Sunday 14 December 2003

True Solutions

The Malta Independent on Sunday 

 
I was not in the least surprised that almost 60% of those surveyed in a poll carried out on behalf of The Sunday Times said they were 'badly affected' by the Budget for 2004, and that a high 71.3% do not think that its measures will solve the deficit problem.

  I was even less surprised that when asked which party they would vote for if a general election were to be held tomorrow, 43% said they would vote "for nobody", while 25% said they would vote for the Malta Labour Party, 23.3% for the Nationalist Party, 3.3% for Alternattiva Demokratika, and 5.3% gave no answer.

The only logical conclusion is that we are becoming a nation of realists and that the nation has been forced to choose a government by default of the opposition and not as a positive choice.

It is indeed frustrating that the government presents us with long-standing structural economic problems and pretends they are new developments which have forced a new spring to change into a harsh winter. It is even more frustrating that the government continues to insist that the solution to these problems is to simply talk positively about them whilst continuing the tax and spend policy typical of the Wilson Labour UK governments of the sixties when in fact we require a growth budget in the Bush style of the new millennium.

And the frustration gets compounded when the Opposition suggests that to raise awareness to the problems and to refuse the solutions being offered by government the best approach is to organise popular demonstrations of dissent.

As the Times survey shows there is no need to raise public awareness either to these problems or to the futility of the solutions proposed in government`s budget. What the public needs in order to warm the hearts of the extraordinary large segment which seems to be writing off Maltese politics in general, is to proof with practical means that the opposition could be an alternative government that can offer positive, though not painless, solutions to our problems.

We have been talking far too much about our problems whilst taking little or no effective cure measures. We can and should of course make the point that the government is by and large responsible for getting us into this financial and economic mess, mostly through buying our votes with fictitious feel good measures which were based on debt rather than growth. But this will not in any way help to offer any solutions as to how we should get out of the deep water and swim gradually to safer and higher grounds.

Let`s look at things objectively. We have two major problems. We are suffering from lack of economic growth and we are suffering huge and unsustainable imbalances in public finance which translates itself into public debt growth as a percentage of the GDP which is galloping forward. On these facts there should be no dispute. There is no room for shady or creative interpretations to colour reality with wishful thinking.

To offer solutions one must understand the causes.` Pseudo solutions which do not address the causes are simply a waste of resources which would make the eventual real solution that much harder as we do not have access to endless resources.

The absence of economic growth is because our economy is no longer competitive globally. This is showing in low or no growth in our exports and tourism earnings, the lack of FDI and the failure to create new job opportunities.` Central Bank`s own studies of the real rate of exchange show that we have been dragged down by an overvalued real exchange rate in the region between 6% and 12% since 1999 (Central Bank of Malta Quarter September 2003 page 33 Chart 4.3).` Past growth has been based on consumption and debt and as both are hitting unsustainable levels their retraction is causing economic sclerosis.

Government finance structural deficit is the result of over-spending, certainly not of shortfall in revenue flows.` On the contrary the government deserves credit for rendering the revenue collection mechanism more efficient and whilst there is still room for tax enforcement and compliance, resultant increased revenues should go to reduce the burden on other taxpayers who have never had any room to deviate from tax compliance.

True solutions must therefore be based on a tripod solution. The first leg is growth. This has to have priority, as without growth there can be no re-structuring. Re-structuring implies the replacements of old uncompetitive economic units by new bubbly start-ups that offer opportunities for productive jobs built on current economic realities. Killing old units without succeeding to promote new ones is not re-structuring. It is pure and simply contraction.

The second leg has to be expenditure control of the public sector. Not necessary expenditure reduction but expenditure control ensuring we do not continue to pay for inefficiencies but invest in infrastructure and productive investments and in re-training to make unproductive labour mobile and affordable. If we accept given positions as immutable that we lose the game before actually starting to play. Why all the priority to address the Drydocks problem and allow much bigger, even though may be less evident, problems in the public sector to go on unaddressed.

The last leg is, as earlier indicated tax enforcement.  A pact that no new taxes will be introduced and that the efficiency in tax collection will be applied to offer relief to the over-taxed lower and middle layer of society.

A solution without a tripod approach will get us nowhere. The government is not offering it.` No amount of street protests by the opposition will get us an inch nearer to a real solution. May be we expect a miraculous touch that EU membership will force us to do what we need to do. This will obviously not happen and if we continue as we are doing, people will lose their only hope left for real re-structuring.

The simple truth is that we will re-structure only if we really want to.` My impression is that our politicians do not really care and therefore small wonder that the electorate is reacting by not caring about our politicians.

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