The Malta Independent on Sunday
In the post-election spring we have been having some new old revelations.
The government had to put a fake look of surprise in announcing that the budget deficit for the current year will exceed the original target by some 60% to reach 7% of the GDP rather than the planned 4.5%.
Having given repeated re-assurances in the run-up to last election that government finances were solid, improving and altogether sustainable, it had to pretend that things have suddenly turned sour. It attempted to blame the international situation but this has no basis of credibility. Since end March the international economy has taken a sharp turn for the better with US and Japanese economy signalling a return to strong growth recovery and the EU economy is clearly pointing to a worst-is-over situation.
The government also tried to give a thin gloss of credibility to its fake surprise by referring to the need to face extraordinary expenditure related to the holding of the referendum and general elections. This is even less credible as both were predictable with clinical precision at the budget preparation stage.
The simple truth is that the precarious state of public finance constitutes no new revelation. It is old hat.` It is yesterday`s news which was being camouflaged until the electoral contest was out of the way to avoid an electoral liability for the incumbent administration.
Now the meeting with reality has to be faced.` With another electoral contest 5 years down the road there is no way the country`s financial structure can withstand such long term neglect, even if we had opted to shy away from the discipline of EU membership and the consequential adoption of Euro single currency. Reality is that we have a budget deficit of the same absolute size we had in 1996 and that we have amassed huge amount of debt of these over these seven years of neglect and frittered away no less than Lm157 million privatisation revenues.
Unavoidably there are no easy solutions. Problems that are allowed to accumulate unaddressed for a long time cannot be solved with the flick of a finger. Solving the problems from the revenue side is short-sighted, self-defeating and impractical. `Short-sighted and self-defeating in that imposition of higher taxes would go against the international grain where countries are giving tax stimulus to revive growth. Impractical because the old pool of uncollected tax has been significantly absorbed and the new measures for speedier collection have already delivered and cannot be expected deliver speedier cash flow unless we are made to pay our taxes in advance.
Consequently government has now to address the true source of weakness of public finance ` the expenditure side. In preparation for such unpalatable choice we have had additional old new revelations this week with particular relevance to the public health sector.
As if we have suddenly discovered something was not readily evident, the Health Minister announced that the situation in the public health sector is alarming and that the system is unsustainable. Whilst giving practical examples of abuse in the system which are laughable and could be put right by simple straightforward administrative decisions, the unsustainability of the system is much more deep-rooted. Health diagnosis and cure is getting much more sophisticated and effective. But it is also getting much more expensive. To what extent can the state afford to provide cure service for all irrespective of one`s means when limited resources are causing scarcity of medicine or service to the real needful at the lower rank of society?
These are issues that have to be addressed. Government should stop putting on fake surprise as if these problems emerged overnight and conduct a diligent exercise to understand how the system has been brought to its present state of alarm and unsustainability. This would help to devise solutions that are clinical and effective without major disruptions to society at large.
And working on the cockroach theory one can be sure that there are many more stories of unsustainability in the pipeline which will have to be addressed. If there is one cockroach there must be others. Is Air Malta sustainable without substantial re-structuring including labour shedding and leaning of management structures, if it is to face competition both in its core business from cheap no-frills airlines as well as in having monopoly fat removed from non-core related services at the airport?
Can we afford the substantial subsidy for water production and distribution` Can Enemalta continue to lose so many millions even at operational level when it needs a strong cash flow not only to keep up with outstanding financial commitments related to past investment but also needs to finance` substantial new investment to keep up with the increased energy demands`
Can Freeport continue to demand of the Exchequer year in year out some USD 18 million to pay the interest on its international financial obligation`
There is no use pretending these problems do not exist. No use putting on fake surprise when inevitably they have to be brought to the surface. These are all new old revelations.
In the post-election spring we have been having some new old revelations.
The government had to put a fake look of surprise in announcing that the budget deficit for the current year will exceed the original target by some 60% to reach 7% of the GDP rather than the planned 4.5%.
Having given repeated re-assurances in the run-up to last election that government finances were solid, improving and altogether sustainable, it had to pretend that things have suddenly turned sour. It attempted to blame the international situation but this has no basis of credibility. Since end March the international economy has taken a sharp turn for the better with US and Japanese economy signalling a return to strong growth recovery and the EU economy is clearly pointing to a worst-is-over situation.
The government also tried to give a thin gloss of credibility to its fake surprise by referring to the need to face extraordinary expenditure related to the holding of the referendum and general elections. This is even less credible as both were predictable with clinical precision at the budget preparation stage.
The simple truth is that the precarious state of public finance constitutes no new revelation. It is old hat.` It is yesterday`s news which was being camouflaged until the electoral contest was out of the way to avoid an electoral liability for the incumbent administration.
Now the meeting with reality has to be faced.` With another electoral contest 5 years down the road there is no way the country`s financial structure can withstand such long term neglect, even if we had opted to shy away from the discipline of EU membership and the consequential adoption of Euro single currency. Reality is that we have a budget deficit of the same absolute size we had in 1996 and that we have amassed huge amount of debt of these over these seven years of neglect and frittered away no less than Lm157 million privatisation revenues.
Unavoidably there are no easy solutions. Problems that are allowed to accumulate unaddressed for a long time cannot be solved with the flick of a finger. Solving the problems from the revenue side is short-sighted, self-defeating and impractical. `Short-sighted and self-defeating in that imposition of higher taxes would go against the international grain where countries are giving tax stimulus to revive growth. Impractical because the old pool of uncollected tax has been significantly absorbed and the new measures for speedier collection have already delivered and cannot be expected deliver speedier cash flow unless we are made to pay our taxes in advance.
Consequently government has now to address the true source of weakness of public finance ` the expenditure side. In preparation for such unpalatable choice we have had additional old new revelations this week with particular relevance to the public health sector.
As if we have suddenly discovered something was not readily evident, the Health Minister announced that the situation in the public health sector is alarming and that the system is unsustainable. Whilst giving practical examples of abuse in the system which are laughable and could be put right by simple straightforward administrative decisions, the unsustainability of the system is much more deep-rooted. Health diagnosis and cure is getting much more sophisticated and effective. But it is also getting much more expensive. To what extent can the state afford to provide cure service for all irrespective of one`s means when limited resources are causing scarcity of medicine or service to the real needful at the lower rank of society?
These are issues that have to be addressed. Government should stop putting on fake surprise as if these problems emerged overnight and conduct a diligent exercise to understand how the system has been brought to its present state of alarm and unsustainability. This would help to devise solutions that are clinical and effective without major disruptions to society at large.
And working on the cockroach theory one can be sure that there are many more stories of unsustainability in the pipeline which will have to be addressed. If there is one cockroach there must be others. Is Air Malta sustainable without substantial re-structuring including labour shedding and leaning of management structures, if it is to face competition both in its core business from cheap no-frills airlines as well as in having monopoly fat removed from non-core related services at the airport?
Can we afford the substantial subsidy for water production and distribution` Can Enemalta continue to lose so many millions even at operational level when it needs a strong cash flow not only to keep up with outstanding financial commitments related to past investment but also needs to finance` substantial new investment to keep up with the increased energy demands`
Can Freeport continue to demand of the Exchequer year in year out some USD 18 million to pay the interest on its international financial obligation`
There is no use pretending these problems do not exist. No use putting on fake surprise when inevitably they have to be brought to the surface. These are all new old revelations.
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