Imagine

Imagine going back just over a year and the Labour Party would have won the March 2003 referendum and the April 2003 general elections. Malta would be negotiating a partnership agreement with the European Union. By now all Malta's woes: unemployment, lack of new foreign direct investment, falling tourism, closure of factories, the structural deficit and the rising public debt... would all be blamed on the Labour government and the partnership option with the EU.

Do not imagine anything and just see what is happening now. Malta has a Nationalist government, we are members of the EU and we have unemployment, a stagnant economy, an unsustainable structural deficit and public debt.

During last year's campaigns the Nationalist Party said that it was controlling the public deficit and that the country's finances were on a sound footing. Everybody's jobs were guaranteed. Foreign direct investment was simply waiting to flow in and economic prospects were bright and all Maltese and Gozitans were promised that they would live happily ever after.

The Nationalist Party in government is now reaping what it sowed during the past 10 years: irresponsible public expenditure, lack of drive to attract foreign investment, neglect of the environment and historical heritage, and a system of cronyism and patronage in the running of public companies and civil administration.

The Nationalist Party in government now has to mend its ways and cannot dismiss Brussels' repeated warnings to heal the country's finances. So far government has cut Lm10 million in its public expenditure. By the end of the year government wants to cut a further Lm20 million. Social and economic sectors are suffering already because of these cuts and will suffer more in the months and years ahead. Tourism, education, health and welfare are all being affected by these budgetary cuts. A government that was incapable of solving the country's problems when it operated in a 'Money no problem' mindset is bound to compound these problems when it is compelled to run the country without enough money.

The 2004 Budget presented by the government last year has become a mockery and is unrecognisable if compared to what was discussed and passed in parliament. Government should have the decency to go back to parliament and present a revised 2004 Budget that sincerely reflects the severe cuts to reduce the structural deficit and public debt.

Malta has lost its competitiveness at a time when it is also running an unsustainable structural deficit and public debt. Tourism has been unable to grow since 1995. Heavily subsidised public companies and corporations are still running at a big loss. Existing manufacturing firms are either closing down or are locating parts of their production elsewhere. Very little new foreign direct investment is flowing in.

Our future is at risk if we do not take steps to bring about an economic recovery. We cannot solve the problems created by the structural deficit and public debt, we cannot sustain and improve our welfare state, we cannot prosper, provide a future to those that are falling behind... if we do not have strong economic growth.

We simply cannot afford to allow our country to slide year after year into an increasingly difficult situation with public and private debt growing, public and private savings declining and main sectors of the economy stagnating and shrinking. We must reverse the situation. We must create the conditions for new economic growth that allows for new productive jobs in the private sector that reduces the ratio of government debt to the wealth created in Malta and Gozo by our products and services. Only such strong economic growth can create a better quality of life for our families and pensioners.

National plan for economic recovery

Our national survival demands that all of us: political parties, business organisations, trade unions and civil society agree on a national plan for economic recovery addressing and answering the following disturbing questions:

¤ Where is strong economic growth going to come from?

¤ With the current business environment: taxes, government induced costs, wages, prices and economic structure, skills base, the administrative set-up and social and political culture... can Malta and Gozo really attract serious foreign investment?

¤ What are we doing to regain, develop and eventually improve the competitive advantage of Malta and Gozo in tourism, manufacturing and services?

EU membership will not provide magical and painless answers to these painful questions. EU membership does not suspend the ordinary laws of economics. EU membership does not guarantee catch-up growth.

Last year's report Europe Enlarged: Understanding the impact, published by the Economist Intelligence Unit and major European banks warns: "For accession countries, EU entry offers only the possibility, not the guarantee, of seeing their per capita GDP converge rapidly with EU norms... Poorer countries that keep public spending down and taxes affordable, while maintaining a good standard of government, will grow faster than countries that let their public sectors bloat and their tax burdens rise..."

We have to find the funds to run administrative set-ups to comply with EU regulations and to co-finance projects funded by the EU at a time when the structural deficit and public debt have continued to grow and Government is being forced to cut public expenditure and has increased taxes without any corresponding improvement in public services and has not been able to deliver a better quality of life for our families and pensioners.

Government has till to come up with policies to ensure that Malta and Gozo have the necessary entrepreneurial environment for strong economic growth. Government still refuses to examine why a number of factories have closed down in Malta and Gozo and why other factories are considering relocating part of their production processes overseas.

Government very complacently says that it is inevitable that enterprises are born, mature and die, as economic development is dynamic. National competitiveness councils in other countries have been wiser than the Nationalist government. They are aware of course of the disruptive changes in the economy described by Austrian economist Joseph Schumpeter, which "incessantly revolutionise the economic structure from within, incessantly destroying the old one, incessantly creating a new one".

We still need to study why a number of our factories have closed down, and others are relocating parts of their production overseas; why our tourism is declining; and why our economy in general is anaemic. We need to take the necessary steps to ensure that our different economic sectors can withstand and flourish in the new realities of EU membership. Otherwise, our quality of life will deteriorate even further.