Friday, 1 February 2013

Management by hope

In a Press Conference held today by PN Deputy leader Dr Simon Busuttil he is reported saying:

(PN) would set up an independent fiscal council and an economic and financial parliamentary committee and would conclude, by the end of the year, an expenditure review through which the government would identify a two per cent reduction in expenditure.
Setting up an independent fiscal council is an overdue step which many countries serious about keep sustainability in their public finances have long adopted.   Such a fiscal council would have been very useful if it were in place right now as it would have expressed its independent view on the costings of the manifesto pledges made by political parties.

What is shocking is that the PN says it still has to identify through an expenditure review 2% reduction in government expenditure. 

Such 2% reduction is the linchpin of how according to the PN's published costings it could finance its pledges without breaking the bank and exploding government finances.    So how can one have confidence that the PN can deliver on its pledges if it still has to identify how to finance them by  costs cuts through expenditure reviews.

I already explained that some 85% of government recurrent expenditure is non-discretionary as it involves immutable commitment in salaries, pensions and other entitlements which the PN is pledging to keep universally accessible without payment.    The remaining 15% discretionary expenditure amount to some EUR 400 million.   To save Euro 60 million on an expenditure of EUR 400 million the expenditure cuts would have to be a whopping 15%.

So the PN would have to discover expenditure cuts not of 2% on the total recurrent expenditure but a 15% cut on the discretionary component of such recurring expenditure.  This is as likely as pigs can fly.

In this context the pledge to credit the pension account of each new born by EUR 1000 is laughable.   On one hand we give them a state handout through a blocked pension account and on the other hand we are leaving such newborns a legacy of national debt exploding and which has to be serviced by the newborns during their economically active life. 

40% of the national debt was accumulated in the last five years!    The national debt as at 2011 is one billion Euro ( that's one thousand million, i.e. one and nine zeroes) more than what Minister Fenech said it would be when reading the Budget for 2009.

Leaving new borns EURO 1000 in blocked pension account is like inheriting a house with a mortgage bigger than its value!

Let's get serious and do some real costings!   And make sure the figures at least mathematically add up as the carry forward from the Extended Government balance in page 5 to page 17 has mathematical errors.

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