No to New Taxes - Yes to New Tariffs

The Malta Independent - Friday Wisdom

In this strange country, one finds it difficult to call things by their real name. It is almost impossible to comment objectively on anything political (and what is not political here?) without being conveniently misquoted or half-quoted.

Take the piece I wrote in the Sunday sister of this paper regarding the pre-Budget document 2006-2010 issued by government to enrich our pool-side reading during this hot August.

In a nutshell, I wrote that the document per se makes not only interesting reading but adopts many of the ideas I have repeatedly professed in my writings, including those featured in this column. I did, however, express great reservations on government’s ability and determination to execute what it was itself proposing, as it was generally painful stuff – the sort of measures governments normally take in the first half of a legislature hoping to reap the popularity benefits when elections start getting visible on the horizon.

I emphasised that reports alone would get us nowhere and that we need focused action to do what we have to do before more damage is done to the economy. “Reports are as easy to write as measures are hard to take,” I stated verbatim.

The PN media eulogised my appreciation of the general orientation of the report without reference to my apprehension over government’s ability to translate words into action. If the government thinks that writing positive reports can solve our economic problems, then it is completely off target.

As each day passes, my doubts as to government’s determination to translate its own plan into action grow. And with good reason. And not just one reason – let me give you three.

Firstly, in the report itself, government seriously under-estimates, or purposely understates, the severity of the economic problem we have. It seems that government is happy with our anaemic growth performance, which has left the 2004 GDP at the same real level of the 2000 GDP. How else could one interpret the following excerpt from the Report?

“The Maltese economy, although still suffering from a certain amount of slack, is still performing creditably. The resilience of our manufacturing enterprises, the improvements in our tourism sector, the increased momentum in construction and agriculture and the improved levels of activity in our financial and other services sectors are increasing employment opportunities and drops in the number of unemployed persons. This resilience gives room for optimism in our country’s future. Our country is working and is managing to create wealth.”

If only it were so! If we are increasing employment without registering economic growth, then our efficiency per capita is deteriorating and we are losing our international competitiveness. Hardly a source of optimism for the future! If government cannot make a serious diagnosis of the state we are in and what brought us to it, it does not augur well for its ability to guide us to greener economic pastures.

Secondly, government is already being conditioned by its own fortunes for the next election, which in all probability is a little over two years from now. How else can one interpret the laughable uttering by the parliamentary secretary that at the next budget there will be no new taxes, as government’s budgetary position is improving beyond expectations?

It is only natural that government’s budgetary position should be improving beyond expectations because the government has benefited from substantial revenue from the Investment Registration Scheme that was not included at the budget stage. But this is a one-off revenue item that will not recur, so the underlying trend in government finances is still a cause for concern.

But what does “no new taxes” mean? Does it also mean no new tariffs, charges, levies, rates, contributions or whatever other gentler names revenue-raising measures are often given in order to avoid the tax word? Hardly! Pages 76-78 of the Report are already indicating that government needs to raise Lm20 million annually to fill the gap in financing the health sector. Unless reports are written purely for the sake of being written, the parliamentary secretary should stop telling us half-truths. No new taxes, maybe, but surely he cannot remain credible and give similar assurances regarding taxes by other names.

Lastly, my doubts are based on the fact that government has totally ruled out an exchange rate adjustment. Of the 10 measures I had recommend to engineer an economic turnaround, the exchange rate adjustment was the last measure in the pack. My argument was that if the nine preceding measures were adopted, the 10th exchange adjustment measure becomes an optional. But whereas without the exchange rate adjustment the other measures would take several years to produce positive results, with the exchange measure included in the pack the time for the cure package to prove effective could be shortened to between 18 to 24 months.

Now, of all the commodities that politicians have, time is the scarcest. They need to keep the electorate on board to ensure that they can deliver the economic bacon without losing their tenure in office. They need to deliver results fast. Time is rarely on their side. The last time a government was forced to seek re-election when it could only show the two years of pain without the ensuing gain was the Labour government in 1998. They lost office even though they could fairly claim that they were trying to solve problems inherited from preceding governments.

When politicians say they prefer to choose the long hard road, and promise to start on it two years before the election, I can be permitted a wry smile. Also when they promise no new taxes.