Editorial

The reaction to Dr Lawrence Gonzi's Budget for 2007 has generally been positive - after all, not only does it contain no new taxes, but it has actually rolled some taxes back, and given a reasonable income tax rebate. Not enough "goodies", perhaps, to call it an election budget, but certainly one which contributes to a positive feeling.

What is important for the government's broader economic objectives is that the 2007 Budget brings us closer to membership of the Eurozone, targeted for January 1, 2008, which implies fulfilling the strict Maastricht criteria for convergence of the economies of the European Union member states, and thus for adoption of the single European currency.

Probably the most important requirement for economic convergence is the limit of three per cent of Gross Domestic Product imposed on the size of a national government's annual deficit. For the first time in many years, Dr Gonzi proudly announced, the deficit this year would decline to 2.8 per cent of GDP, to reach Lm57 million, compared to the Lm75 million registered last year. The deficit is targeted to go down to 2.5 per cent of GDP in 2007, 1.4 per cent in 2008, and below one per cent in 2009.

This came through a series of measures designed to cut recurrent expenditure, such as privatisation, the downsizing and restructuring of government-owned enterprises, such as the shipyards, more efficient tax collection, and a growth in revenue thanks to a steadily expanding economy. The economy next year is in fact expected to grow by 2.5 per cent.

Progress is also being made on the national debt front: here the Maastricht guideline is that it should not exceed 60 per cent of GDP. In Malta's case this stood at 68.6 per cent this year, and is to go down to 63 per cent by 2009.

Unemployment is at 4.5 per cent as of June this year, which is around the European average, but the situation is expected to improve thanks to massive foreign direct investment, not least the Lm110 million represented by SmartCity, which should in the long term create 5,600 jobs. Besides, Malta Enterprise this year approved no fewer than 71 new projects, which are expected to generate some 3,600 jobs over the next three years.

Inflation, currently running at 3.4 per cent, is higher than the European average, and thus represents perhaps the major obstacle on the road to Eurozone membership. No doubt, the rate has been affected by the enormous hike in international oil prices. Although these prices have been easing in recent weeks, the government - and the country - must not lower its guard against energy waste and inefficiency, and efforts must be stepped up to adopt alternative sources of energy.

The incentives for the purchase of energy-efficient household appliances announced in the Budget are welcome. One hopes that the projected offshore wind farm will materialise, and that solar and photovoltaic energy are given greater importance, because in the long term oil prices are destined to go up. So less dependence on oil supplies should impact favourably on the rate of inflation, while also helping to reduce pollution.

The elimination of two tax bands means a savings of up to Lm4.67 a week for taxpayers, who will thus have more disposable income. Government hopes that this will also encourage people to work more and declare more of their income. The tax relief is part of the Lm12 million stimulus to the economy contained in the Budget - the most the government thought it prudent to give without jeopardising its financial position and economic targets.

Government has also cut back the airport departure tax, extended pension facilities to the disabled, widows and widowers, doubled tax deductions for parents of children attending private schools, raised the tax-exempt ceiling and lowered tax rates on transfers of residential property (a logical thing to do in view of rising property prices), and makes it more attractive for women to go to work by giving tax breaks for child care.

On top of this, Government has substantially increased its votes for health, education and tourism - the latter being coming none too soon if the sector is to recover from the disappointing figures we had this year.

Disappointingly, though, the Budget makes no reference to the reform in the pension system which has to be undertaken as a matter of urgency in view of the demographics involved, nor to any reform in the rent laws, where the enormous injustice which property owners are suffering can only get worse with the passage of time. Perhaps, with brighter economic prospects ahead, the government can finally afford to tackle these two long-festering issues.