Tuesday, 29 January 2013

Budgeting in the clouds

I like the structure used in the costings that the PN issued to give a budgetary meaning to the 125 pledges contained in their manifesto.   I like the figures contained therein, not at all.

The structure takes the the starting position for the years 2013 -2015 as contained in the last Budget Speech in Table 2.2 and extends same to the years 2016 and 2017 using a nominal economic growth of 5.2% for 2016 and 5.6% for 2017.

It then overlays the estimated costs, split between recurrent and capital, of the various manifesto pledges and then credits two extraordinary items to the Budgets which were not originally included in Table 2.2 of the Budget for 2013, namely:
  • EUR 85 million additional tax revenue over years 2014 -2017from collections resulting from better tax enforcement ( defined as a fight on tax evasion)

  • EUR 300 million reduction in expenditure spread over four years 2014 -2017 defined as 2% savings on Government expenditure.
Upon realisation of these two exceptional items depends the feasibility of the projected deficits in the PN costings.   They could make a difference whether the EUR 71 million surplus projected for fiscal year 2017 will instead be a EUR 314 million deficit.

I will come to argue the feasibility of these two special items later,  but first let me explain why the I define these costings as budgeting in the clouds.   It is clear  they  result from some hurried improvisations with inclusion of two special line items to hit whatever figure needed to be hit to issue a pre-determined end result that the pledges can be financed without failing on the objective of fiscal consolidation and the achievement of a budget surplus by the end of the forthcoming legislature.

Start with errors, small as they are in the overall context, in the published statements.  On page 5,  the Extended Government deficit for years 2014 and 2015 is EUR 61 million and Euro 39 million respectively.    These balances are carried forward to page 17 and out of the blue they turn to EUR 78 and Eur 49 million.   The carry forward for the other years is OK.

Also one should remember that these figures were presented by Minister Tonio Fenech who in the first Budget of last legislature, that for 2009 read in parliament in November 2008 in full knowledge of the financial crisis that blow up in September 2008,  had projected a Government debt of EUR 3683 million by 2011 being 56.3% of GDP EUR 6542 million.     Actual results for 2011 were a Government Debt of EUR 4607 million being 70.89% of GDP 6499 million.   The Minister was practically spot on in so far as GDP growth was concerned but EUR 924 million off-target for government debt equivalent to 15% of the GDP.

Minister Fenech comes with very poor accuracy credentials for long term budgeting!!

Two more things.   In the Budget 2013 read in Parliament just 2 months ago the Minister had projected real growth for 2013 of 1.6%.   Now suddenly in the Costings page 2 this growth becomes a range of 2% pessimistic and 2.5% optimistic.

Further the Minister had budgeted an end of year deficit for 2012 of EUR 158 million equivalent to 2.3% of GDP.    Since then, NSO have published figures for the 11 months to November 2012 and these show that to hit the end of year target the December 2012  performance of government finances will have to be cash positive to the tune of EUR 164 million.   Whilst December is seasonally a cash positive month for government given tax payments due, it is certainly optimistic to expect such positive cash performance to exceed EUR 60 million.   So when the figures for the whole year are published after the election, generally last week of March 2013, we may have some surprise in the starting position assumed in the Costings.  

Standard & Poor's in their recent downgrade commentary did not mince words and said:

 " We expect that the 2012 deficit, at just under 3%, will exceed the target of 2.2% of GDP".   

In case you are wondering what's the difference between 3% and 2.2% of GDP it works out to EUR 54 million.

Now let's come to the real thing.   How realistic is it to expect additional tax revenue of EUR 85 million from better enforcement over 4 years and saving of EUR 300 million in government expenditure over the same period?

Given the still undesirable low level of fiscal morality I would say that there is every possibility to get an extra EUR 85 million through better enforcement.   But please bear in mind that revenue from taxes is already planned to increase by 8% in 2013 when the nominal economy is expected to increase by 4.5%.  So there is already 3.5% growth from better enforcement and this amounts to EUR 88 million and this in spite of 2013 involves tax rebates to those earning up to EUR 60,000 p.a. and removal on tax on inter-family property transfers.   So the real tax enforcement additional revenue included in 2013 Budget figures is nearer to EUR 100 million.    Is it realistic to expect to gain a further EUR 85 million in the following 4 years?  

I would probably define revenue from tax enforcement of EUR 185 million over 5 years as extremely stretching but not impossible.

What I find a impossible and fairy tale stuff is the expectation to gain economies worth EUR 300 million over 4 years from 2% savings on the overall government expenditure.

Such saving if it were possible would apply only to recurrent expenditure.  It is not possible to apply savings on finance costs or capital expenditure for obvious reasons.   Total  recurrent expenditure in 2014-2017 before applying the costs of manifesto measures, works out at EUR 10856 ( over 4 years) so 2% thereof would be EUR 217 million not EUR 300 million.

But then one has to realise that 85% of government recurring expenditure is non-discretionary.   So it is useless planning 2% economies on total expenditure, as the non-discretionary expenditure does not permit such economies.   Wages, pensions, social security payments, health and education entitlement costs offer little scope for economies.   So if the 2% savings on total expenditure has to come from the 15% of government recurring expenditure which is discretionary then the latter would have to be cut by some 13% not by 2%.   Some hope!   Alfred Sant had tried to reduce this by 5% in 1998 and the PN made fun of it then.

So what happens if the special line items involving EUR 385 million over 4 years 2014 - 2017 as explained on page 16 of the Costings fail to material?

A combination of these factors will have to make up for such deficiency:

a. tolerate a higher deficit and higher national debt involving higher interest costs
b. reduce investments through capital expenditure, thus reducing economic growth.
c. raise additional taxation, most likely by raising VAT rate.
d. disregards some of the pledges to save on additional costs.

Given that the Minister had missed the three year target 2009 -2011 by EUR 962 million it would be even optimistic to expect that the next 5 year target would be missed by just EUR 385 million.  

In this case the past is a guide for the future.

Monday, 28 January 2013

One third

This article was published in  The Malta Independent on Sunday -27th January 2013

One-third of the way down this long election campaign permits some sort of interim analysis.

Labour entered the campaign with a good margin advantage over the PN and whilst about one fifth of the electorate remains undecided or uncommitted, Labour knows that if they don’t shoot themselves in the foot the election is theirs to lose.     It looks a fair bet at this interim stage that Labour has kept their lead even as the pool of undecided voters starts to shrink.   

In no way does this mean that the contest may be considered over.    If a week is a long time in politics, the remaining six weeks of this campaign may look like an eternity.

The performance during the first three weeks of the campaign has shown Labour better prepared at the starting line.     The PN admitting that they were in no hurry to kick-start their campaign is hard to understand when they had the advantage of blowing of the whistle and of choosing the duration of the campaign.  

Experienced hands in marketing would have no difficulty in concluding that Labour’s campaign so far has been better presented, more integrated and easier to warm yourself up to.    Labour choose one broad topic every week and support their message through press conferences, TV ads and billboard visuals in a coordinated way to reinforce their message.   We have gracefully moved from cheaper utility bills to free child care and on to tablets for our 9 year olds.

From the PN side one gets the firm impression that the change of PL Deputy Leader over the Christmas election hiatus has forced the PN to re-think their campaign and go back to the drawing board.    Their billboards are failing to reinforce the message and words like Xoghol, Sahha u Edukazzjoni have become too hackneyed to inspire the message.  

During the first three weeks we have seen the PN being forced to mellow their negative campaigning against Labour.    In his first campaign speech the Prime Minister said the country would be mad to trust itself under PL leadership even for five minutes.    That came through as vintage arrogance typical of a monopolist supplier who believes that his clients do not really have a choice.

On the contrary democracy is about choices and anybody who takes the electorate for granted generally set themselves up for unpleasant surprises.   Presumably their granular research started indicating as much to the PN strategists forcing them to soften their rubbishing of Labour and start discussing issues.   But in so doing they were always playing catch up to Labour.

If Labour promises more purchasing power to households through lower utility bills, after some initial attempts to rubbish the idea the PN issue their own version of how to deliver such reductions through lower night tariffs.     If the PL offers free child care to facilitate increased female participation in the labour market, the PN soon come out with their version for free child-care with a voucher system.   Soon after the PL announce their project for gradual roll-out of computer tablets as children pass through year 4 of primary schools, the PN announces their version with a faster roll-out from class 3 in the primary till class 5 in the secondary.

Anything you can do I can do better seems to be the PN’s unwritten motto.    The surprising lack of an integrated marketing campaign seems to be the result of a lot of improvisation which has ultimately culminated itself in the release of the full electoral manifesto with 125 pledges when there are still 6 weeks to go in this campaign.

So the PN have switched from no urgency to kick-start the campaign to a sudden full blown release of their portfolio of pledges all in one go.    Compare this to Labour drop by drop roll out as they pass from one week’s topic to another  where specific measures are announced and reinforced through an  integrated marketing message keeping their campaign fresh and with always something new to look forward to.

And how can one avoid the impression of sudden improvisation of the inputs in their manifesto if it contains such pledges as excluding minimum wage earners from the tax net when only last November’s 2013 Budget extended taxation on to certain minimum wage earners?   How can one avoid concluding that the manifesto is an improvisation job if after going through their ordeal with Franco Debono’s rebellion in parliament the manifesto says nothing of the PN pledge to introduce legislation to control the financing of political parties.  
So whilst the Prime Minister regularly speculates something sinister about the cost of Labour’s campaign, regulation of political party financing drops out completely from the PN manifesto.

Why was the introduction of a whistle-blowers act omitted from the PN manifesto when we are living through a strong case of corruption which has only come to light because the internal factions are fighting each other as probably they cannot agree on how to share the spoils?   With a functional whistle-blowers act there is a better chance for such corruption to surface.

In the end however I doubt very much whether that floating section of the electorate that decides which way elections go would cast their vote based on what is in or out of the manifesto.    Credibility is the currency of politics and credibility is accumulated gradually through the performance over several years not through easy write-ups and talk-is-cheap pledges in a campaign manifesto.

If the PN have not found it a priority to formulate an efficient energy policy for Malta and instead showed greater priority for a parliament building totally detached from the real needs of society at large, it cannot suddenly gain credibility simply by rubbishing the PL’s energy policy alternatives.   The disadvantage of the PN is that human nature takes successes for granted, as in health services and job creation, whilst failure makes better headlines.

In the remaining six weeks of the campaign three things will help those that are still undecided to sway one way or the other.   Stories about rampant corruption especially if credible with documentary proof will enforce the democratic wish for alternation of power to cleanse the incumbents from accumulated arrogance and excessive comfort of tenure.

Incumbency fatigue will also influence some of the undecided whether to hold on to the known quantity or whether to try the new.
And finally whether the liability of incumbency (the fatigue, the corruption and the baggage accumulated through long tenure of power) will be greater than the power of incumbency where all caution is thrown to the wind and clientelism becomes the hallmark of the executive in a desperate attempt to cling on to their throne.

This time there is no higher order issue to dominate and sway votes one way or the other.   There is no early election as in 1998 when Labour had to face the electorate after it had just administered the medicine as every government tends to do in the first part of the legislature.   There is no EU issue as in 2003.   There is no Alfred Sant issue as in 2008 when people were forced to avoid Labour’s offer of new policies in old wrappers.

This time it is a flat race without hurdles in Labour’s way.  If they are in front at this stage they need to do no more than draw on the remaining issues and keep their ship sailing steadily at cruising speed.

Friday, 25 January 2013

Costing the tablet and the tablets

I beg to be illuminated.

The Prime Minister promised that every pledge in the electoral manifesto will be costed it out so that the electorate can gain confidence that these pledges can be carried out without breaking the bank.

And true to his word his main spokesman on IT, Claudio Grech, former Chairman of MITA and confidant of Minister Austin Gatt, has announced that provision of 50,000 tablets which will be rolled out over 4 years from Class 3 in the primary schools to Form 5 in secondary schools would involve an overall project cost of Euro 23.7 million.

Now I know this project does not include solely the provision of the tablet but also content, connectivity and training    But my calculator suggests that Euro 23.7 million spread on 50,000 units makes Euro 474 per unit.    

Labour has indicated that it will roll it out more gradually and the tablet will be given to children as they pass through Class 4 of primary schools involving 4000 tablets in the first year and the project will cost Euro 1.5 million.  

Labour's cost per unit is Euro 375.

Now presumably if one buys 50000 rather than 4000 the per unit cost would be cheaper not 26% more expensive.   May be the PN costings includes connectivity, content and training whereas the PL is costing the basic cost of the equipment.   But I doubt it as Euro 375 per unit for large quantity supply should make a generous provision for the additionals.

Is this the usual theme where the PN makes everything costs twice as much?

And how on earth are the PN going to cost the pledge that they will refund the cost of free medicine when this is not available from government through the POYC or its central supply points.    One has to bear in mind that when government provides free medicine through its systems the procurement cost is often a fraction of the retail price of such products.   Often it is 25% or less.  

So if I am entitled to a medicine the procurement cost of which for government in the normal course of events is ten Euro,  its retail price is often forty Euro.    If government has to pay free medicine that goes out of stock at its retail price it would have to pay forty Euro when normally it would pay ten Euro.

The more inefficient the procurement system gets the more expensive it would become for taxpayers to bear the cost burden for the provision of free medicine.

Who is going to cost out this inefficiency?   Would it not be better if we invest in efficient procurement systems ensuring medicines are available on time at a competitive cost rather than waste money paying for government's inefficiencies?

Wednesday, 23 January 2013

Blame it on Sant


As quoted in The Times:

Frank Sammut, who is at the centre of an alleged Enemalta corruption scandal, was a member of the fuel procurement committee between 1987 and 1998, including under Alfred Sant's Labour administration, a spokesman for the Finance Ministry told timesofmalta.com.

Basically the implication is that Mr Sammut was on the inside also of the Labour administration of 1996 -1998.

Then from information issued by Enemalta about the members on the Oil procurement Committee at the time it results that Alfred Sant's administration removed Mr Sammut from the line-up of the Oil Procurement Committee in 1998.  What date exactly in 1998  is not stated but I get the impression that this must have happened before as I cannot imagine that Godfrey Leone Ganado continued to Chair this Committee whilst the late Martin Bonello-Cole was Chairman of the Corporation.

26th May 1992Mr Godfrey Leone Ganado
Dr Franco B Vassallo
Mr Alfred J Chetcuti
Mr Frank Sammut
Dr Robert A Staines
Mr Tarcisio Mifsud (Fin Cont)
Mr Alfred Mallia
Head of Electricity
1998Mr Martin E Bonello Cole
Mr J P Fountain
Mr Tarcisio Mifsud
Mr Godfrey Scicluna
Eng John Pace

What interest does the Ministry of Finance have to twist facts and instead try to shift corruption that happened under their watch on to Alfred Sant's administration??   How ridiculous can they be???

To find under whose political patronage Sammut was, it is sufficient to read the rest of the Ministry of Finance statement:

Mr Sammut, ......was an Enemalta director between 1987 and 1990.
He then became a consultant to the Enemalta chairman and board on petroleum and gas between 1992 and 1994.   Around the period when he allegedly received commissions from oil company Trafigura, he was consultant to the Enemalta chairman (between August 2003 and August 2004) on a one-year contract where he was tasked with "reorganising and rationalising" the storage of petroleum products at Enemalta. However, he was not responsible for buying oil.
Separately, Mr Sammut was also an employee of Government company Mediterranean Offshore Bunkering Company (MOBC) between 1988 and 2004.
Mr Sammut was given a golden handshake of almost €100,000 when his contract was terminated, sources confirmed to timesofmalta.com.
Mr Sammut's contract of employment laid down that: If however, termination is due to liquidation or redundancy for whatever reason, not necessarily mentioned within this agreement, then the employer undertakes to pay the employee a terminal benefit equivalent to two-and-a-held-times his present salary or two months pay for every year of employment from date of employment 1st February 1988 worked at the last established salary of the employee."
These sort of employment contracts are not for any Tom, Dick or Harry.  You have to be well in the inner circle to qualify for such treatment.
It is clear that whilst at the time of the published commission invoices Mr Sammut was not  a formal member of the Oil Procurement Committee, he still was very much trusted by the senior management of Enemalta and their political masters.   So the suspicions get fortified that Mr Sammut, in claiming  'consultancy fees' through an offshore company, was fronting for others.  In such a case the whole thing gets more serious, much more serious!
The more answers are given, the more questions arise.

Thursday, 17 January 2013

First things first, Tonio

 Tonio Fenech smiles
as the economy heads down

Most people I met just laughed out the PN's claim that Labour and Muscat are responsible for S &P downgrade.

Really it is no laughing matter but when you see the Minister of Finance blaming his failures, certified by international rating agencies, on the Leader of the Opposition you have to make a choice between laughing and crying.  And being optimists most people I met decided it is best to laugh it out.

Minister Fenech should however take the S & P downgrade report very seriously as it constitutes a Diploma of his incompetence in financial budgeting.

On 28th November 2012 he presented in parliament the Budget for 2013 .  In his presentation the Minister said that the deficit for the whole of 2012 (of which 11 months had already passed and the Minister should have had a clear picture for the remaining 33 days left), would amount to 2.2% of the GDP resulting  in a deficit of EUR 180 million.  

Just two weeks later, the National Statistics Office issued the report on government budgetary situation as at end November 2012, i.e. just 2 days after the Minister read his Budget Speech in parliament.   The deficit till November  2012 was EUR 342 million.   Which means that if the full year 2012 deficit has to hit the figure that the Minister had indicated in parliament on 28th November 2012 than government finances for the month of December 2012 will have to be cash positive to the tune of EUR 162 million.

Now it is true that December is generally a seasonally cash positive month but never to the extent of EUR 162 million.   We will know the final outcome for the whole of 2012 somewhere towards the end of March 2013 and by then a new government would have been voted in and the electorate would not have had the benefit of such information before it votes.

My best estimate is that if December 2012 would be as cash positive as December 2011 then Minister Fenech would have missed his budget estimate by some EUR 100 million and this in just 33 days.

S & P in their downgrade make similar assumptions that they

  "expect that the 2012 deficit at just under 3% of GDP will exceed the target of 2.2% of GDP.   Malta has a high government debt burden ( estimated at 75% of GDP in 2013) ....."

This Mr Minister is why S & P downgraded Malta's rating, not because the Opposition voted against the Budget as any opposition in any democracy normally does.

According to S & P the Minister is missing the 2.2% of GDP deficit  target and getting 3% of GDP, a variance of 0.8% of GDP in just 33 days.  That means that the Minister can't project forward accurately even for just 33 days.    0.8% of the GDP amounts to EUR 54 million which is less than the EUR 100 million I estimate but a gross miss considering that the Minister was projecting forward  just 33 days.

With such record what credibility does the Minister have when he insists that the Capital Expenditure needed to execute Labour's investment for its energy plans will cost EUR 600 million, nearly twice what Labour has indicated?

If anybody wants further corroboration on the Minister's incompetence in budgeting forward one should refer to the estimates he made when he presented his first Budget for 2009, in full knowledge of the international financial crisis which exploded in September 2008, whereas the Budget for 2009 was read in parliament in November 2008.

In that presentation he had projected forward government finances for the years 2009 - 2011 and he had budgeted  that by end of 2011 the general government debt should amount to EUR 3,683 million equivalent to 56.30% of the GDP.    Actual result for 2011, with Tonio Fenech in charge of our finances throughout the period, the general government debt amounted to EUR 4608 million being 71% of the GDP.

Over a 3 year period the Minister missed the debt target by EUR 925 million.   With EUR 925 million we could have financed twice over Labour project for efficient energy generation with change to spare.

Minister Fenech, leave long term budgeting to others more capable, simply explain to us why you cannot even budget forward for 33 days.

Wednesday, 16 January 2013

Blame Muscat!!

That should be the title of the PN's electoral manifesto:  BLAME MUSCAT!

If it rains blame Muscat.  If it doesn't blame Muscat.   A person from Mars just landing here would think that Muscat has been Prime Minister for the last quarter century rather than a new aspirant for the Prime Minister's job.

The  latest in this series was Minister Fenech today blaming Muscat for the sovereign downgrade Malta suffered  at the hands of Standard's & Poors.    Fenech proclaims this was because the Opposition voted against the Budget for 2013.   Government inability to amass a parliamentary majority for approval of such Budget has, according to Fenech, nothing to do with it.    Also the downgrade has nothing to do with government wasting a whole year of this nation's time when it spent 2012 limping along in parliament when it was clear that national interest demanded a quick termination to such instability by seeking a fresh electoral mandate.

Just in case your wife betrays you with your best friend, in case your teenager son abandons his study to enjoy Paceville, and if yesterday's hailstorm has pockmarked your car and you need to re-spray it, don't think twice about it, just BLAME MUSCAT.

Tuesday, 15 January 2013

In spite of government

This article was published in The Malta Independent on Sunday - 13.01.2013

 A false economic argument is being made with increasingly annoying  frequency since the start of the election campaign.   It involves government claiming glory for achievements registered in spite of rather than because of  government.

The Prime Minister repeatedly seeks credit for the fact that Malta did not suffer the same fate as Greece, Ireland, Portugal and Spain that had to be bailed out by the EU when their fiscal budget went out of control.   Recently he started adding Cyprus to the list of victims as the country is on the verge of asking for a bailout given that its banking system had been crushed by its exposure to Greece.

This very argument makes mockery of previous claims that our membership in the Euro monetary system saved us from the financial crisis.   All these countries are Euro members and were not saved.  So why should anyone claim that our Euro membership has saved us?

Countries within the Euro were scarred by the financial crisis just as much as countries outside it.    On the contrary countries outside the Euro, like Norway, Switzerland, Czech Republic and Poland have sailed through the financial crisis fairly undamaged if not outright strengthened.

The evidence shows that it is not being in or out of the Euro that matters.   It is the macro stability of the overall country that matters.   Unfortunately with hind-sight it is now accepted that the Euro rules, even had they been rigidly applied and observed, were meant to make severe restrictions on government fiscal operations but were blind to the much more relevant macro stability factors like balance of payments deficits, competitiveness and employment.

Before the crisis hit Ireland and Spain were the posters boys of sound economic management when measured by the Euro criteria.   Their governments ran surpluses, and their debt levels were very low in comparison to their GDP.   No attention was however given to the fact that the country as whole was suffering excessive balance of payments deficits, that their banks were lending for construction investment far more than domestic savings could finance, and that the economy was building undue reliance towards construction, real estate and housing financed by excessive credit.

When the crisis hit the property bubble burst, borrowers could not honour their loan repayment to  banks just as the value of their mortgaged property fell below the amount borrowed and banks were rendered illiquid and insolvent as they had to write off or make provisions for non recovery of loans that could not be serviced.

To salvage the banking system the governments of Spain and Ireland had to intervene in support and take on the public sector severe financial strains in a desperate effort to protect the whole economy from the mess created by excessive and irresponsible lending by private banks.   The banks’ failure would have ruined the economy as depositors and bondholders would have been forced to suffer severe losses in the absence of  governments’ intervention.

The same fate was suffered by non-Euro Iceland which however has shown greater capacity to restructure and grow through its flexibility to devalue its own currency, an economic tool not available to Euro members in distress.

In spite of the Gonzi government claiming credit for steering our country away from the misfortunes suffered by countries forced to seek bailout, the simple truth was that our fiscal deficit and our debt levels before the crisis of 2008 were worse than those of Ireland, Spain and Cyprus and not much better than that of Portugal.   Greece was a basket case in its own right.

What has saved us is that the country as a whole, rather than the government, was a creditor to the outside world.    Our banks never indulged in excessive lending beyond what could be financed by domestic savings.   Our banks did not need to access foreign lines of credit on the international wholesale market to finance their lending.   On the contrary our banks only lent around 70% of their stable domestic deposit base and had sufficient extra liquidity to buy government bonds whenever government needed to finance its deficits on the local capital markets.   Consequently even the government had no need to tap foreign sources to finance its borrowings and could rely on local savings to finance itself at moderate rates and on a well structured maturity profile avoiding  frequent debt rollovers.
I reiterate that the credit for avoiding the crisis does not belong to the government but to the private sector whose high propensity to save has financed all our borrowing requirements internally.   We have avoided the crisis in spite of the government’s massive borrowing requirement not because of it.

Now to add insult to injury the Gonzi government is resorting to atrocious scaremongering.  They are claiming repeatedly that if a PL government is elected on 9th March than as if by magic the country would be forced to seek a bailout.

Even if there were any truth in such claims it is utter irresponsibility to make them so explicitly.   Business and economic management is built on confidence and the PN, as a major political party which if not in government is in opposition, should be more careful in making any claims that could hurt confidence in the country, prejudice our stability and damage our growth potential.

There is nothing, absolutely nothing, to suggest that Malta, whoever is governing it after 9th March, will be forced to seek a bailout from the EU.   Why should we seek any bailout when our economy is over-liquid and the government has no problems in financing its borrowing requirements on the local markets at competitive rates and for stretched maturities?     Countries that were forced to seek bailout only did so reluctantly when they could no longer finance themselves normally on the market except at prohibitively high rates.

On the contrary there is ample scope to continue to make better use of domestic financial resources.  Rather than having pseudo-banks indulging in deposit taking to the exclusion of all other banking functions, and ‘abuse’ the local deposit insurance scheme regulations to gain unfair and unintended access to the low cost discount windows of the ECB, we had better give better regard to the counsels emanating from the Central Bank Governor for the setting up of a Development Bank to fund major productive infrastructure projects without putting strain on government’s fiscal position.

If such a Development Bank initiative were in place Labour’s proposal for financing the LPG power station and its infrastructure could be financed or co-financed using such development funding without undue reliance on international investors, given that the payback period is relatively short and its commercial feasibility has been depicted with attractive rate of return for prospective investors.

Rather than saving us during the last legislature the Gonzi government should account to us why they have continued to operate the Marsa and the first phase of the Delimara power station when they are so inefficient.    Their cost of operations was so high that economies thereon over the last legislature would have on their own more than financed the full capital cost of what Labour is proposing.


Thursday, 10 January 2013

Standards do matter

The PN's reaction to Labour's proposals for an energy policy that would permit reductions to utility tariffs through efficiency and lower cost of production resembles that of a boxer that has been floored after a straight punch from an under-estimated opponent.

As the boxer tries to get back on his feet he is torn between two opposing instincts on how to react: whether to discredit his opponent or whether to show that he can come up with a stronger punch.    In trying to do both the boxer projects confusion and muddled thinking showing that the punch he suffered is having lasting consequences on his brain.

The immediate reaction of the PN was that the PL were in the pocket of a foreign supplier who had a gas power station to sell.    Than realising that this is not credible and does nothing to prove what they had long been denying with the force of a papal dogma, that utility rates cannot be reduced, they argued that Labour proposals were underestimating the investment necessary and the execution time involved.

I am technically incompetent to confirm whether Labour proposals are accurate, realistic and feasible but Labour got corroboration from world renowned technical experts and they are proposing to use technologies and systems which are tried and tested.

Furthermore there is logic in the PL's proposals.   They accept that the ultimate supply solution for the LPG source would be a pipeline from Sicily.   But they realistically explain that this will take years to execute as this would involve co-financing from the EU and if we wait that long for execution we would be paying over the top for years operating expensive inefficient and environmentally offensive High Sulphur Fuel Oil.   So while not closing the door for an eventual pipeline solution, Labour offer a quicker transportation and re-gasification solution for operating an LPG fired power station.

However when the PN come out and argue that Labour's proposal can be done but it would cost double their estimate and take twice longer to execute, I start gaining additional confidence on the feasibility of Labour's solution.

It's all a matter of standards.  Whatever the PN do costs twice the budget and takes twice the time to execute.   Mater Dei Hospital is a living example of this.   So the PN are applying their standards to Labour estimates.   Standards do matter.

Labour's culture is to do more with less.   The billboard campaign proves it.    With the same money Labour's campaign is fresher and specific to the location of the billboard rather than standard throughout the country like the PN's.

Take another example.    The only appointment of a person from Labour's stables is the President of the Republic.    The PN gave this one and only position to Labour following their wafer thin 2008 election win, as it was a high profile position but without any executive power.   All executive positions were reserved for the Party lads and lasses.

Yet President Abela is unquestionably the most effective President Malta has ever had.   Without any increase in budgets his energy and ideas rendered the Presidency vibrant. efficient and closer to the people, a unifying force in a nation which tends to divide itself on every issue.

New ideas and fresh energy can render possible what to the tired and clueless seems impossible.

Standards do matter.

Wednesday, 9 January 2013

The devil quotes the Scriptures


The  PN had been requesting  the PL  for months on end to explain in detail how, when, and how much they plan to reduce utility bills and how this was to be financed without upsetting the budget structure.

Labour's reply was always that this will be explained all in its due time, when the election campaign kicks off.

Labour kept its pledge and yesterday gave all details and technical explanations and brought independent technical corroboration for its feasibility.

One would expect the PN should be more than ready to find holes in Labour's proposals to discredit it.  They have been in Government for nearly 26 years interrupted by only 22 months Labour interlude between 1996 - 1998.   They had ample time to explore, study and decide what is feasible and what is not.

So it is unbelievable that the PN's shock reaction to Labour's proposals was that of the 'Devil reading the Scriptures', or as they say it in Maltese 'Il-Qahba milli jkollha ittik".

The PN is reported in The Times as saying:

The Nationalist Party has called on Labour to publish documents and information related to its proposals on energy tariffs.
In a statement shortly after Labour unveiled its proposals, the PN  called on Labour to publish the documents related to its proposals, including documents by its consultants.
It also asked the party to publish the proposals received from private companies and contractors, the dates of meetings held with such companies and private contractors and the details of talks which, it said, had been referred to by Dr Muscat as a ‘done deal’.
The PN also asked whether any company or person whom the PL had met had made a donation to the PL or any of its officials or activists.

Clearly the PN measure others by their own standards.  Rather than evaluate the technical and commercial merits of Labour's proposal they want to know how much commission has been paid and who got it.

I cannot speak for the PL but surely the contractor will not be chosen from the Yellow Pages and no individual will get a four million Euro commission.  I know Joseph Muscat well enough to vouch that the award of such contract will be handled in a transparent and professional manner and that the taxpayer will get the best deal possible without strings attached.

When the PN commissioned the BWSC HSO extension to the power station they gloated that one week trial operations saved more than one million Euro through fuel efficiency.    Then they realised that by saying so they are admitting that such savings can be translated into lower utility bills so they went mum and did not give any further information.

Now Labour has proven that if rather than High Sulphur fuel, LPG is used,  the savings could be much higher and the utility rates could be rendered in line with the EU average to release pressure on the quality of life of households and to render our industry and tourism competitive.

The question the PN should be asking is why have they not done this investment five years ago?    In these last five years through operation of low efficiency power stations ( Marsa and Delimara)  we wasted enough funds that could have been enough to invest to buy Labour's project twice over.   And we have disgracefully contaminated the environment and prejudiced the health of families in the Marsa area.

Monday, 7 January 2013

First day .... first lies


The difference between the approach of the two main political parties for the coming elections has been stark right from the start.

Take the first billboards

Whilst the approach of the PL is unity, togetherness and inclusiveness, the approach of the PN is scaremongering, arrogance that only they can lead this country forward and the concept of  leaders and followers.

The PL places the people on its billboards symbolising unity in diversity.   Smiling youngsters, happy families and serene pensioners.    The PN placed the Leader and the Deputy smiling with confidence looking upwards towards the right practically implying that only they can lead the country and any other choice would be dangerous if not disastrous.

The PN's choice is odd.   Firstly this undue emphasis on the Deputy needs explanation.    Never before in Maltese elections the Deputy Leader played any prominent role beyond a one-off direct debate under the Broadcasting Authority auspices.   What are the PN trying to tell us?     It could be one of two things or both of them.   Either that the PN knows that a direct clash between Gonzi and Muscat does not bode well and are consequently trying to deflect attention onto the Deputy.   Or they are suggesting, without saying it, that if elected Gonzi will during the course of next legislature make way for his Deputy just as his predecessor had done in Gonzi's favour in 2004?   Whatever it is, the electorate have a right to know.

Secondly such billboards emphasising personalities normally are the last in a series of billboards which emphasise the policies.  The personalities come last to show the people who will be entrusted to execute those policies with credibility which is the main currency of politicians seeking to win the people's trust.

What's the sense of starting with the personalities rather than the policies?

Now consider the logos.   PL's  'MALTA TAGHNA LKOLL' builds on the concept of inclusiveness and a natural extension of the message 'FUTUR LI JGHAQQADNA' that the party had been using.

The PN's 'FUTUR FIS-SOD: XOGHOL*SAHHA*EDUKAZZJONI' - is a hackneyed version of the three E's (Economy, Education, Environment) with exclusion of the environment and inclusion of health.    Why the PN should exclude the Environment ( which is a a growing concern for a greater section of the electorate) and include Health (when during the campaign it could risk customary winter congestion in the Emergency and Admittance and patients in hospital corridors) beggars a sensible explanation.

Finally consider the speeches given on the first day by the two leaders.   Joseph Muscat stayed on a positive course stressing inclusiveness based on meritocracy and giving credit to all past leaders that brought the country to the proud stage we command today.

Lawrence Gonzi made scaremongering the hallmark of his first speech:

"Malta would be rendered a beggar like neighbouring countries that had to take tough austerity measures in order to be able to borrow from the IMF. Those countries had seen civil servants dismissed, health services scaled back and children allowances removed."
"I promise that I will never allow my country to be reduced to that state, to be humiliated in that way," Dr Gonzi said.
That's a stark contrast!   'Let's work together as one nation' as against 'beware trusting the others because they will ruin everything we built'.
Perhaps someone should remind the Prime Minister that we are not in the same pitiful position of the countries  that had to be bailed out, not because our public indebtedness is comfortable.  It is not.   In fact it is much worse than that of  Spain and Ireland before the crisis began.    We are not in their awkward position simply because while our government is among the naughtiest, fiscally speaking, the private sector is overly liquid and fully capable of funding whatever borrowing requirement the government has without needing to have any recourse to foreign sources of financing.    It is because the high propensity to save of our private sector has kept our banks fully funded, indeed over-funded, by stable deposits so our banks never needed to rely on international wholesale lines of credit which tend to run dry when crisis hits.
Dr. Gonzi's  suggestion that under a Labour government Malta would need to seek an IMF bailout is gross irresponsibility, it is undiluted scaremongering and an insult to the people who have consistently shown the willingness and ability to finance their government's borrowing requirement without any recourse to foreign credit lines.  

Sunday, 6 January 2013

On the eve of the storm

As we enjoy the last peaceful day of this fake non-belligerent political lull, we can just as well prepare for a nine week long stormy and hard-hitting political campaign, where no mud will be spared and where all tricks in the book, and some new ones too, will become the order of the day.

On the eve of such a storm I propose that you read one of the articles I recently posted on this blog which I believe is more relevant today than when it was written:


I again urge my readers to remain sober and distinguish between the noise of the campaign and the substance of the alternatives we have to vote for.

Often I am asked by undecided voters whether I sincerely think that Joseph Muscat would be a better Prime Minister than Lawrence Gonzi.

And as always I offer the most honest reply.   We are not deciding the past.  The past is history that cannot be changed.  We are deciding about the future.   So the question is not whether Joseph will be a better Prime Minister than Lawrence has been,  but whether Joseph will be a better Prime Minister than Lawrence would be.

I honestly don't have a 100% secure reply to that.  Joseph has never been a Prime Minister before so we have no way of knowing how successful he would be in that role.   What I know however is that Joseph has grown immensely in his maturity and leadership qualities since he became Leader of the Opposition and that there are all reasonable expectations that he will continue to grow in his position if he is elected as Malta's next Prime Minister.

What I know for certain is that another term, a fourth consecutive one, for the PN will be a democratic disaster.   Already the third term has produced a degree of vintage arrogance and corruption which suffocates and makes makes mockery of democratic checks and balances.   Continuing to govern without a parliamentary majority and pretending doing so in the national interest is offensive to honest law abiding citizens.   The way the public transport re-organisation has been mismanaged and the clear incompetence and dishonesty in the award of the extension of the power station  contract shows that the PN administration has lost all sense of accountability to the electorate.

Democracy demands alternation.   If we continue rewarding the same incompetence purely because we are afraid of change we would be denying ourselves of the true benefits of democracy.  We would continue with a situation where the PN can finance itself extravagantly from its benefactors who can then expect the reward through privileged contracts financed by our tax money.

In 1996 we changed.  Alfred Sant was found wanting and we changed again.   That's democracy!

The time to change is again due.   If Joseph fails to deliver we will have time to remove him in five years' time and in the meantime the PN will have had a  much needed opportunity to cleanse itself through a full term on the Opposition.

But this time it is time to vote for a true democratic change.