Opposition finance spokesman Leo Brincat said yesterday a local commercial bank in which the government had influence had extended facilities of Lm164 million to parastatal companies and exposure guaranteed by the government stood at Lm127 million, which rose by a further Lm28 million if the freeport bonds were considered.

Speaking during the budget debate on the Finance Ministry, Mr Brincat said that while the finance minister tried to show that government borrowing projections were on track, borrowing was instead being made by parastatal companies through the only bank where the government had influence. Following political pressure on the bank's board, between 2001 and 2002, outstanding amounts by companies owned by the government rose by 36 per cent from Lm92 million to Lm125 million and the funds guaranteed by the government rose from Lm60 million to Lm102 million.

A list of government companies (which Mr Brincat tabled) showed they had total bank facilities of Lm164.8 million and debit balances and commitments were Lm126.2 million. The exposure guaranteed by the government stood at Lm127 million, practically equivalent to the debit balances and commitments. Clearly this bank was being used to support parastatal companies.

Mr Brincat said the budget lacked the ingredients for economic expansion and gave a distorted picture of the state of the economy and public finance.

The government, he told parliament, had clearly run out of money, ideas and the will to govern.

It also confirmed how the government was not sticking to its own benchmarks. Examples of that were how the privatisation process had fallen back, the reform of social welfare had not come about, benchmarking of the public sector had fallen by the wayside, the auctioning of yacht berths had not happened and only one public private partnership had been announced.

Now it appeared that the MCESD would be used to push through the welfare reform. Would the government seek consensus with all the social partners? The MLP position was that the government pension system should be retained and private pension schemes should be voluntary to top up government pensions and they should be well regulated.

Mr Brincat said the opposition was still asking about the amount of funds repatriated from abroad in terms of the scheme announced last year. It was not asking for individual details but it appeared there was a wide gulf between the funds that were registered and those that were actually repatriated.

The minister had also still not given information on revenue from the taxation on fringe benefits and from the withholding tax on collective investment schemes.

The government's biggest failure undoubtedly was that it was failing to rein in public spending, Mr Brincat said.

Even the EU was not believing the government's figures. An EU report on accession countries issued on Thursday showed Malta as being the worst off insofar as the deficit and public debt went.

While the government over the past two years had claimed that the deficit was some five per cent of GDP, the EU put the figure at seven per cent and said public debt was 60.7 per cent of GDP in 2000 and 65.7 per cent last year, the worse situation among all the acceding countries.

Mr Brincat said the minister should admit that revenue from privatisation did not reduce the structural deficit as he had tried to do with the revenue from the MIA privatisation.

He said the government was trying to push down its borrowing by having its companies or corporations do the borrowing instead, and it was guaranteeing those facilities, despite claims to the contrary.

Mr Brincat insisted that it was not true that the increased tax revenue of the past few years had come from economic growth. Economic growth was coming only from government spending, the so-called fiscal stimulus.

Tourism arrival figures had this year dropped by 66,000 meaning a loss of Lm21 million in foreign exchange earnings.

He observed that although the budget projected a drop in civil servants, this was unlikely, especially as the government needed to take on more people to meet its NPAA obligations, and the civil service may have to absorb some 200 Maltapost personnel.

Mr Brincat said the MLP had welcomed the corporate governance charter introduced by the Malta Stock Exchange, but the government should take a further courageous step forward by ensuring that its observance became obligatory.

Mr Brincat said he was often asked where a future Labour government would get the money it needed for its programmes.

A Labour government, he said, would make savings from the millions this government was spending on the implementation of the acquis, it would control waste, introduce a sense of value for money and not exempt major projects from stamp duty as this government had done. A Labour government would rationalise the mushrooming number of its corporations, agencies and foundations because many of their operations could be streamlined. A Labour government would substantially trim the number of consultancies. The MLP government taxation policy would be announced in due time.

Mr Brincat said unnecessary comments by the minister and the withholding tax on collective investment schemes had seriously harmed the Malta Stock Exchange and it was now the second worst performing exchange among the acceding countries, with the government facing an uphill task to restore confidence in the institution. He shared the minister's concern about the over-reliance there was on bonds, when the primary purpose of the exchange was for the people to enjoy growth through shareholding.

Mr Brincat said he stood by criticism of the governor of the Central Bank he made a few weeks ago. He observed that at a Brussels meeting on the euro on Thursday, officials of the Bank of England, in contrast to the situation in Malta, kept well away of matters of political controversy.

Touching briefly on the Tax Compliance Unit, Mr Brincat said there had already been a case where a civil servant had tried to help someone who was being investigated. Inexplicably, no steps had been taken against that civil servant.

The Malta Financial Services Authority, he said, was doing nothing to promote Malta abroad. There seemed to be some plan to have this work done by a part of Enterprise Malta but Labour did not agree with this.

He said it was a matter of concern how the new civil service collective agreement included the cost-of-living adjustment as part of the increase agreed on but then senior civil servants would be receiving an increase of Lm8 a week while some of the lower ranks could not even be sure of regular wage increases.

Mr Brincat said that although the PN's current slogan held out the EU as the best for Maltese children's future, the truth was that today's children were being burdened with huge debts. The treasure-island image being given to Europe was simply the government's wishful thinking for a way to manage its debts, concluded Mr Brincat.

Replying, Finance Minister John Dalli referred to Mr Brincat's remarks on promotional activity by the Malta Financial Services Authority. He said the authority was at the head of a rapidly growing financial services sector and Malta's reputation was growing as a result. Marketing could not be at the same lines as, say the MDC.

It had been agreed that marketing would be done by the practitioners themselves, but the MFSA was coordinating their marketing exercises and participating in them.

Mr Dalli said that staying out of the EU would be the death knell of the financial services sector in Malta, because products registered in Malta would not have total access to European markets through the passporting system.

The MLP was very mistaken to think that Malta could do what it wished in financial services if it stayed out of the EU. All countries had realised that they could only operate successfully in financial services within international regulation.

Mr Dalli insisted that tax revenue was growing through more efficient tax collection and economic growth, rather than new taxes. Taxation under the Labour government had risen by Lm15 million in their first budget and Lm30 million in its second. The government in the past five years raised a total of Lm66 million from new taxes while the taxes of the Labour government, imposed in two years, would in five years have yielded Lm196 million.

Mr Brincat was repeatedly trying to undermine the Tax Compliance Unit. The employee he had made reference to had been transferred out of the department and was being investigated. But this did not mean that the unit was not working well.

Referring to the Customs Department, Mr Dalli said the dog section was being phased out to be replaced by a more efficient swipe system. The department was also buying a new X-Ray system and a vehicle control system.

Turning to privatisation, Mr Dalli said Bank of Valletta was private and he did not feel he should impose privatisation on it. He was therefore working for the method of sale of shares to be agreed with the board.

Maltacom too was being prepared for privatisation, but first its subsidiary go-mobile would be allowed to mature. One would then see how Maltacom should best be privatised. But certainly the method followed would not be the one adopted by the Labour government.

Mr Dalli said the revenue from the tax on fringe benefits could not be accurately calculated since many companies had now removed fringe benefits and were declaring their employees' proper income.

Mr Dalli said the stock exchange was there mostly for equities rather than funds and it made sense to tax interest on the bonds and collective funds. His comments, he insisted, had always been aimed at protecting investors as well as the institution.

Mr Dalli denied there was some sort of panic in the Inland Revenue Department for tax to be collected before the end of the year. The department, he said, was far more efficient than ever and what was happening was ordinary administration.

The government, he said, was being accused of being tired, yet the opposition in four years had not been able to take a decision on VAT. It was the opposition which had got tired chasing the government.

Mr Dalli referred to the list tabled by Mr Brincat on facilities made available by Bank of Valletta to parastatal companies. He said this was a confidential document and the way Mr Brincat had acquired it and published it was shameful. This was an example of undue political interference which the people should note because under a Labour government they would not have a private life.

Mr Dalli observed that government guarantees on borrowing had fallen by Lm77 million from Lm492 million in 1998, when Mr Brincat was finance minister.

Concluding, Mr Dalli said the opposition was embarrassed by the budget, because while the government was borrowing Lm80 million, the Labour government had borrowed Lm125 million in each of its two years.

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