Editorial

There have already been so many indications regarding the state of public finances and the planned fiscal and other incentives in the 2007 Budget to be presented to Parliament by the Prime Minister, Dr Lawrence Gonzi, who also doubles as Finance Minister, that the "surprise" element usually associated with the Budget is almost completely absent this year.

For instance, it has already been known for some days that the projected deficit for this year should amount to Lm55 million, or 2.8 per cent of the Gross Domestic Product. This was reiterated by Dr Gonzi himself when addressing the Nationalist Party's General Council last Friday. You cannot really blame the Prime Minister for boasting about the fact that, as he said, the government deficit has been brought down to its lowest level for the last 18 years. Besides, now that it has gone below the three per cent of GDP threshold imposed by the Maastricht treaty, Malta has fulfilled one of the major requirements for joining the European single currency, the euro, on January 1, 2008, as planned.

For this the government deserves credit, as it has made deficit reduction - the major plank of its convergence plan - one of the main objectives of its budgetary policy.

Dr Gonzi also announced that real GDP growth this year would amount to 2.2 per cent, which is higher than the European average. Obviously, sound government finances are the key to solid economic growth and a magnet for foreign and local investment.

We have also been assured by Parliamentary Secretary Tonio Fenech that the inflation rate, which is slightly higher than the European average, would be held in check. An improvement in the deficit situation would, of course, reflect itself in a lowering of the national debt, since another criterion for joining the Eurozone is that the debt should not exceed 60 per cent of GDP. With a lowering of the debt, the cost of its servicing - a major recurrent expenditure in any budget - should logically go down.

An improvement in Government's financial situation should allow it to ease the tax burden. The Labour Party station's television news bulletin on Friday went into quite some detail about how the taxpayer would be benefiting to the tune of Lm16 million, with cuts in income tax of up to Lm700 a year, not to mention reductions in the water and electricity surcharge.

The Opposition is clearly raising expectations, perhaps in the hope of dubbing this an "election Budget" and also to gain from any feelings of disappointment and letdown should the tax cuts it has heralded not materialise.

On the other hand, the Prime Minister has assured us that the government still has at least another year and a half to run before calling another general election. As we said last Sunday, there are still too many projects in the pipeline (Mater Dei Hospital, Smart City, EU budget funds) to make an early election likely.

However, it is right and proper for the tax burden to be eased while not losing sight of the overriding Budget objectives of narrowing the deficit and reducing the national debt. Above all, Government cannot afford to let up in its plan to reform the pensions system. For whatever the Leader of the Opposition says about the problem not arising before another 15 years, unless remedial action is taken now - given the stark demographic facts - we could be facing meltdown in 15 years' time. This, in fact, is the considered opinion of the Slovenian finance minister (see interview on page 21) - whose country will be the first of the ten 'new" European Union member states to adopt the euro on January 1, 2007.

Ideally, Government and Opposition should reach consensus on pension reform, as they should on another important issue - rent reform - but unfortunately recent history shows that such consensus is extremely difficult. We only have to look at the lack of consensus on European Union membership, up to the general election of April 2003, to realise this. Failure to reach consensus then surely meant the loss of substantial foreign investment and lost opportunities. Perhaps there is still time to learn from past mistakes.

The Budget 2007, preparation for which has been detailed and thorough, thanks to the pre-Budget document and wide-ranging consultation, is expected to focus also on education and research, attracting investment and ensuring a better quality of life for all, including the least advantaged.