Foolish whispers

There is a whisper growing: The Budget for 2007 will be just great. It raises the expectation that the Prime and Finance Minister will create a new era with the October Budget speech for 2007. The whisper is loud in foolishness, little else. Lawrence Gonzi will detail how he will leave Lm8 million in people's pockets. He will probably raise the tax ceiling by Lm500 and jiggle the taxable bands; give a tax credit (or social add-on) to those who are not taxable or only hit the marginal 15 per cent rate; and introduce a social sweetener to the bitterness of the fuel surcharge.

Talk about any slashing of the airport tax is mostly hot air, though it might be trimmed. Hotter air wafts about regarding car registration fees and new measures to stimulate the flagging property market. The government, much as it would want to relax its fiscal grip to prepare for the general election, is constrained by the need to demonstrate to the EU that the absolute and relative (to GDP) reduction in the structural deficit is sustainable.

Any inflation rate decline relative to the best three performing EU economies has also to seen to be sustainable, a steady walking gait not a sexy wiggle on high heels. Targeting the retail price of medicines is necessary but will not be sufficient. And the government cannot ensure that fuel starts costing less for Malta than it does for the rest of the EU.

The growing breathless whisper will simply raise expectations that will not match realisation. Surprisingly, the Prime Minister has approved public spending on a subtly propagandist pamphlet to households inviting suggestions for the 2007 Budget. That feeds the whisper with further foolishness.

The PM has to set the national priorities, rather than be a party to ploys dreamed up in his Pietà headquarters.

He knows that his hands are tied to a considerable extent. That became clearer when he and Tonio Fenech, the Finance Parliamentary Secretary, briefed the media on Saturday after the informal Ecofin meeting in Helsinki.

Probed by journalists about what type of tax relief one could expect in the Budget, Dr Gonzi said the government could choose between reducing the water and electricity surcharge - "which would affect people across the board, including the self-employed" - adjust the tax bands, or alter the departure tax. (The Sunday Times).

Dr Gonzi's implied preference is clearly to ease the surcharge. But then, take in what Mr Fenech had to say: The Helsinki summit insisted that "governments must not play around with energy prices as this will artificially increase the demand for oil. The price impact must be absorbed by the economy" (yesterday's The Malta Independent on Sunday). Whispers about Budget mini-bonanzas and titillations with invitations to participate with individual suggestions cannot escape reality.

Any finance minister has to operate within the political perspective of his government. That would still be the case if this one was on a high. As it is, ex-Minister and sitting Nationalist MP John Dalli sees the people "immersed in a despondency that is increasing as time goes by, feeling trapped in a haze of an uncertain future" (yesterday's Sunday Times).

Whispering up expectations is an attempt to lift the mood. Sober analysis of the economy, to exploit its positives and try to address its negatives, and recognition of burdens which will be around for a long time, like the high public debt rising in absolute terms, offer a more serious approach to the Budget than loud or whispered hype.