Dalli's (im)pure mathematics

In August 2002, the Ministry of Finance circulated its pre-budget consultation document among the constituted bodies. It spoke of increased efficiency, effectiveness and sustainability. It predicted that after remaining relatively stable in 2001, the budget balance was expected to decline in the medium-term framework, in line with the government's policy to contain the level of fiscal imbalance.

In fact, it stated that it was projected that the general government budget balance would gradually decline from seven per cent of GDP in 2001 to about three per cent in 2005, adding that, as a result, the level of gross government debt was expected to contract from 65.3 per cent of GDP in 2001 to about 61 per cent in 2005. In setting out its projections for the position of the consolidated fund, the consultation document targeted the following budget deficits: 2002 - Lm78.6 million, 2003 - Lm76.9 million, 2004 - Lm65.8 million.

The ministry promised that "as in recent years" the government's policy focus would remain on rationalising public spending, in particular, through more efficient allocation of funds. Public private partnership schemes were also given importance in the government's programme to contain public spending.

When the Minister of Finance came to read his budget speech for the financial year 2003 he stated categorically in page 44 that "after having taken note of the said budgetary measures, it is expected that the deficit by the end of 2003 should be Lm75 million or 4.1 per cent of GDP". As financial figures for 2003 began coming on stream one could easily tell that, caught as the government was in the pre-electoral rush linked to the EU referendum and general election campaigns, revenue collection had grown deliberately lax while government spending started going unchecked and beyond plan.

It was for this reason that when the government came to make its initial revisions of its budgetary projections for that particular year, it seemed that everything pointed in the direction of a budget that would overshoot from a targeted Lm75 million to Lm135 million. Having known Minister John Dalli's tricks of the trade one could easily tell that he had inflated his revised figures so that by year's end he could claim victory even if he went off target from his initial projections.

That is exactly what happened. When he addressed parliament last November to present the 2004 budget and estimates, he "predicted" a deficit of circa Lm108 million. Surprise, surprise when the prime minister found himself desperately searching for some form of face saver during last Friday's parliamentary debate on the dire labour market situation on the island and "announced" that the deficit had been contained by being "reduced" to Lm105 million.

Something which found a perfect echo in practically all the PN leaning or "independent" press on the following Sunday - which newspapers carried boastful statements by Minister Dalli that the government would manage to be on track without even making recourse to deferred payments.

Minister Dalli has every right to contest for the party leadership. Whether he has the right ingredients to win the day is not for me to say - that is a prerogative of the PN delegates and councillors. But as a member of parliament who still takes an interest in an area that I had covered and shadowed for some time, I have every reason not to accept to be duped by the type of hype dished out by Minister Dalli as part of his spin-doctoring campaign to win the hearts and minds of his party councillors.

To claim that the deficit, standing at Lm105 million, is an achievement is an insult to everyone's intelligence, as comparisons can be made not with the revised or final estimates but only with the initial estimates announced when the budget 2003 was first made public in November 2002.

It is equally insulting of the minister to claim that "we've" managed to contain the shock of 2003. Enough time has passed for him to continue blaming his poor performance on Sars, the Twin Towers attack, the global economic recession and the election. If the election did impact negatively on public finances it was not due to the uncertainty they created but rather to the extravagance that they stimulated and fostered among the government's key ministers and officials.

The minister has nothing to boast about when he claimed that he netted some Lm36 million in December 2003. In making such a statement he was merely reconfirming the accusation of the Chamber of Commerce and Enterprise that the government was taking the easy way out of a challenging situation by using "shotgun" or "across the board" approaches, attempting to curb fiscal deficits by turning to the tax paying public.

While dismissing Minister Dalli's spin-doctoring as a mere component of his personal leadership election campaign, I cannot but agree more with the Chamber's conclusions that the budget speech failed to transmit the right signals to the investor as the tax measures would be counterproductive. But the key operative statement that said it all was when the Chamber stated categorically that "this budget will resolve nothing". I could not agree more.

Mr Brincat is the Labour Party's spokesman on foreign affairs.