Thursday, 29 November 2012

Have we not seen this before?

The last Budget before an election was that for 2008 read in the House on 15th October 2007.  It planned a deficit of Eur 68 million for 2008.  That was before the election.

When after the election Minister Tonio Fenech read his first ever Budget, that for 2009, the actual deficit for 2008 was declared at Eur 200 million.  

An election between two budgets makes a difference of Eur 132 million adverse variation between the budget target and the actual out turn.

Now one can be a bit sympathetic as in between there was also the great financial crisis of September 2008 which derailed projections, though to be realistic the effect would result with a time lag in 2009 rather 2008 itself.

But consider what the Minister projected in his first Budget for 2009, with full knowledge of the financial crisis, for 2011.  He expected a Budget surplus of Eur 65 million equivalent to 1% of the GDP and debts of Eur 3.68 billion equivalent to 56.30% of GDP.   Actual for 2011 was a deficit of Eur 219 million equivalent to -2.7% of the GDP.   Debt level was Eur 4.60 billion equivalent to 71% of the GDP.

I quote 2011 figures purposely.  Firstly because that was as far a preview as was contained in the 2009 Budget speech.  And because 2011 is history and the figures are crystallised beyond scope for revision.

The Budget out turn for 2011 was an adverse variance EUR 284 million and a debt level one billion Euro higher.  One billion  has nine zeroes after the integer so the difference is much more than just changing an 'm' to a 'b'.

We have seen it all before.

The numbers do not add up

The Budget for 2013 presented in parliament yesterday leaves unanswered  two very serious questions.

Firstly someone has to explain  how government is going to find a cash bonanza by the end of this year.

In 2011 the government had a deficit of Eur 188 million in the first 9 months to September 2011 and by December 2011 the deficit grew to Euro 219 million.    So in the last quarter of 2011 the government deficit grew by Euro 31 million.   Taking the same figures for 2010 it results that in the last quarter of 2010 the government deficit reduced by Eur 3 million.

Let's repeat that.   In the last quarter of 2010 the government deficit reduced by EUR 3 million and in the last quarter of 2011 the deficit grew by Euro 31 million.

What is being projected for 2012?   The published deficit for the for the first 9 months of 2012 is Euro 282 million,    But according to the figures given in parliament yesterday by the Minister this deficit will by the end of Decber 2012 reduce to Euro 180 million.    So the Minister is planning that the last quarter of 2012 will prove cash positive to the tune of Euro 102 million compared to cash negative Euro 31 million last year and cash positive Eur 3 million in 2010.

Don't look for any explanations in the budget speech as there are none.   What I can say is that the actual figure for the deficit of 2012 will only be issued late in March 2013 and by that time we could well be in post-election period.

The other question is how the Minister is planning to grow revenue from Income Tax in 2013 by 10% i.e. by Eur 83 million from Eur 840 million in 2012 to Eur 923 million projected for 2013.

All things being equal tax revenue should increase at the same tempo of the growth of the nominal economy.   So normally tax revenue, all things being equal, should increase by some 4% in 2013 being 1.6% real growth  plus 2.4% inflation.

But all things are not equal.   Government is reducting the marginal rate of tax for earners between Eur 19500 to Eur 60000 from 35% to 32%.   The revenue government forfeits from this measure has not been estimated but it does not come cheap.

So how come that in spite of this concession government is expecting tax revenue still to increase by more than twice the rate of nominal economic growth?

During a TV debate the Minister in a side remark said this was due to economic growth.   The Minsiter must be a frim believer in supply side economics beyond what empirical studies show if he believes that economic growth of 4% nominal will generate increased tax revenues of 10% even though tax rates are reduced.    It was well said by Prof Edward Scicluna that on government's own figures the tax burden will increase in 2013.

And if the Minister believes so much in government finance inflows bouyancy from economic growth why do they continue to doubt Labour's ability to finance utility rate cuts from economic growth?

I can only think of two explanations.  Either government will enhance tax enforcement and  collection efficiency by an abnormal   and probably unrealistic degree or otherwise the Minsister is inventing figures.

Monday, 26 November 2012

A white horse

What happens when somone asks you not to think of a white horse?   Our brain is not wired not to think and inevitably you would think of a white horse.
White Horse Wallpapers
That is exactly what happens to me when I read newspaper headlines like:

"This will not be an election budget" - PM


"Budget an economic tool, not a political tool" - Tonio Fenech

Come off it!!   Who would ever believe that the PN will not be using this last budget before elections as a poltical tool to try to change their fortunes at the polls?    We are seeing measures taken outside the Budget which are clearly meant to recover lost votes.  Initiatives like the Valletta shops scheme announced by Minister Jason Azzopardi are evidently desperate pre-election gimmicks which would justify the Minister stating:

"Winning the election is very tough but doable" - Jason Azzorpardi.

So can you believe that the PN will present anything but a typical pre-election budget as they did before each election they contested when in office?  EU controls do not go as far as limiting the imagination of the Minister of how to use the Budget as an electoral tool.

Sorry - I can't help thinking of a white horse.

Sunday, 25 November 2012

Not my stuff!

The ceremony of ordination as Auxiliary Bishop for Mons Scicluna leaves me with a bad taste.

It is too glitzy and luxurious to deliver the message of the Gospel and to reinforce the pledge that the new Bishop means to dedicate his life to the flock he has been entrusted to lead.

Have you ever seen Our Lord or St Francis of Assisi dressed like this?

Such outdated liturgical rites simply reinforce my view that the Church of 2012 is a poor medium to reach out to the Creator.   In fact it is like a frictional barrier which depletes the true message of love between man and God.

As a young visionary Mons Scicluna should have insisted on something more in the true spirit of the Gospel.

Sunday, 18 November 2012

The wrong Borg

This article was published in The Malta Independent on sunday 18th November 2012

Dr Tonio Borg would make a formidable EU Commissioner.  His nomination does not deserve the resistance it is finding in the European Parliament, though in the end his nomination should still receive majority endorsement.
It is verging on the insulting that such endorsement is being made conditional to Dr Borg’s delivering once again a public reaffirmation of his unambiguous and full commitment to;
·         Respect and abide by the EU charter of fundamental human rights in particular Article 21 thereof as well as the EU anti-discrimination legislation and case law.

·         Recognise the innate dignity of all Citizens of the EU regardless of their sexual orientation or distinctions mentioned in Article 21, and to treating as Commissioner of Health and Consumer Policy and as a member of the College of Commissioners, all citizens of the EU fairly and equally; actively working to address health inequalities and to acting against the stigmatisation of people suffering from HIV/AIDS.

·         Actively support EU policies with regards to women’s rights.

I would have thought that Dr Tonio Borg dispelled any reservations that MEP’s might have had with regards to these issues very clearly in the extensive question session in front of Parliament last Tuesday.  Seeking further re-affirmation is humiliating not just to Dr Borg but to the government and the country that nominated him.    Whatever personal opinion he holds, in his political career Dr Borg has never been accused of discriminating against women, or against minorities due to their sexual orientation or other characteristics which are part of the fundamental human rights.   Quite the contrary I would say.   He could be accused of discriminating against Labourites but that is normality in Malta.
The truth is however that the nomination of Dr Tonio Borg, while suitable was inappropriate and does not serve the interests of Dr Borg himself, the country or the EU.   It only serves the interest of the PN.
Dr Borg is practically ending his political career cold turkey for the prospect of spending less than 2 years as EU Commissioner.   Yet he is taking over a very challenging portfolio for which he is ill-prepared and has little or no time to learn.  He has to hit the ground running from day one.
For Malta it is unfair that at a time of great parliamentary instability Dr Borg’s nomination is being used as a pretext to delay crucial decisions and is thus perpetuating the state of chronic uncertainty that has gripped the nation ever since government’s parliamentary majority turned shaky.   Such delay means that the nation will in all probability face the festive season without an approved Budget for 2013 ( this has only happened in 1996 when understandably the incoming Labour government of 26th October 1996, presented the Budget for 1997 on 15th January 1997) and possibly under a caretaker government if the Budget fails the parliamentary hurdle when put to vote.
For the EU it is unfair as Malta could have nominated former Commissioner Dr. Joe Borg who already knows the ropes of the Berlaymont, would have fitted into the job much quicker and would not have found humiliating resistance at the European Parliament.
So we have nominated the wrong Borg purely to accommodate the political needs of the PN.
Consider what the PN has gained through the nomination of Dr Tonio Borg.
It has created a vacancy in the position for Deputy Leader gaining an opportunity to present a somewhat refreshed younger face on the leadership ticket for the next election.   It is very unlikely that any political party would have an opportunity to ditch its Deputy leader in a superficially respectable manner just before entering an election campaign.   The nomination of Dr Borg to EU Commissioner presented the PN such a unique opportunity to attempt to shake the electorate’s mindset by presenting those seeking change with an internal version of it.   It is a move meant to remix the concrete which was about to set solid in favour of Labour.
It has deflected attention from its fragile position in parliament and basically frozen all parliamentary work until the process of Dr Borg’s confirmation is concluded.
By persuading (pushing may describe it better) the Minister for Finance and Economy, Tonio Fenech, to throw his name in the lottery hat for the Deputy Leader election, it has created the supposition why the Budget cannot be presented by mid-November as has been the long standing practice, and consequently papering over time the PN parliamentary cracks for some more by delaying the crucial budget vote.   Mr Fenech ought to know he does not stand a chance in front of the nomination of Dr Simon Busuttil and this for two reasons.   Fenech does not offer the refreshed face credentials that Busuttil offers.   Secondly the PN is not ready to break with its tradition to elect members from the legal profession to its leadership.   Ask John Dalli!
In the meantime the Minister of Finance, rather than focus on the Budget and see how the increased deficit of EUR 94 million registered in the first 9 months of this year compared to the first 9 months of 2011 is going to be reined in to meet the full year budgetary target, he has to deal with the distraction not only of his electoral constituency as the election inevitably draws near, but also has to lobby favour from the PN delegates who will be voting in the Deputy Leadership race.
The EU has lifted the Excessive Deficit Procedure against Malta on expectation that the deficit for 2012 will in fact remain below 3% and will hit 2.6%of GDP as projected.   How this assumption fits in with a EUR 94 million adverse deviation in the first 9 months remains unexplained.   Yet once government accounting is still done on a cash basis the Minister can hit whatever deficit level his heart desires merely by keeping unpaid bills in the in-tray and shifting revenue from next year to this year.   The well-established pattern where even on a seasonally comparative basis the budget deficit is reined in the last quarter of each year and then explodes in the first quarter of the subsequent year bear witness to this fiddling of figures which would not be possible if we had the well overdue government-wide accrual accounting system.
Much has been said about the following pronouncement in the Malta section of the European Commission – European Economic Forecast Autumn 2012:
“energy inflation is forecast to strengthen under the assumption of an increase in electricity prices”
Government says electricity prices will not go up as government will if necessary subsidise them as it did in 2012.  The Opposition has promised to reduce utility rates if elected and say that the European Commission does not make any such assumptions of its own accord.  Such assumption must have been picked up from submissions made from the Malta side.  In fact the assumption is Malta specific and does not apply for other countries.  And if you ask me, barring a Middle East flare-up, I can see energy prices trending down in 2013 as the international economic tempo remains very weak and supplies are increasing as the US is rapidly moving towards self-sustainability or even surplus in energy consumption.
To my simple mind inflation from increase in electricity prices will only result if government does not subsidise and the fact the EU made reference to ‘increase in electricity prices’ means that someone must have told Budget Commissioner that post election 2012 subsidies will be phased out and the burden passed on to the consumer.   After all is that not what happened after the 2008 election?

Friday, 9 November 2012

Yes he can move America forward

The re-election of President Obama for another four year term in the White House establishes some very fine points in the art of doing politics and getting elected.

President Clinton had invented the term 'it's the economy stupid' meaning that a strong economy is the best credentials for re-election whereas a bad economy is practically an assurance of failure.  

Approaching a re-election bid with unemployment as high as 7.9% and wages stagnant or falling,  would normally be a bad hand offering competitors forceful mileage to hit Obama with.   It was further compounded by the fact that Obama had promised to half the deficit during his first term but instead he practically doubled it.

Furthermore if the Jewish lobby and Wall Street position themselves robustly against Obama and pour endless funds for the challenger's election campaign, then it is fair to assume that this set of circumstances would have check-mated any incumbent President.  

But not Obama.   Obama is not any president.

Obama has refined the Clinton dictum. It is not so much where the economy stands, but more where it is going.    Inheriting an economy that was shedding net employment at the rate of 700,000 per month in the first quarter of 2009 and returning an economy that is consistently adding employment at an average rate of 150,000 per month and evidently accelerating, is no mean achievement.

Regarding the deficit Obama could explain that if he had kept the promise of halving the deficit the US economy would have been thrown into a depression which makes the debt burden even heavier ( ask the European countries in austerity crisis).   If anything Obama has been fairly criticised by liberal economists like Paul Krugman and Joseph Stiglitz that with interest rates at near zero level and the US Treasury able to borrow 10 year money at below 2%,  it is almost stupid not to borrow more to update the ageing infrastructural backbone of America.   American bridges, airports and rail network are third world rate compared to those in China, Singapore and many emerging countries.

Obama has been re-elected even though he failed to deliver on the Yes we can battle cry of his first election.   The electorate in its majority appreciated that Obama spent the first half of his first term trying to stabilise the economy and pass his signature health care legislation, which brings America close to the civilised world, socially speaking.  Then in the second half of his term he could not deliver when Congress was determined not to compromise with Obama and dominated as it became by the Tea Party ultras following the elections of 2010,  stanced itself obstinately as our way or the highway!

Now that he has been re-elected for his last term ( US Presidents can only serve two terms) Congress will have to change their intrasingent attitude firstly because it is Congress that will face election again in 2014 and also because the Republicans, Tea Party and all, can now do nothing to remove Obama from the White House.   On the other hand Obama, freed from pressures of re-election, does not need tojustify to the extreme left of his party base  his making necessary concessions,  and can therefore reach out more effectively across the aisle to secure a long term plan for the sustainability of the US government's fiscal position.

On the foreign affairs front, the Israeli government, which itself is due for re-election very soon, has to accept that they have to work with President Obama for four more years and respect his style of avoiding unnecessary threats and sabre rattling.   In the end patience and economic sanctions may well force Iran to get serious about its nuclear plans and start respecting international accords against proliferation of nuclear capabilities.

Obama has a great opportunity to deliver well in his econd term better than any Presdient in recent history.

Kennedy and Johnson had no second term.   Nixon had Watergate in the second term and was impeached. Ford had no second term.   Carter had no second term. Reagan's second term was dominated by the Iran Contra affair. Bush senior had no second term.  Clinton's second term became a Lewinsky affair. Bush's Jr. second term was strerile locked in an unwinnable war that should never have been strated.

Obama by contrast has a straight run.  An improving economy and vast opportunites for domestic energy development to reduce strategic reliance on foreign oil and lower its price.

Yes,  Obama this time has all the cards in place to prove that he can move America forward.

Monday, 5 November 2012

Where's the catch?

In the TV debate with the Opposition Leader, the Prime Minister insulted many middle class families struggling to pay their utility bills by waving a zero bill purportedly received by a family who had installed a photovoltaic panel on its roof.

Let's make things clear.   If one installs one photovoltaic panel one can expect to generate about 350 KwH units of electricity per annum for which it would get a credit of EUR 85 from Enemalta.   So to get a zero bill a middle class family that pays say EUR 1000 in utility bills per annum, it would have to install 12 photovoltaic panels.

However apart from the problem of where to place 12 panels government subsidy normally cover approximately 50% of the cost of 7 such panels.   Without such subsidy the investment in photovoltaic panels would be a non-starter.

So installing 7 panels would generate about 2500 KwH units and procure a credit of some EUR 625 per annum.    This would involve a capital outlay of some EUR 6000 and with some delay one would get a subsidy of some EUR 2900 rendering an net investment of just over  EUR 3000.

It would take 5 years to get the money back on such investment which is an unappetising prospect for many stretched middle class families.

By way of return on investment, if one can spare the funds to make such investment, there is a return of 8.5% p.a. calculated as follows:

Credit on electricity supplied to the grid at 25c.per unit =                            EUR 625
less amortisation of investment over 12 years: 3000/12 =                                    (250)
Interest on the capital invested at 4% p.a: 3000 x 4% =                                        (120)
                                                                      Net Return                                          255 = 8.5% p.a.

Not bad for those that can afford it!!

Sunday, 4 November 2012

Master's in bureaucracy

This article was published in The Malta Independent on Sunday 04 November 2012

The  World Bank Group has just published a study ranking 185 world countries by the ease of doing business in their territory.    Countries were judged as of June 2012 by ten criteria with equal weighting.  These are the ease of starting a business, the efficiency of dealing with building permits, how difficult it is to get electricity supply, how smooth it is to register property, the access to bank credit, the protection of investors, payment of taxes, facility to trade across borders, effectiveness in enforcing contracts and the ability to resolve insolvency.
These are all basic criteria that any business large or small has to take into consideration and which influence investors where to locate their ventures to ensure they can make efficient use of their capital and that they can contribute to the growth of their business venture and to the well-being of society at large.
Probably I would have added at least another two criteria including the ease to travel around by public and private means during rush hours and reliability of essential services like energy and water.
Malta ranked very badly. We placed number 102 and behind all other European countries except Russia which ranked 112.  Even Greece, a country corrupt to its inner bones, ranked ahead of us in the 78th place.
Coming to the individual criteria we performed very badly in the access to credit in the 176th place which is strange when our banking system has not experienced any crisis.  In starting a business we ranked in the 150th place and dealing in construction permits we ranked 167th.   Our best performance is the 27th place for paying taxes and 34th place for trading across borders.
This is nothing short of our being awarded a Master's, even conrorate in bureaucracy.  If there is something this country needs to do to achieve economic growth without massive investment which impact negatively on the government fiscal position, that is purely and simply dismantling the suffocating bureaucracy.  We have invested so much in IT without getting proper reward because we have failed to re-engineer the processes to maximise efficiency through the IT investments.   Often we have overlaid the IT over the paperwork bureaucracy so basically to gain a service one needs to go through two processes not one, the IT process and the traditional paper process.
What this means is that government as the imposer of bureaucratic systems has not saved the expenses involved in the paper based traditional system so we have the worst of both worlds: we incurred substantial investment in IT but have not achieved savings by elimination of the traditional systems so that government is having to carry the operational cost of both systems.
I suspect that the ranking given to us by the World Bank Group is too bad to be true and one needs to study better the methodology used to ensure that we are not being disadvantaged.   I find it hard to believe that we would rank relatively well in payment of taxes when tax evasion is still rampant and I trust that the index did not just a measure of the facility to make tax payments on line without measuring the fiscal morality and tax compliance in general of the country.   Per contra I find it hard to believe that we rank so poorly in the access of credit when our banking system has not suffered any crisis and that Spain, Italy and Greece score better than us on this criterion when their banking system has practically been wiped away by the crisis.
Yet whilst it is quite possible that this Report does not do us justice still I have enough personal experience of suffocating bureaucracy which just leaves many breathless and without any incentive to take business initiative.
Let me recount two recent personal experiences.    For a long time I have been entitled to receive free medicine to control cholesterol in the blood.  Some time back I switched to the POYC system.   Recently my doctor who controls my blood tests every so often suggested I change to new type of statins and arranged for me to procure a Consultant’s recipe based on the blood test to justify such switch of medicine.   
After some time I received a note from the Government Pharmacy at St Luke’s that I am not entitled to have the new medicine under the POYC before I can produce a Consultant Certificate on a particular form so that the medicine recommended can be included in my yellow card.    So I went back to the Consultant waited for so many hours at Mater Dei and then he suggested I go straight to St. Luke’s Pharmacy to have it sorted out.    There was another forty five minutes wait at St Luke’s in the queue only to be informed that the form used by the Consultant is not the correct one as recently they had introduced a new form.  So I was sent back to Mater Dei where I had to wait again for my turn and there was a telephone debate between the secretary of the Consultant and the person at government pharmacy about the correct form to be used.
When this was sorted out it was too late to go again to the St Luke’s Hospital Pharmacy so I had to try on another day until this could be sorted out and have the correct paperwork through which I gained the right to access the new medicine through the POYC.   In the meantime for a month or so I had to buy the new medicine the doctor wanted me to switch to through full market pricing.
Can anyone please explain why with the sort of investments we have made in IT the Consultant cannot simply log on to my health records and attach his request/authority to the blood test and authorise the switch of medicine through the POYC on-line without the patient having to make all these rounds and without so many clerks filling this or that form?
Again last year I entered into a small business catering venture in a village core where I converted a family one room tenement into modern cafeteria.   The process of getting MTA and MEPA permits took about two years which is not unusual and I had to pay contribution to the parking scheme.   This venture was closed down in less than 12 months when I received a utility bill claiming EUR 15512 for 9 months.
I can work for no profit but such utility bills will put anyone deeply in the red, so I closed it down.   On investigation it resulted I was charged at residential tariff rather than commercial retail tariff which makes a big difference as the residential tariff shoots up astronomically once a certain consumption level linked to personal use is exceeded.    I explained this to ARMS and they sent me a request form to change the tariff but indicated this would only apply going forward not retroactively.  I complained and said the application made was always for a commercial retail outlet and in any case the MEPA permit is for a retail outlet and normally ARMS do not install without MEPA clearance.  In any case a one roomed tenement cannot be used for residential purposes and if it were so used the consumption would have been much less.
I was then asked to submit photos of the meter readings which I did and last June ARMS told me they have to send someone to inspect the meters on the spot.   I told then it would be no problem and they can phone me to ensure that I go down to open the closed premises for their inspection.    Nothing happened I was not contacted and busy as I am I forgot about it for a while.   But just recently I applied for installation of meters at a new residence and after making all the paperwork and the substantial payments and started chasing to see when the installation was to be effected I was informed that before I settle the bill under protest they cannot provide the new service.
Do not such things drive you up the wall?   Can’t ARMS have on line linkage with MEPA to get their clearance for the correct approved use of the premises without have to pass the consumer through the torture machine?
The only other thing that puts up my blood pressure more than this suffocating bureaucracy is when I am forced to spend an hour in bumper to bumper traffic because it would have drizzled or rained during the rush hour.   Getting through traffic junctions like –L-iklin, Marsa and Kappara in such conditions is surely a stress even on healthy hearts.   After having run up our national debt to atrocious levels we still do not have a road network worthy of a civilised country.
Incidentally the number one sport in the World Bank Report was clinched by the small island state of Singapore who recently also scored highly in business and innovation ranking by the World Economic Forum.
As for Malta we deserve the master's we have been awarded in bureaucracy