Start of the Silly Season

25^th September 2011

The Malta Independent on Sunday

Minister Austin Gatt has kicked off the silly season leading to the next election. This being the penultimate PN organised Independence Day festivities before the next election, the opportunity could not be missed to start the election campaign with arrogance, eternal gratitude and expectations asserting that the PN would stay in government for another 20 years!

Why 20, not 15 or 25, is hard to fathom but really it is meaningless as what matters in politics, where a week could be a long time (ask Mubarak, Ben Ali and Gaddafi) is whether the local electorate, which was forced to resist political change in the last two elections by the EU/ Alfred Sant factor, will still reserve inhibitions to go for the change it is naturally hoping for, now that the EU/Alfred Sant factor is no longer there.

In political campaigning, as in war, truth is the first victim. And the truth is that Minister Gatt has no predictive power to say who will win the next election let alone the three after that.

In truth, the PN campaign had started softly quite a few months ago when in tandem with its allies, it started a campaign to try to force Labour leader to move on from pure criticism and to be more forthcoming with detailed policies on how Labour proposes to carry this country forward if it should become the next tenant of Castille post 2012.

Cell after cell in the power network that prefer to have Castille permanently inhabited by the PN leader, have been putting pressure on Muscat to show his hand even though he is not expected to start playing the game for the next 21 months.

Muscat has learnt from the mistakes of his predecessor, who used to delight the PN with detailed policy formulations that could be exploited and turned to their political advantages by a well-equipped PN strategy team. While generic policies have universal application, detailed measures for policy execution invariably have negative effects on certain sectors that can be exploited by political adversaries.

If Alfred Sant had simply said that under his leadership it would be a priority to render the country more competitive internationally, that would not have been controversial and would have carried no political risk. However, explaining that in the pursuit of such objective measures to devalue the national currency (since subsumed into the euro) were to be contemplated opened up a whole plethora of contentious argumentation.

Muscat’s tact in keeping to the general objectives without exposing his hand on particular measures is clearly unnerving the PN strategists who are short of issues to kick up in order to hide the general disappointment of the electorate with their overstay in office.

It is concentrated arrogance to expect the Opposition to explain its policies in detail, which they can only implement in 21 months’ time when the situation could be hugely different from what it presently is, and then government gives no detailed explanation of its here and now policies.

Take the Moody’s credit downgrade. It is clear that the government was not expecting it. The problem is that the government believes its own propaganda and that is very dangerous. Moody’s downgrade is a wakeup call for government to look reality in the face and take measures to address our weaknesses immediately rather than continue to feed the electorate with illusions and distractions.

The government wants us to believe that the budget deficit is nicely floating downwards to 2.88 per cent of GDP this year and public debt is 68.80 per cent of GDP. It seems to believe that itself even though there is manifest evidence that both these figures are unreal, that they are fabricated to hide the unpleasant reality.

Let me start with the annual deficit. Out of the budget we provide about € 17 million Contribution to Treasury Clearance Fund (TCF) Advances. Vote number 7189 for those who want to check it. This means that in the past expenditure was incurred and suspended in the TCF and now this is being amortised annually through the Consolidated Fund. No information on the balance left in the TCF is available anywhere, though the Auditors General Report for 2009 lists €117 million loans to the shipyards which will have to be repaid from the Consolidated Fund. But there are other advances that will never be repaid, such as loans to Freeport, loans to various employees’ foundation and, hold your breath, loans to the Hellenic Republic of Greece under the euro rescue fund agreement. I suspect that other expenditure is going through which is being suspended in the TCF e.g. Air Malta rescue funding. So basically, the deficit in the Consolidated Fund is a managed figure not a real figure. If you take €117 million shipyards loans written off and probably at least another €60 million Air Malta loans that have to be written off plus other exposure, making a total of at least €200 million loans in the TCF to be written off through the consolidated fund, that is three per cent of GDP.

Take the public debt. At 68.8 per cent, it is above the Maastricht 60 per cent criteria, but not worryingly so, and with good housekeeping it could be gradually brought down. But is it real?

According to the latest Auditor General Report for 2009, there are €893 million in bank loans to various public entities which are guaranteed by government. This is up from €774 million in 2008 and €673 million in 2007. The upward trend is indicative that government, in an attempt to keep the official national debt low, has resorted to funding through commercial credit channels against government guarantees. When John Dalli was Minister of Finance, he had declared in a budget speech that this would no longer be tolerated. €893 million is 14 per cent of GDP.

So the figure of 68.8 per cent public debt to GDP is a manufactured figure. Eighty-five per cent would be closer to the truth and we still have to account for expenditure still going on, like the City Gate project, which is not funded through the Consolidated Fund.

You cannot solve a problem unless you admit its existence. We have to accept that the true level of our national debt is more like 85 per cent of GDP and that there is a huge amount exceeding one billion euros (that is one thousand millions) that sooner or later will have to be passed through the Consolidated Fund and reflected in the official national debt.

Taking this reasoning, which a government in denial cannot see but which Moody’s can easily account for, the downgrade should have come as a surprise to no one and the negative watch is a clear warning that unless we are going to take measures to increase the growth potential of our economy, further downgrades are to be expected.

So before indulging in the silly season and before expecting the Opposition to do the government’s job and expose itself to unpopularity with the electorate, who cannot be expected to vote for austerity when the government has been duping itself that all is fine, it would be much better for it to forget the election and do the job it has a duty to do here and now. The election campaign should be no more than five weeks, and that’s a long way away.

Alfred Mifsud