Paying for an illusion

The Malta Independent

Paying for an illusion

By consistently avoiding reality government is shooting itself in the foot and hypothecating our future economic sustainability. Hearing comments as that by the Minister of Finance that the deficit will shrink to Lm85 million by budget day can only send messages that all is well with our public finances and no restraint need be made in making fresh demands on such future resources.

The truth is quite different. The public deficit is not being addressed. In the seven months January to July it was more than what it was in the same period of 1998. Making comparisons with the purposely inflated budget deficit for the whole of 1998 suggests that we are on the mend. Reality is that government cannot control its expenditure and keeps applying increased tax revenues to finance more expenditure rather than to address the deficit.` Consequently the national debt and its burden keep rising at alarming speed.

But this week the mad habit of avoiding reality reached new heights. Replying` to an economic commentator who accused the government of hiding payments by using the Treasury Clearance Fund,` the Acting Director of Information replied verbatim `This fund provides for temporary payments intended to be repaid to government within stipulated times.Freeport received an advance of Lm8.35 million to fund its long term loan interest payment..These payments were funded from the Treasury Clearance Fund as they will be repaid to government from privatisation revenues of the same entity`.

If not financial misrepresentation this is financial management mediocrity.` When funds are advanced from the Treasury Clearance Funds to finance the operations and financial charges of Freeport, they ought to be repaid from Freeport`s normal revenue streams. ` Normally such payments are funded through the banking system. The fact that recourse had to be made to the government as shareholder for funding indicates that the prospects of payback are very obscure if not downright non-existent. Consequently` the case for such funding from the Treasury Clearance Funds rather than the Consolidated Fund is very dubious.` But with government`s DOI spokesperson admitting black on white that these will not be repaid from Freeport in the normal course of operations but from privatisation revenues of Freeport, than the matter becomes` financial heresy.

In simple terms this means that we are spending privatisation revenues well before they materialise. That when privatisation revenues do materialise rather than financing the budgetary gap in the consolidated accounts they have to be addressed to repay the temporary loans in the Treasury Clearance Fund and in the banking system in the form `government guaranteed debts which will never be repaid from the normal assets they were meant to finance in the first instance.

My calculation is that a funding gap of nearly Lm400 million exists outside the budget. The medium term financial strategy 1999- 2004 indicated gross privatisation revenues of Lm220 million during the period of which Lm82million` have already been consumed in 1999/2000 through the sale of Mid-Med Bank.

So my question is who is going to address this other black hole` Are we going to be constrained to sell all we have under financial crisis purely to address the hidden black holes as the government official spokesperson unashamedly suggests.

Once the illusion disappears, as illusions unavoidably do, the private individual made artificially richer by the money no problem culture whilst the state coffers were being impoverished, will have to pay through his nose and ears for the horrible cost of a tragic illusion.

Let the figures speak

The Malta Independent on Sunday Let the figures speak!

NSO figures regarding the state of public finances as at the end of July 2001 speak louder then the platitudes uttered by those` who are finding that the margin for further hiding of the truly appalling` state of affairs is getting narrower by the day.

` Jan-July` Jan-July` Jan-July` Jan-July ` ` 1998` 1999 2000 2001 Govt.` Expenditure(1) 342` 4% 383` 12% 403 5% 429 6% Govt Ordinary Revenue(2) 281 7% 299` 6%` 341 14%` 361 6% ` ------ ----- ----- ----- Deficit` ` 61` 84 ` 62` ` 69 ` ==== ==== === === Gross Govt Debt (3) 749` 817` 897` 994 Interest Payments ` 29` 32 35 36

Source:` NSO` all figures in Lm millions (1)



net of contributions to sinking funds (2)



excluding grants, loans, & sale of assets (3)



Position as at end period (4)



Percentages show increase over previous year

These are figures cleansed of the manipulation by the incoming PN government who in the last quarter of 1998 exploded expenditure to darken the starting point and make subsequent` comparisons to Labour`s 1998 much brighter than they in fact are.

These are figures which compare like with like.` Often government compares deficit figures under Labour inclusive of provisions for sinking funds which are then excluded in figures from 1999.

These figures tell that though we have collectively paid Lm80 million more taxes in these seven months than we did in the comparable 7 months of 1998 under a Labour administration, an increase of no less than 28%,` government deficit is Lm8 million or 13%` more than it was three years ago.

These figures tell that during these three years gross national debt increased by Lm245 million or 33% in spite of pocketing one-off privatisation revenues of Lm82 million without which the debt would have increased by Lm327 million or 44%.

And unless we want to bury our head in the sand these figures tell us` that we are driving full speed ahead towards a fall which will smash our social fabric to pieces. Whilst government revenue growth is suffocating economic growth by squeezing liquidity from the private sector which meanwhile has to contend with increasingly complex and expensive bureaucracy, government is not really addressing the deficit problem and is only using the enhanced revenues to finance expenditure which is running out of control.

And the IMF has told us that we have a lot of off-budget expenditure which should be included. Some Lm23 million of it in the year 2000 alone` according the last IMF report.

This country can`t afford to continue throwing these awful millions into black holes without adopting real, though unavoidably painful, cures. We are playing with the standard of living of our children, with the risk of throwing below the poverty line most of those who depend on fixed incomes who when the bubble burst will find that their fixed income does not go half as much as is necessary to maintain their real living standards.

Clearly those who created this financial mess and who will be cursed by history for leaving this atrocious legacy, do not have what it takes to get us out of it.` More likely is that they will augment their financial irresponsibility by` accessing` privatisation revenues to buy some time before the pressure cooker explodes. Labour`s recent proposed policy update is a noble` wish list of socially just but often conflicting objectives.` But it does not constitute an action plan as bold as is demanded by` the financial tragedy facing us.

Whilst taxation enforcement has to take its due place in the cure recipe certainly the major emphasis must be placed on economic growth and expenditure control. Often these re-inforce each other.` We must devise schemes to motivate` people in the public sector who are being paid a full time salary for a part-time job to go into real productive jobs. We can then achieve economies in government` recurrent expenditure bill` whilst achieving real production enhancement from resourceful people whose creativity and initiative is suffocated by the bureaucracy of the public sector.

Well,` this may sound unrealistic to our political class. May I ask them to have a look at what`s happening in Argentina if they want to see how much more` painful the medicine would be if their inertia and irresponsibility` will lead this blessed nation to swallow the sour medicine in one gulp rather applying it in the right doses in due time.

Let the figures speak

The Malta Independent on Sunday Let the figures speak!

NSO figures regarding the state of public finances as at the end of July 2001 speak louder then the platitudes uttered by those` who are finding that the margin for further hiding of the truly appalling` state of affairs is getting narrower by the day.

` Jan-July` Jan-July` Jan-July` Jan-July ` ` 1998` 1999 2000 2001 Govt.` Expenditure(1) 342` 4% 383` 12% 403 5% 429 6% Govt Ordinary Revenue(2) 281 7% 299` 6%` 341 14%` 361 6% ` ------ ----- ----- ----- Deficit` ` 61` 84 ` 62` ` 69 ` ==== ==== === === Gross Govt Debt (3) 749` 817` 897` 994 Interest Payments ` 29` 32 35 36

Source:` NSO` all figures in Lm millions (1)



net of contributions to sinking funds (2)



excluding grants, loans, & sale of assets (3)



Position as at end period (4)



Percentages show increase over previous year

These are figures cleansed of the manipulation by the incoming PN government who in the last quarter of 1998 exploded expenditure to darken the starting point and make subsequent` comparisons to Labour`s 1998 much brighter than they in fact are.

These are figures which compare like with like.` Often government compares deficit figures under Labour inclusive of provisions for sinking funds which are then excluded in figures from 1999.

These figures tell that though we have collectively paid Lm80 million more taxes in these seven months than we did in the comparable 7 months of 1998 under a Labour administration, an increase of no less than 28%,` government deficit is Lm8 million or 13%` more than it was three years ago.

These figures tell that during these three years gross national debt increased by Lm245 million or 33% in spite of pocketing one-off privatisation revenues of Lm82 million without which the debt would have increased by Lm327 million or 44%.

And unless we want to bury our head in the sand these figures tell us` that we are driving full speed ahead towards a fall which will smash our social fabric to pieces. Whilst government revenue growth is suffocating economic growth by squeezing liquidity from the private sector which meanwhile has to contend with increasingly complex and expensive bureaucracy, government is not really addressing the deficit problem and is only using the enhanced revenues to finance expenditure which is running out of control.

And the IMF has told us that we have a lot of off-budget expenditure which should be included. Some Lm23 million of it in the year 2000 alone` according the last IMF report.

This country can`t afford to continue throwing these awful millions into black holes without adopting real, though unavoidably painful, cures. We are playing with the standard of living of our children, with the risk of throwing below the poverty line most of those who depend on fixed incomes who when the bubble burst will find that their fixed income does not go half as much as is necessary to maintain their real living standards.

Clearly those who created this financial mess and who will be cursed by history for leaving this atrocious legacy, do not have what it takes to get us out of it.` More likely is that they will augment their financial irresponsibility by` accessing` privatisation revenues to buy some time before the pressure cooker explodes. Labour`s recent proposed policy update is a noble` wish list of socially just but often conflicting objectives.` But it does not constitute an action plan as bold as is demanded by` the financial tragedy facing us.

Whilst taxation enforcement has to take its due place in the cure recipe certainly the major emphasis must be placed on economic growth and expenditure control. Often these re-inforce each other.` We must devise schemes to motivate` people in the public sector who are being paid a full time salary for a part-time job to go into real productive jobs. We can then achieve economies in government` recurrent expenditure bill` whilst achieving real production enhancement from resourceful people whose creativity and initiative is suffocated by the bureaucracy of the public sector.

Well,` this may sound unrealistic to our political class. May I ask them to have a look at what`s happening in Argentina if they want to see how much more` painful the medicine would be if their inertia and irresponsibility` will lead this blessed nation to swallow the sour medicine in one gulp rather applying it in the right doses in due time.