The Malta Independent
Attempting to address a chronic fiscal deficit, bringing it down to near balance from 6.5% of GDP deficit, in the short space of three years, whilst at the same time stimulating economic growth in not unlike attempting to square a circle.
If this has to be attempted at a time of unkind external forces over which we have no control, like the doubling of international price of oil in the space of 12 months, than the job becomes even more complicated as in addition o squaring the circle one has to make look like a triangle.
The forthcoming budget will be a litmus test for government to prove that it is up to scratch for the difficult task that awaits us if we have to address our problems rather than just keep throwing money uselessly at them. Time for accounting fudges is over. Pretensions that problems are not real or that they can be indefinitely carried forward into the future by irresponsible financing will just not pass the test.
The only magic word that can effectively square the circle and even make it look like a triangle is growth; solid economic growth based on real and judicious investment aimed for competitive export.` Nothing else will deliver. Additional taxes beyond what is necessary to make up for imported external pressures, will simply stifle rather than promote growth. Additional government spending will complicate the deficit problem without delivering the necessary growth.
The messages sent by government so far are a mixed bag which leans substantially to the negative.` The purchase of Malta House in Brussels, irrespective of the long term investment criteria of the deal and the corporate governance or lack of it, surrounding the decision making process for this investment, sends the wrong signal about government serious intentions to address the deficit and to perform its part by economising on its discretionary expenditures.
Declarations that government will continue to engage workers to replace those retiring from central government employment raise doubt about real commitment to address its excess expenditure by at least allowing natural wastage to reduce its excessive utilisation of human resources.
Yet another agreement for subsidies to public transport services without obtaining real commitment to make the service reliable and appealing to a much wider sector of the population leads me to think that after all we are heading for more of the same. More profession of good intentions but with actions which lead in the opposite direction by simply financing problems rather addressing them.
The obstinate refusal to accept public statistics showing` that our rate of exchange is overvalued in real terms and that consequently` it would be immensely dangerous and painful to lock ourselves into the Euro mechanism at an uncompetitive rate, indicates that government is not seriously exploring all dimensions for a co-ordinated solution to our economic ills.
On the other hand the resolve to remove unnecessary monopolies which increase operating costs augurs well for the injection of flexibility into the economy. There are many other areas which need an injection dose of flexibility to help restore our international competitiveness. These include our outdated wage setting mechanism for cost of living increases which has far outlived its useful economic life and is trying to address yesterday`s problems rather than tomorrow`s challenges.
But ultimately growth comes from investment which government cannot afford if it is to address its fiscal deficit. Which means that growth can materialise if the private sector, local and foreign, is stimulated to take up the slack left by government as it withdraws from the investment scene while finisihing off` existing projects without starting new ones.
Investment is not generated by diktat or expression of wishes. Exhortations that government should do more to stimulate investment are often useless platitudes and generalisations when what is needed is specific measures to stimulate the supply side of our economy, particularly that oriented towards foreign markets.
There is not a single measure which would switch on a flow of investments. It is a total approach, indeed a new mind-set to render all processes conducive to the stimulation of private investments. But certainly critical is the access of SME`s to traditional bank finance, both for working capital as well as for non-property based investments.` Unfortunately our banks, driven totally by competitive market forces, find that SME`s carry an unattractive risk reward ratio forcing them to deny SME access to the necessary financing of job creation projects.
More than just figures the next budget must carry a moral suasion exercise, with threat of discipline fiscal measures in case of non-co-operation, for our banks to look at SME sector beyond the immediate impact to their current year`s profit performance.
Attempting to address a chronic fiscal deficit, bringing it down to near balance from 6.5% of GDP deficit, in the short space of three years, whilst at the same time stimulating economic growth in not unlike attempting to square a circle. If this has to be attempted at a time of unkind external forces over which we have no control, like the doubling of international price of oil in the space of 12 months, than the job becomes even more complicated as in addition o squaring the circle one has to make look like a triangle.
The forthcoming budget will be a litmus test for government to prove that it is up to scratch for the difficult task that awaits us if we have to address our problems rather than just keep throwing money uselessly at them. Time for accounting fudges is over. Pretensions that problems are not real or that they can be indefinitely carried forward into the future by irresponsible financing will just not pass the test.
The only magic word that can effectively square the circle and even make it look like a triangle is growth; solid economic growth based on real and judicious investment aimed for competitive export.` Nothing else will deliver. Additional taxes beyond what is necessary to make up for imported external pressures, will simply stifle rather than promote growth. Additional government spending will complicate the deficit problem without delivering the necessary growth.
The messages sent by government so far are a mixed bag which leans substantially to the negative.` The purchase of Malta House in Brussels, irrespective of the long term investment criteria of the deal and the corporate governance or lack of it, surrounding the decision making process for this investment, sends the wrong signal about government serious intentions to address the deficit and to perform its part by economising on its discretionary expenditures.
Declarations that government will continue to engage workers to replace those retiring from central government employment raise doubt about real commitment to address its excess expenditure by at least allowing natural wastage to reduce its excessive utilisation of human resources.
Yet another agreement for subsidies to public transport services without obtaining real commitment to make the service reliable and appealing to a much wider sector of the population leads me to think that after all we are heading for more of the same. More profession of good intentions but with actions which lead in the opposite direction by simply financing problems rather addressing them.
The obstinate refusal to accept public statistics showing` that our rate of exchange is overvalued in real terms and that consequently` it would be immensely dangerous and painful to lock ourselves into the Euro mechanism at an uncompetitive rate, indicates that government is not seriously exploring all dimensions for a co-ordinated solution to our economic ills.
On the other hand the resolve to remove unnecessary monopolies which increase operating costs augurs well for the injection of flexibility into the economy. There are many other areas which need an injection dose of flexibility to help restore our international competitiveness. These include our outdated wage setting mechanism for cost of living increases which has far outlived its useful economic life and is trying to address yesterday`s problems rather than tomorrow`s challenges.
But ultimately growth comes from investment which government cannot afford if it is to address its fiscal deficit. Which means that growth can materialise if the private sector, local and foreign, is stimulated to take up the slack left by government as it withdraws from the investment scene while finisihing off` existing projects without starting new ones.
Investment is not generated by diktat or expression of wishes. Exhortations that government should do more to stimulate investment are often useless platitudes and generalisations when what is needed is specific measures to stimulate the supply side of our economy, particularly that oriented towards foreign markets.
There is not a single measure which would switch on a flow of investments. It is a total approach, indeed a new mind-set to render all processes conducive to the stimulation of private investments. But certainly critical is the access of SME`s to traditional bank finance, both for working capital as well as for non-property based investments.` Unfortunately our banks, driven totally by competitive market forces, find that SME`s carry an unattractive risk reward ratio forcing them to deny SME access to the necessary financing of job creation projects.
More than just figures the next budget must carry a moral suasion exercise, with threat of discipline fiscal measures in case of non-co-operation, for our banks to look at SME sector beyond the immediate impact to their current year`s profit performance.
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