Maltastar
My contribution on this medium of 13th January 2003 had commented as follows on the state of public finance as resulting from the figures for the 11 months up to November 2002 which had just been released by the NSO.
‘The published deficit for the 11 months to November 2002 was given at Lm110 million. This is after extraordinary receipts of Lm21 million from the privatisation of MIA and Lm7 million from the Investment Registration Scheme. Both sources are one-off deals which very arguably and unconventionally were taken as ordinary revenue. Without this unorthodoxy the deficit would have come in at Lm138 million compared to Lm96 million on a like for like basis in the first 11 months of 2001.
Let’s for a moment put aside the unorthodoxy and accept the figures as published. To hit the Lm77 million projected deficit for the full 12 months budgetary period 2002, the month of December 2002 had to be net cash-positive for government to the tune of Lm33 million.’
‘The published deficit for the 11 months to November 2002 was given at Lm110 million. This is after extraordinary receipts of Lm21 million from the privatisation of MIA and Lm7 million from the Investment Registration Scheme. Both sources are one-off deals which very arguably and unconventionally were taken as ordinary revenue. Without this unorthodoxy the deficit would have come in at Lm138 million compared to Lm96 million on a like for like basis in the first 11 months of 2001.
Let’s for a moment put aside the unorthodoxy and accept the figures as published. To hit the Lm77 million projected deficit for the full 12 months budgetary period 2002, the month of December 2002 had to be net cash-positive for government to the tune of Lm33 million.’
“It shows the panic reigning at the Ministry of Finance where control over the country’s financing is rapidly slipping through their fingers”
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Clearly the target for the month of December 2002 to result cash flow positive to the extent of Lm33 million has proved impossible to achieve. The pompous Minister has an egg on his face and is trying desperately to wipe it off before official figures get published. The Leader of the Opposition and the Opposition main spokesman for Finance have made startling revelations that were not denied. Substantial payments due in 2002 were being postponed to be effected form the 2003 budget. And worse than that, payments actually effected in December 2002 were effectively being reversed and re-generated to appear as expenditure incurred in January 2003.
It is against this background that one has to weigh Circular 2/2003 of 24th January 2003 issued by the Minister of Finance and addressed to all his colleague Ministers and Parliamentary Secretaries. Under the convenient excuse of variable budgeting, the Minister has prohibited the Ministers from committing themselves for 10% of the budgeted expenditure without first getting the prior authorization from his Ministry.
It is against this background that one has to weigh Circular 2/2003 of 24th January 2003 issued by the Minister of Finance and addressed to all his colleague Ministers and Parliamentary Secretaries. Under the convenient excuse of variable budgeting, the Minister has prohibited the Ministers from committing themselves for 10% of the budgeted expenditure without first getting the prior authorization from his Ministry.
To the extent that this is a tool for effective budgetary control the circular’s intentions are understandable. But in the context of efforts to switch last year’s expenditure to this year’s budgetary cycle the circular’s significance goes well-beyond its stated objectives.
It shows the panic reigning at the Ministry of Finance where control over the country’s financing is rapidly slipping through their fingers. In the same circular the Minister gloats that ‘significant effort has been made to achieve the targets that we had established in relations to further fiscal consolidation. Our efforts have been reasonably successful.’
This cannot be further from the truth. Without the unorthodoxy of considering as ordinary revenue Lm21 million one-off revenues from MIA privatisation, the deficit till November 2002 would have amounted to Lm138 million compared to Lm96 million on a like for like basis in the first 11 months of 2001. Reasonably successful my foot!
The Minister has not yet understood that budgetary control does not come by issuing threatening circulars to budget administrators that their performance bonus would be withdrawn unless they hit the right numbers.
It shows the panic reigning at the Ministry of Finance where control over the country’s financing is rapidly slipping through their fingers. In the same circular the Minister gloats that ‘significant effort has been made to achieve the targets that we had established in relations to further fiscal consolidation. Our efforts have been reasonably successful.’
This cannot be further from the truth. Without the unorthodoxy of considering as ordinary revenue Lm21 million one-off revenues from MIA privatisation, the deficit till November 2002 would have amounted to Lm138 million compared to Lm96 million on a like for like basis in the first 11 months of 2001. Reasonably successful my foot!
The Minister has not yet understood that budgetary control does not come by issuing threatening circulars to budget administrators that their performance bonus would be withdrawn unless they hit the right numbers.
“Effective budgetary control does not depend on EU membership”
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Budgetary control is only effective through a holistic approach which has the backing of the whole cabinet and the commitment of the Prime Minister. Without this we will be, as they say in Maltese,‘inraqqghu il-pannu bil-qargha ahmar’.
What sort of budgetary control would there be if to hit the right numbers, budget administrators keep postponing expenditure from one year to the other creating serious cash-flow problems within the economy as the consequences of delayed payments cascade through various layers? The most vivid example of this is the mounting arrears due by the Dept of Health to its contract suppliers.
What sort of budgetary control would there be if to hit the right numbers, budget administrators keep postponing expenditure from one year to the other creating serious cash-flow problems within the economy as the consequences of delayed payments cascade through various layers? The most vivid example of this is the mounting arrears due by the Dept of Health to its contract suppliers.
What sort of budgetary control would it be if to hit the right numbers budget administrators just refuse to buy the necessary materials without which the expensive human resources, who presumably will not be affected by the 10% budget freeze, cannot render properly the work they are being paid for.
Budgetary control needs to have a value for money test throughout their entire application. It needs re-structuring to ensure that resources are utilised optimally without bottlenecks being created which lead to false economy, more waste and further economic disgruntlement.
And this is just a small taste of what would happen if we are forced to join the single currency mechanism a few years after we join in membership of the EU should the people so will.
Should we breach the Euro stability pact’s maximum 3% deficit, the order to trim the budget will not come from the Ministry of Finance. It will come from the EU Commission with threats of sanctions and fines unless we comply.
So even if local circumstances would demand that we run a deficit in excess of 3%, something we can easily afford for valid reasons given our high propensity to save, even if the consequences of trimming the budget would be risingunemployment or cut in the real value of our social services, the Commission’s order would still prevail. We will have to do what the EU Commission orders even though it would compromise our attempts to engineer an economic recovery to address the deficit through economic growth rather than through increased taxation or expenditure cuts.
I am a firm believer and proponent of good housekeeping rules for running the public purse. I am a firm believer that EU stability pact mechanism would make good sense if applied in the long-term after solving the strategic finance fault which the PN are leaving us as a legacy for our children.
But putting ourselves in a straight-jacket which removes our ability to flexibly work our way out of such problems and leaving as the only variables, increased taxation or reduction in social expenditure and subsidies, is like having to play a football game with your hands tied behind your back.
Effective budgetary control does not depend on EU membership. It depends on a total commitment from the government to adopt value for money tests in all expenditure and commitment to treat the tax money extracted from citizens with utmost diligence to ensure they perceive they are being given a fair return for their sacrifices.
Budgetary control needs to have a value for money test throughout their entire application. It needs re-structuring to ensure that resources are utilised optimally without bottlenecks being created which lead to false economy, more waste and further economic disgruntlement.
And this is just a small taste of what would happen if we are forced to join the single currency mechanism a few years after we join in membership of the EU should the people so will.
Should we breach the Euro stability pact’s maximum 3% deficit, the order to trim the budget will not come from the Ministry of Finance. It will come from the EU Commission with threats of sanctions and fines unless we comply.
So even if local circumstances would demand that we run a deficit in excess of 3%, something we can easily afford for valid reasons given our high propensity to save, even if the consequences of trimming the budget would be risingunemployment or cut in the real value of our social services, the Commission’s order would still prevail. We will have to do what the EU Commission orders even though it would compromise our attempts to engineer an economic recovery to address the deficit through economic growth rather than through increased taxation or expenditure cuts.
I am a firm believer and proponent of good housekeeping rules for running the public purse. I am a firm believer that EU stability pact mechanism would make good sense if applied in the long-term after solving the strategic finance fault which the PN are leaving us as a legacy for our children.
But putting ourselves in a straight-jacket which removes our ability to flexibly work our way out of such problems and leaving as the only variables, increased taxation or reduction in social expenditure and subsidies, is like having to play a football game with your hands tied behind your back.
Effective budgetary control does not depend on EU membership. It depends on a total commitment from the government to adopt value for money tests in all expenditure and commitment to treat the tax money extracted from citizens with utmost diligence to ensure they perceive they are being given a fair return for their sacrifices.
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