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The Malta Independent on Sunday 

   

It was the 25^th November 1995. The incumbent Finance Minister was presenting his fourth consecutive budget in parliament, this time for 1996. It was the first budget following the introduction of VAT which had made a root and branch change to the system of indirect taxation.

We were told that the deficit for 1995 would finish around Lm36 million estimated at just over 3% of the GDP which was growing at a real rate of 6.7%. That was a rate that truly reflects our growth potential if we are ever to catch up to EU averages. The deficit for 1996 was planned to remain stable at around Lm39 million which in the face of a fast growing economy would reduce the deficit to 3% a level which the Minister had targeted in his first budget presentation for the year 1993.

Indeed in that first budget the Minister had pledged to be guided by sound financial housekeeping rules promising to keep deficit within acceptable boundaries of the then freshly enacted Maastricht criteria and to reduce the share of government in the national economy through privatisation and a operation of a leaner and more efficient central government.

In his speech for the 1996 Budget the Minister made bold statements like “This government is committed to have public expenditure reconciled with public income”. After singing self-praise verses of optimism that government revenue will balloon as a result of momentous economic growth and more efficient tax collection and enforcement, the Minister announced several measures of fiscal largesse. In their due course these measure were to prove a huge burden on public finance and hardly in line with the determination to reconcile expenditure with revenue.

The fiscal giveaways were so widespread and so sizeable that one could hardly resist the temptation to conclude that that budget or 1996 clearly had an eye on the approaching election even though in theory the Minister had the opportunity to present a further budget for 1997 before the legislature term would expire.

Now I want to fast forward you a bit to the month of November 1996. Labour had just won the election. The Clinton syndrome of “it’s the economy stupid” did not seem to work here. In spite of the substantial fiscal boost given to the economy, the electorate was not impressed and in perfect synchrony with the two legislature cycle of Maltese politics sent a Nationalist government to refresh on the Opposition benches. Labour was elected in spite of the feel good factor and all.

In November 1997 the new Minister of Finance was Lino Spiteri whom I well remember expressing with a sense of despair that the Nationalist Party were really lucky to have lost the elections and thus save having to face the financial mess they left behind.

I quote from Lino Spiteri’s budget speech for 1997:

Labour Government inherited a deficit of Lm112 million that is almost three times the planned deficit of Lm39 million equivalent to 9.3% of the GDP rather than 3.2% as originally estimated.

I am saying this to establish two important points:

Firstly that 1995 was the last year where we registered healthy economic growth in the context of macro-economic stability.

Secondly that the public finance structural problem was discovered in 1996, although it might have been contributed to by earlier measures whose impact was time-lagged, and that we have not yet addressed it 8 years later.

We had a deficit of Lm112 million in 1996 and we still had a deficit of Lm176 million in 2003 which even if stripped off the exceptional Lm58 million Shipyards write-off is still higher than the 1996 deficit in absolute terms. In relative terms we had a deficit of 9.3% of GDP in 1996 and a deficit of 9.7% of GDP in 2003.

The only difference between 1996 and 2003 is that we have since trebled our national debt, eaten the reserves we had in the sinking funds and sold some of our best public assets the funding from which simply disappeared in the big black public deficit hole. And of course we are eight years older and should ideally be eight years wiser, though I have my doubts about that.

Eight years is indeed a very long time; certainly a time long enough for a problem as that identified in our public financing in 1996 to be addressed in a gradual but determined manner. The fact that eight years seem to have served for nothing but to pay lip service to the problem is in itself shameful and a great waste of resources which we just cannot afford.

The new Prime Minister has pledge to make restoration of sanity to public finance as a priority agenda item. For those of us who have heard this before we can be permitted to express that, like St Thomas following the Resurrection, we will believe when we see it and not we hear about it.