Coming Going or Just Digging

The Malta Independent - Friday Wisdom
13th August 2004

A change of Prime Minister has facilitated the readiness to acknowledge the economic problems that were previously denied. If there are video/voice clips which historically will remain the hallmark of the Fenech Adami administrations these will be the ‘money no problem’ prediction of 1987 and the uttering that “10 million here or there make no real difference” following the discounted sale of Mid-Med Bank in 1999.

And as if to prove that 10 million here or there really make no difference under the spending largesse culture promulgated by the Fenech Adami administration, it has bequeathed a fait accompli for Prime Minister Gonzi to appear red-faced in front of the nation announcing the acquisition of a Lm9 million (at least!) property for a Malta House in Brussels, which is multiples of what much larger and more resourceful new member states are in fact spending.

The argument that this is a good investment is besides the point. The real point is do we really need it? Can we afford it? Malta House in Brussels is not being acquired for investment purposes. It is being acquired to serve a need and should be judged on this and on no other merit.

But Malta House aside, the readiness to accept and acknowledge the problems is healthy and refreshing. It is the first indispensable step towards finding a solution.

Fenech Adami administrations’ greatest faults lie in negating the very existence of the problem and fanning the feel good factor, based on borrowing rather than earned income, for electoral popularity purposes. The problems denied were simply being financed by chronic deficits leading to the rapid build-up of national debt practically exhausting our capacity to borrow.

This country is now living the contradiction of fairly well-to-do citizens, with great aspirations to reach average EU standards, living in a poor country indebted right up to its ears. The State seems plagued with problems to finance even its most basic requirements of law and order.

Just this week, court-appointed pathology experts requested exemption from submitting their findings in a murder case, because they were not being paid for services they were rendering to the Court. This is just a symptom of how our quality of life will deteriorate when the contradiction of rich citizens living in a poor country will snap, as sure it will.

Gonzi’s readiness to admit the existence of the problems was this week further enlightened by the identification of two areas for improvement that could help to reduce the operating cost of government and of the nation.

The overtime payment caused by shorter summer hours in the public service is a surprise only to those who like playing ‘let’s pretend’. How can government serve the nation with longer hours in winter and shorter hours of service in summer when the work-load is just the other way round? At least we have started talking about it.

The inefficiencies of the port system have also been brought on the agenda. I am against all sort of monopolies except where our characteristics create natural monopolies (e.g. utilities distribution) in which case such natural monopolies ought to be in the hands of the public sector. Nothing suggests to me that our port monopolies are either natural or in the hands of the public sector. So by all means let’s see how we can get more efficiencies in our port system to reduce the cost of importation and the cost of manufacturing in Malta.

But just as I thought that we were about to start moving I got a cold shower last weekend when Dr Gonzi, following the Girgenti Cabinet meeting to prepare for the 2005 Budget, suddenly reverted to the Fenech Adami mode of talking up the economy and belittling the problems facing us. For goodness’ sake are we coming or going?

Progress could be cautiously acknowledged if it is real; but it is dangerous and counterproductive to claim progress where none exists. Such attitude would only serve to dilute the willingness of the social partners to reach consensus over a social pact meant to restore our international competitiveness. Why should sacrifices be accepted if government proclaims that things are already moving in the right direction before even starting to negotiate the social pact?

We were told that as at June 2004 the public sector deficit improved 14 per cent (Lm16 million) over the same point last year. Drill down the figures and you realise that this is just because capital investment was kept Lm10 million lower than last year and the licence for the private operation of Public Lotto generated a one-off Lm7 million revenues which were misguidedly accounted as recurrent revenue! Otherwise the deficit problem recurs with the same intensity as 2003.

We were told that there was a sharp increase in investment in the first quarter of 2004.

Drill down the data and you will find that this investment reflects substantially the higher imports of yachts linked to a registration scheme until March 2004, giving temporary reduction in VAT applicable on registration of yachts.

This is not the sort of investment that creates jobs. These yachts were already here under foreign registration and now they have been on-shored by paying reduced VAT! A small increase in manufacturing investment has not reversed the downward trend of employment in manufacturing showing that investment is being made to eliminate jobs to stay competitive rather than to create new employment opportunities.

It’s none too early to decide whether we are coming or going, unless we want to continue digging ourselves deeper.