The 2005 budget presented a week ago by the Prime Minister was short on figures, quantifiable targets and results as to what the effects of the economic measures it introduced would be, economist Edward Scicluna said yesterday.
Speaking at The Malta Financial and Business Times Radisson SAS business breakfast, Prof. Scicluna presented estimates, based on econometric calculations, showing the likely economic growth over the year to come and where that growth could come from, what is the most likely employment target and how it is expected to occur, and how the household income growth is likely to occur.
Prof. Scicluna said the budget, in which many stated that "the employers had won and the unions lost", did not lack vision. Yet the vision had not been translated into hard data.
On the four-day leave reduction in the coming year, a measure the government introduced to raise the country's productivity, Prof. Scicluna said the measure would not do so, "although the final effect is similar. It only raises production".
"Productivity increases when output is increased with less, not more, labour," he argued. But since an extra four days of work would come at no additional cost to employers, it would contribute to a reduction in the unit cost of labour.
But the issue at stake here was that the measure risked being diluted by wage increases and possible absenteeism through sick leave. In the public sector, Prof. Scicluna said, "the reduction of unit labour cost is more difficult to envisage. Labour here needs to be reduced not increased".
"I would estimate that the 1.8 per cent potential lowering of unit labour costs envisaged by the measure would be reduced to 1.5 per cent for the private sector and about 1.2 per cent for the whole economy.
"Just compare it to the cost-of- living adjustment for this year, which by itself, prior to any other wage increases, increases the unit cost of labour on average by about 1.6 per cent," said Prof. Scicluna.
Using Eurostat data from 1991 till today and comparing it with local figures, Prof. Scicluna found out that while Malta fared very well with impressive productivity gains over the past two decades or so, it was the only country that had lost its national competitive advantage because it failed to lower the unit cost of labour over time, or "by distributing more than it produced".
While it is estimated that Malta's unit cost of labour would be reduced by one per cent through the four-day leave measure, competitor countries such as Ireland have reduced their unit labour cost by 24 per cent since 1991.
Whereas the government continues to bank Malta's economic recovery on international economic recovery, blaming the difficult conditions which are said to have a negative effect on the country's exports, Prof. Scicluna pointed out that countries pressured by the same constraints had successfully coped with these calamities. Thus, banking on the recovery of international economies will not be enough to increase productivity and reduce costs.
With regard to the targets set in the National Action Plan for Employment and the extent to which these are attainable, Prof. Scicluna said the way out was changing institutional rigidities through reform.
Figures for the past 20 years show that the employment rate has "barely budged", said Prof. Scicluna. The full time employment rate would only increase when the real GDP growth exceeds 2.75 per cent yearly, and at a rate of 0.08 percentage points for each one per cent in excess of 2.75 per cent.
Trends for the past 15 years indicate that the unemployment rate is not expected to fall unless the rate of economic growth exceeds 5.5 per cent.
"The time has come for competitiveness not to remain just a cliché, but shown to be real and quantifiable," Prof. Scicluna said.
Labour Party deputy leader Charles Mangion, the second speaker at the business breakfast, said the budget measures would continue to affect negatively both middle and low-income earners.
"As consumers, such families will be negatively affected by further increases in the cost of living arising from higher charges for water and electricity, mobile telephony, kerosene, foreign travel, a widening of the eco-tax base and an increase in bus fares," Dr Mangion said.
The MLP deputy leader said Malta was among the EU countries with the highest taxes, both direct and indirect.
He said Labour has already started its work on building a plan for the economic and social regeneration of the Maltese economy, which was being discussed with the social partners for feedback.
The opposition had proposed that the government introduce a system of accrual accounting "to prevent any further governments from playing games with below-the-line accounts or withheld payments of bills".
The MLP has also proposed to cut down recurrent expenditure by three per cent, excluding social benefits and education.
The government, he said, had presented more of the same in recent years and, while there had been some positive, yet small measures, the bigger issues were bureaucracy, tax burdens on the same class of citizens and a lack of new investment.
Parliamentary Secretary Tonio Fenech said the main thrust of the budget was promoting economic growth while addressing economic priorities on a number of levels.
"An important component of this equation was to cut the deficit and put government finances on a sounder footing," Mr Fenech said.
Other fundamental issues that the budget sought to address were the reduction of expenditure, undertaking the necessary structural reforms and creating an environment for investment and job creation.
Replying to criticism that the projected deficit targets were too low, Mr Fenech argued that too optimistic estimates could have adverse consequences if not attained.
"However, we firmly believe that with the measures undertaken we should be in a position to see more productivity and investment and thus better growth results than forecast," Mr Fenech said.
The parliamentary secretary said the decision on public holidays would contribute to an additional one per cent GDP growth in 2005. "This will also translate itself in labour cost reductions, the unemployment rate and inflation, making exports and tourism more competitive," Mr Fenech said.