It could have been better...

Manuel Borda argues that the 2004 Budget need not have been so hard on so many people had alternative sources of revenue been tapped

Very rightly the Minister of Finance concluded his Budget speech with an appealing phrase: "the country belongs to us all". What he failed to point out, however, is that the country is made up of people with myriads of goals, ambitions and interests.

There may be conflicting ends but through a clear policy direction and enforcement of regulations, differences in attitudes and targets will converge to a common trend: that which ultimately benefits everybody and in that way the country is enriched. The pertinent question is whether the Budget for next year seeks to attain these objectives.

The budget must be seen against the background of people's expectations of "a new spring": more employment and business opportunities will come our way, greater economic activity and an improved quality of life.

But now we are told that the "new spring" implied a new approach to Malta's problems. In other words, government liaises with social partners at the Malta Council for Economic and Social Development (MCESD) before formulating its policies.

The irony is that after the Budget speech, nearly all member organisations of the MCESD have distanced themselves from various measures announced by the Finance Minister. In addition, some important considerations were not even mentioned: deploying surplus and underemployed labour in government departments and parastatal bodies, controlling waste, and embarking on an economic growth programme to arrest the decline in people's standard of living.

In fact, statistics provided by the budget itself show that imported second-hand cars have been consistently on the increase since 2000, indicating a lower standard of living. During the first nine months of 2003, the percentage of second-hand car imports to the total number of imported cars has more than trebled over the whole of 2000.

But now Government itself is engineering a further decline in the quality of life. People will not be served with regional health centres at night and on Sundays (creating greater pressure on the hospital's emergency ward), early retirement is becoming the order of the day (conflicting with Government's goal of raising the pensionable age) and elderly people residing in state institutions and who used to contribute 60 per cent of their pension will now have their contribution increased to 80 per cent.

The potential cost savings and revenue increases as a result of the introduction of these measures are not substantial. Those amounts can easily be made up through more effective control of expenditure incurred by government departments, parastatal companies, public authorities and the University. It is particularly unacceptable that Government taxes heavily elderly people who have spent all their lives, in one way or another, serving the country. So much for social conscience and solidarity!

The introduction of new taxation measures shows Government's financial concerns: the deficit, expanding public debt, service payments and Malta's inability to join the Eurozone, given the present financial indicators. True, it is envisaged that in three years' time we may satisfy all the requirements to adopt the single currency, but past performance is not a guarantee for the future. Better results would have been obtained had greater efforts been made at cutting expenditure and, at the same time, encouraging economic growth and focusing on new sources of revenue.

Despite that misdirected focus, even the increase in VAT from 15 per cent to 18 per cent could have been looked at positively. Instead of solely emphasising the taxation side, Government could have coupled it with formulating an industrial and manufacturing policy whose goal would be the intensification of the export effort.

The reason is that a very high proportion of our expenditure is spent on imported goods. A high VAT rate tends to reduce consumption of imported goods and, with export promotion, we are likely to solve our consistent adverse balance of payments problem and, in the process, earn foreign currency and create new employment opportunities.

It is abundantly clear that there is no coherent policy on industry and manufacturing. Malta's continued reliance on a single firm which alone produces 55 per cent of our total exports says it all. Now the fact that this firm is relocating 20 per cent of its operation to Morocco is an extremely troublesome situation and yet no reference to this was made in the Budget speech.

A worse scenario is that we are still in the planning phase of formulating a competition index. It is not enough to declare that the political situation is clearer on the EU question. In the first place, globalisation has been with us for a number of years and, secondly, efforts to make Malta competitive should have been made consistently since independence.

The underlying reason, perhaps, is that Government is not at all convinced that Malta can ever be competitive in the manufacturing sector. Reading between the lines, one realises that the Budget emphasises the services sector: tourism and financial services are specifically pointed out.

It is amply clear that our comparative advantage is in the tertiary sector. Malta should take great pains to cultivate this sector further and ensure that it is competitive so that its share of GDP keeps rising. To make sure that continued progress is made, we should pre-empt potential problems and remedial measures ought to be taken within a specified timeframe.

Malta is rich in this area. It is a mistake, however, to limit ourselves just to tourism and financial services. If we look around, we should discover more sources of revenue that are not related to taxation. Thus, the University of Malta is already attracting fee-paying foreign students. This trend can be expanded and intensified to make it economically worthwhile.

The University can have its courses structured to meet international students' needs. Luckily, the medium of communication is British, and not American, English, and it is for this reason that many foreign students prefer to study in Maltay. To attain this aim, however, the present administration needs beefing up and lecturers, particularly full-timers, must be devoted entirely to their teaching duties and always be available to meet foreign students' demands.

In the same way the Mater Dei Hospital burden can be lightened. But it has to be given a different outlook. Given that Maltese doctors already enjoy a good worldwide reputation and that the newly built hospital is furnished with the latest equipment and technology, it could be turned into a centre of specialised medical functions for Mediterranean people and, perhaps, EU nationals.

Again, hospital administration, paramedical staff, and doctors must ensure that Malta really deserves the good reputation it enjoys for hospitality, good service, excellent medical treatment and reasonable fees charged. Through this approach, what appears to be a white elephant can be a source of much-needed revenue.

These are just two examples. There are other potential sources of revenue that are not connected to taxing Maltese citizens. If we take the easy and immediate solutions, we can never arrive at the point of tapping these new sources of revenue that have been there for ages.

Admittedly, Malta is facing a dire financial situation and this Budget is generally looked at as being a bit too hard on many people. But through sheer hard thinking and investigating alternative sources of obtaining the much needed revenue, this Budget could have been much better formulated to inspire the people to contribute willingly to the nation's well-being.

Dr Borda is an economist specialising in the economic development of small states