Monday, 10 September 2012

Values before votes


This articles was published in the The Malta Independent on Sunday  9th September 2012

Last Wednesday we breezed through, quite unobtrusively, the fourteenth anniversary of the 1998 elections that brought the PN back to government after a short break of 22 months in opposition following two terms between 1987 and 1996.   

That election of 5th September 1998 had brought to a premature end the solid mandate Alfred Sant had won for Labour in 1996 and  brought to power the present PN government for three consecutive terms which seem to be drawing to an end as we approach elections.
The Prime Minister discretely celebrated this anniversary when he gave an impressive speech to the EPP political group stressing that in politics values must come before votes.   The problem, as Obama is finding out as he struggles for re-election in the US presidential campaign, is that great speeches without concrete action don’t impress, they don’t deliver the bacon, they keep the electorate asking where the beef is.

In 1998 Alfred Sant gave the most tangible demonstration that for serious politicians who see their role as a mission to improve the lives of their people, values must come before votes.   When it was clear that his majority in parliament was conditional and unstable, he put aside all calculations of risks to his own political career and restored the mandate to the people.

It is hard to reconcile Lawrence Gonzi’s assertion of values before votes with his action when faced with a similar or worse situation of parliamentary instability.   Rather than adopt Alfred Sant’s gentlemanly way out and restore the mandate to the people, he actually mocked Alfred Sant for taking such route and in fact and in deed is still doing whatever it takes to hang on to power even though shorn of a parliamentary majority.   Can anyone honestly believe that in so doing the Prime Minister is putting values before votes?    To me and to whoever has eyes to see it appears that for the PN, votes and power come before everything else, even before the interest of the country and the parliamentary stability needed to safeguard it.

The Prime Minister remains in denial of what is obvious to all.   Not only he has no parliamentary majority but he cannot even rely on the vote of all the 34 MP’s that put government on the same count as the Opposition in parliament.

It would seem inevitable that circumstances will soon eject government out of its denial suite.  Parliament is due to be recalled on 1st October and without a majority and rebel MP calling votes of confidence and controversial private motions, government will find it inevitable to go for elections this fall, probably in the first half of November before presenting a Budget for 2013, or at least without voting on it after its presentation.

Equally in denial is the Minister of Finance.  This week he had Moody’s pulling his ears for strong evidence that government finances are suffering serious fiscal slippage during 2012, a typical performance in an election year when governments throw fiscal caution to the wind and try to spend their way to re-election.   

Moody’s warning is well placed and supported by NSO data for government finances for the seven months to July 2012.   The deficit, rather than narrowing compared to the same period of 2011 ( so as to even out seasonality in the flow of government revenue) widened by 40% from Euro 238 million to Euro 333 million.     The Prime Minister and the Minister of Finance assurances that the performance in the last five months will recover lost ground so that government will hit the projected deficit of 2.3% of the GDP seem to have impressed no one, certainly not Moody’s.   Indeed the Minister of Finance seem to have not even convinced himself.  Soon after Moody’s report he changed his tune somewhat, saying though we might not hit the 2.3% deficit we will certainly stay within 3%.

To stay within 3% of the GDP the end-of-year deficit has to reduce to about EUR 195 million meaning that in the last five months of 2012 the government will have to register a surplus of some EUR 140 million.   Is this realistic?

It is true that government revenue flows are much stronger in the last five months not least because this period captures two instalments of provisional tax payments in August and in December where the bulk of the annual tax payments fall due.  But taking the performance of the last three years 2009 -2011 the average surplus  for the  August to December period amounted to EUR 45 million.

So even to hit the shifting target of 3% of the GDP ( which in itself involves a deficit increase of EUR 45 million over the original projection in the 2012 Budget Estimate) it would require that this year during the five months August to December government will  generate a surplus more than three times higher the average surplus for the same period in the last three years.   This leaves me with no doubt that the Minister is either living in denial or that knowing that he will not be presenting a budget before the election it is safe to take risks with assertions that will only be tested after he is gone.

The only way that the Minister can come anywhere close to the revised 3% deficit figure is by leaving a tray full of unpaid invoices for his successor.

For me the deficit was never below three percent and will not be for quite some time.   Enemalta remains a serious deficit hole.    Up to last year Enemalta was hiding the government deficit by transferring the shortfall on its books which was then borrowed commercially against government guarantee.   This year Enemalta has run out of its borrowing capacity even with government guarantees and all.  The tide is turning.  Enemalta does not even have enough liquidity to pay the excise duty and government is having to extend  temporary loans or grants to keep it afloat.   This explains a good part of deterioration in government financing this year which before was being buried in Enemalta’s books  and is now resurfacing on central government accounts.

Enemalta is a wholly owned state enterprise.   It capacity to raise revenues by charging higher utility rates is very limited by the political implications involved.   It has a massive capex budget yet to finance and banks have turned on the screws on its borrowing.

Measuring government deficit and debt without consolidating Enemalta’s position gives a very incomplete picture.   Whoever gets elected will face the Enemalta problem in the urgent tray.   A blue print for a long term plan on how to restore Enemalta to health can be found in my contribution in this series of 11th March 2012 titled ‘A dockyard in the making’.  In solving Enemalta’s problem, values need to come before votes.  This is unusual in the run up to an election.


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