Editorial

When the Finance Minister tomorrow unveils his Budget for 2004 he will primarily be concentrating on measures to rein in the government deficit and to bring it down within manageable limits over the next few years.

The target is to enable Malta to join the euro, the European single currency, by 2007, which requires, among other things, that a nation's budget deficit be brought down to below three per cent of the Gross Domestic Product and its national debt to be no more than 60 per cent of GDP.

But, apart from euro membership, there are very strong arguments why these targets should be reached: continuing budget deficits and rising national debt not only take up an increasing amount of the nation's resources, when these could be used to fuel economic growth, but would also inexorably lead to a lower standard of living and a worsening economic situation.

Unfortunately, in both areas - budget deficit and national debt - we are still considerably short of the target. Rising national debt - to which the government resorts in order to bridge the growing deficit - only means mopping up financial resources which could be used for capital investment, consumer expenditure and economic expansion.

The fact is that, as Mr Dalli stressed in his recent speech at the annual dinner of the Institute of Financial Services, while everybody agrees that something should be done to rein in the deficit, hardly anyone comes up with practical examples of where the cuts in government expenditure should be made; indeed, everyone is jealous of defending their own turf, expecting more and more from the state.

While pensions, social security and welfare benefits, education, health - the major items, along with wages and salaries of its still huge workforce, in Government's expenditure - continue to rise, Government's receipts in the form of taxes, duties, etc., depend not only on the state of the Maltese economy, but increasingly on the international situation which, as we all know, has grown increasingly volatile in the wake of the terrorist attack on the US of September 11, 2001. And if there is no economic growth, government revenue will not rise without additional taxation.

The latest terrorist attacks in Turkey will no doubt have serious reverberations not only for that country, scaring tourism and foreign investment; they will also affect holidaymaking patterns as the fear of travelling abroad takes hold - and that is bound to affect us too, since we are so dependent on tourism.

Another factor contributing to the world's - and therefore Malta's - economic slowdown is the increasingly tough competition which is seeing capital flowing from developed countries to low labour-cost countries like China. Indeed, competitiveness is the number one challenge for Malta's export industry and every effort must be made so that while we may no longer compete on labour costs, we can compete in terms of quality, efficiency and delivery.

Local industry could do with less government-induced costs, but even more so without the crippling local port charges (reflecting a lack of competition) which are totally uncalled for.

This is why tomorrow's Budget is bound to be a reality check for the Maltese economy. The costs of Government-provided services, especially in health, which we are accustomed to receiving "for free", have sky-rocketed in the last few years. And the new hospital, whose need has long been felt, is gobbling up huge funds as the costs of running it and of medical equipment and treatment inexorably rise. It is in this context that the hike in value-added tax which, it seems almost certain, Mr Dalli will announce tomorrow, has to be seen.

Similarly, demographic changes have made the pensions system increasingly unsustainable. One expects action on both fronts, although for it to succeed as it should, pensions reform has to receive the widest possible consensus in a show of great responsibility by all concerned.

Naturally, efforts to combat tax evasion and to curb abuses of the welfare system must continue unabated, but these alone will not suffice to address the underlying problem. Admittedly, more progress has to be made, for example, to ensure that everyone carries their fair share of the tax burden. There are still too many cases of individuals with an ostentatious lifestyle who pay a fraction of their due in taxes. With more effort, the Tax Compliance Unit should see to these cases.

Also, Government seems to have finally addressed the problem of the bottomless money pit represented by the drydocks and shipyard, albeit at the cost of writing off over Lm300 million in debts which were probably never recoverable anyway.

But it is time for a new awareness to be implanted that nothing comes for free and that, in the end, it is we taxpayers who have to foot the bill.