Treasury bills ceiling raised

The House of Representatives yesterday approved a motion raising the limit of government short term borrowing through treasury bills to Lm300 million from the current ceiling of Lm200 million.

Finance Minister John Dalli said this motion did not mean increased government borrowing, but it would allow the government to better manage its cash flow and debts, particularly as interest rates fell.

Mr Dalli said a distinction needed to be made between the debt and the deficit. Although the deficit was contracting, the debt would continue to grow for as long as a deficit existed since the deficit had to be bridged by borrowing. Nonetheless, as the deficit contracted over the past few years, the rate of growth of the debt had slowed.

In contrast, the two years of the Labour government had seen the debt shoot up by Lm250 million, a figure which was higher than the past four years put together.

The government was committed to further reducing debt servicing costs and this motion was aimed at giving the government the flexibility to do so.

Opposition finance spokesman Leo Brincat said this motion was the fruit of the financial crisis which the government had created for itself.

Although this bill covered short-term borrowing through treasury bills, the government had also said in the budget that it may have to borrow up to Lm100 million in (long term) stocks to fund its operations.

This government had a history of using treasury bills almost up to the maximum permissible limit throughout the year. This denied it the flexibility it itself said it wanted. It was for this reason that the ceiling was being raised by a third.

This motion was also the result of the fact that government financial projections had gone haywire. This applied particularly to the way in which privatisation had fallen back.

Mr Brincat criticised the government for having included income from the MIA privatisation as ordinary revenue instead of a financing item.

Tax revenue by October, he said, was only 60 per cent of the total projected for the year and in a fit of panic, Inland Revenue Department employees had been told to do all they could to raise Lm17 million from taxes by the end of the year. VAT revenue growth had only been two per cent, showing that consumption had slowed. Social contributions were up by a mere 0.6 per cent, a far cry from projections.

The fiscal deficit this year was by October already 65 per cent higher than the target for this year, all considered, including MIA and the borrowing of Lm15 million by the Foundation for Tomorrow's Schools, reaching Lm128 million, 7.5 per cent of GDP and not just over five per cent, as the government claimed.

Government spending was also far higher than projected. And the government debt had risen by Lm32 million to Lm1,044 million when it had been projected to decline by Lm79 million, a discrepancy of Lm111 million brought about mostly by the shortfall in proceeds from privatisation. Could anybody expect the situation to come back on track by year's end?

Mr Brincat said the public debt had been rising since 1994 and the government had been warned at the time by the IMF to keep the deficit at three per cent of GDP unless it wanted the situation to spin out of control. That warning was ignored, and it was useless now to blame the 1996 Labour government.

In his speech Mr Brincat said that after a radio debate in which he had said there could be irregularities in the operation of the Tax Compliance Unit, the finance minister had written to him asking him for further details. Mr Brincat said he was querying how in the unit there was one person who on his own could investigate and overrule assessments made by tax assessors. The government should investigate further.

Nationalist MP Tony Abela said the aim of this motion was to bring about greater flexibility in financial administration. This was in line with the government's successful efforts to reduce the deficit and its ratio of GDP.

In contrast, the financial situation under the Labour government deteriorated sharply as Malta's EU application was frozen.

The government was not only managing to reduce the deficit, but it was doing so even as the gainfully occupied increased, investment grew and major capital projects were in hand, including the building of the new hospital and a vast roads rebuilding programme.

Dr Karl Chircop (MLP) said the way the government was tacking its financial problem was by borrowing more and by stopping the eligibility of thousands of people to social benefits such as children's allowance and other non-contributory benefits. At the same time some 60 factories had closed and unemployment had risen.

It was only now that the government was trying to give something back to the people in an effort to win votes.

Economic Services Minister Josef Bonnici said unemployment had actually fallen from 7,220 in September 1998 under Labour to 6,790 in part one of the employment register now. The gainfully occupied had risen by 3,500. A cursory look at industrial estates would show how investment was growing fast, mostly as a result of the Business Development Act.

The opposition, he said, was clutching at straws. Upon his return from Australia, Opposition leader Alfred Sant had claimed that an Australian company was to transfer its transshipment operations to Malta Freeport from Greece. That announcement could have been premature and therefore harmful had it been correct. What would happen, however, was that Malta Freeport had been included in a round-the-world service linking some 20 ports, including some in Australia.

Reacting to Mr Brincat's assessment of the financial situation, Prof Bonnici said government revenue was not linear and revenue at the end of the year was far higher than the remaining months. It therefore did not make sense to make assessments up to October.

Prof. Bonnici said privatisation had to take place at the opportune moment according to changing circumstances. The opposition in the past used to criticise the government for proceeding too fast on privatisation.

Winding up, Mr Dalli said the accounting of the MIA privatisation was according to foreign and local regulations because where this involved the transfer of property and dividends, proceeds had to go to the consolidated fund. Furthermore the Foundation for Tomorrow's Schools had not borrowed Lm15 million but had arranged a facility for this amount. The government in most such cases did not give guarantees on such loans.

Referring to the Tax Compliance Unit (TCU), Mr Dalli said Mr Brincat on Monday claimed there was a direct line between the finance ministry and the TCU, meaning somebody was giving instructions.

On a point of order, Mr Brincat said people under investigation accompanied by the minister's canvassers had gone to the TCU to demand favours.

Mr Dalli said the issue was whether the favours had actually been given or not. He could not be held responsible for the actions of 300,000 people and the culture of favours which Labour had introduced. But the TCU was working professionally and objectively and the government was being careful to keep politically distant from it. His instructions to the unit were always for it to work objectively.

Interjecting, Mr Brincat asked what culture it was to appoint a person to, on his own, decide on objections and overrule tax assessments.

Mr Dalli said he had not appointed the person that Mr Brincat was referring to and he would challenge Mr Brincat to say that he had.

And it was about time that Mr Brincat understood that the TCU did not take any decisions. It conducted investigations at the request of the Inland Revenue Department and passed on the results and its recommendations to the department for its final decision and action.

In some cases the department required more detailed investigations when objections were lodged.

The technical people who ran the TCU had decided to make available the services of a person to look into those objections and then give recommendations, and not orders, to the department.

Mr Dalli said Mr Brincat and any other politician should not meddle in the Tax Compliance Unit. But Labour, unfortunately, had not changed. It was against EU membership because it wanted to dictate everything without being accountable. It was for this reason that Mr Brincat had excomunicated the Governor of the Central Bank as soon as he made an objective assessement on EU membership.

EU membership would give the people greater rights against such intrusion.

It was easy to say that the deficit should be reduced to three per cent, but how would the Labour government have done so, by sacking 10,000 people as UHM general secretary Gejtu Vella had shown it was planning to do, or by cutting pensions?

The motion was approved after a division with 30 in favour and 19 against.