Dalli's dilly-dallying

The main difference between the Nationalist Party's electoral programmes for 1998 and 2003 is that while the former laid down specific targets and benchmarks primarily linked to the public debt and structural deficit, such projections are conspicuously absent in this year's manifesto, which must be the blandest effort yet by the PN in recent years.

In sharp contrast to this nebulous presentation, Labour has specified its main objectives without much frills or hyberbole. It targets 5-6% nominal economic growth with effect from next year; plans to reduce the deficit to 3% by 2006 and aims to cut recurrent expenditure by 2% while boosting capital expenditure by 6% primarily in such areas as the environment, education, roads and health.

While Labour made a categoric commitment that it will leave the current level of social services unimpaired, it has offered room and opportunity for the introduction of private pensions by making available the right mix of fiscal incentives.

Forgetting for a moment that Finance Minister John Dalli had given all ministries instructions to slash their expenditure by 10% only a few days after the budget for 2003 had been approved by the House of Representatives, he came out with the scaremongering slogan that a new Labour government would bring along a wage freeze, a hike in utility services, and a reduction in overtime.

When he tried to run down Labour's economic growth targets by claiming that such a level as targeted was already being achieved, the minister failed to point out that in 2001 economic growth stood at 4.7% while in the first three quarters of last year this had dipped to 3.5%, which goes to prove that even though our estimates are on the conservative side, they are already higher than the current economic growth level being achieved.

The minister is trying to make much play of the fact that the sharp increase in income tax revenue is due to tighter tax collection. This is a trend which is definitely not borne out by the Auditor General's report in which he comments about Lm87 million arrears of revenue that have been written off, while the outstanding balance of revenue not collected stands at circa Lm404 million.

Most of Mr Dalli's projections have gone haywire.

In the 2002 budget he had predicted that the national debt would go down from Lm1,038 million to Lm958 million; in actual fact between 2001-2002 it shot up by Lm64 million.

In the Consolidated Account Structure - Trends & Projections which were meant to run to 2004, the minister had predicted that by 2002 the debt/GDP ratio had to increase by a mere 2.7% to 57.7%. In actual fact it reached 63%, were one to exclude the Lm400 million commercial bank loans to the parastatal companies covered by government guarantees.

One moment the minister projected a decrease of Lm130 million in national debt while the year after (in November 2002) he declared that it was expected to increase by Lm143 million by 2004.

The same applies to the deficit. Government was targeting a figure of Lm78 million, or 4.5% of GDP, for last year. Although everything seems to suggest that end year figures will not be made available before the general elections, by November the deficit stood at Lm110 million, although Government had included the Lm21 million proceeds from the MIA privatisation process in its public finance figures.

For Government to reach its objective of reducing the deficit to Lm78 million by end 2002, ordinary revenue would have had to exceed expenditure by at least Lm30 million. No wonder the minister is no longer referring to public finances as being "on track".

We estimate that between November and December 2002 the government deficit must have risen by circa Lm29 million, which should lead us to a more realistic figure of Lm125 million - over 7% of GDP.

Both IMF and EU reports revealed that Government was camouflaging some Lm24 million of its deficits for the years 2000-2001.

Apart from going back on his promise of reducing the tax burden, the minister's biggest failure must definitely lie in curtailing public expenditure. This is a shortcoming which many an international organisation and credit rating agency has pointed out with deep concern.

I estimate that in two years Government must have spent some Lm50 million in adapting our norms to the acquis stipulations coming from Brussels.

Government's privatisation record has been equally dismal. While it is most unlikely that the Public Lotto privatisation will be concluded before the elections, all other privatisations apart from MIA and Maltapost have remained in suspended animation - Bank of Valletta, Kordin Grain Terminal, Freeport, Maltacom, the yacht marinas, and MOBC.

A couple of budgets ago the minister had promised a reform in the social security system. Not only did this fail to materialise, but despite going through two chairmen and an interim chairman, the Commission on Welfare Reform has not even come up with a preliminary report to give us an indication of the members' thinking on this delicate subject. It was Labour that took the lead by coming out with a bold categoric statement on private pensions as laid down in its party manifesto.

Many will no doubt agree that another major failure of Minister Dalli is the Malta Stock Exchange. Apart from introducing a capital gains tax on collective investment schemes - which a new Labour government will abolish - the minister made a couple of ill-timed statements which ended up giving the local exchange the kiss of death.

To give you a rough idea of how stock market activity dipped in Malta one only has to compare 1999, when 13,000 transactions took place totalling Lm138 million, with 2002, when transactions fell by almost two-thirds to 4,200 and turnover averaged Lm21 million.

This apart from the fact that the total value of shares on the market dipped by more than 30% - from Lm790 million in 1999 to Lm550 million in 2002.

According to official ETC figures, employment in the financial services sector declined by around 220 over the past four years up to last October. The last few years also saw a sharp upturn in the ratio of non-performing loans to GDP which doubled from 1998 onwards by going up to 15% last year. This is the highest figure among all EU applicant countries.

In the banking sector, two Turkish banks and one Austrian bank ceased operations locally.

I have been harshly critical of the Tax Compliance Unit ever since its inception. After having allegedly used two weights and two measures in various cases, it has now apparently ground to a halt, possibly given the current pre-electoral period.

A comprehensive assessment of Minister Dalli's dilly-dallying on public finances explains the expedient manner in which the Nationalists deliberately refrained from making any specific references to public finance in their hollow new manifesto.

e-mail: leo.brincat@magnet.mt