesse cheaply with long term money storing problems for his successors.

With this budget the Minister means to fudge the real issues and limp to the next election which will clearly come before the deficiency of the budget will have time to emerge.

`.(concluded)

Alfred Mifsud