The budget is being prepared against a background which should be replete with proposals from the civil and economic societies. Up to almost the very last minute the government has been spending money on adverts inviting people to submit their proposals to the Prime Minister and Minister of Finance, by writing or even phoning his office. The pre-budget document was itself ostensibly drawn up on the basis of a series of consultation meetings which the PM had with those of the members of the public who found the time to attend.
The budget speech, which the Prime Minister will deliver on Monday, is unlikely to contain a lot of the proposals which would cost money to implement. In particular, one doubts very much whether the call by the GRTU for a wholesale revision of the income tax system will be translated into formal proposals by the Finance team.
The GRTU at least did the right thing by costing its proposals, something which is zealously done abroad, but rarely attempted in Malta, particularly by the political parties themselves, at least not in public. According to its estimate the various proposals - to raise the tax thresholds, broaden taxable income bands and streamline tax rates - will cost some Lm40 million in foregone revenue. The government's loss would be the consumer's gain. A cut in income tax would add an equivalent amount to disposable income. Those who find more money left in their pay packet will probably spend most of it, and save the balance.
The part spent will yield the government revenue in the form of Value Added Tax on the extra goods and services consumed. That part of the money saved and placed in banks, or invested in bonds and shares will yield further revenue, in the form of final withholding tax at source on the interest earned on deposits and bond coupons. The government would therefore claw back an unquantified amount of the revenue foregone, making the net impact less than the Lm 40 million estimated by the GRTU, unless the tax on spent marginal income has been taken into account in its estimate.
Whatever the net figure, I doubt that a responsible Finance Minister would implement the proposal at a stroke, or much at all.
The GRTU said the foregone revenue could be made up for through reduced government expenditure, that is, better value for money for every lira or euro spent by the public authorities. No doubt, some savings could be made, starting with cutting the inflated political administration to a less indecent size. But to find Lm40 million of tax savings is asking for a lot. Moreover, if the government of the day finds that it can afford to reduce revenue, it would probably think twice before putting the bulk of the reduction into taxpayers' pockets. There is such a thing a social objective to the budget. If there are resources to spare a government with a social conscience would surely try to ensure that it allocated a generous part of them to improve the circumstances of those who live at the margin of our society, often in conditions that would be totally unacceptable to the rest of us, but regarding which those who really exist below the poverty line have no choice whatsoever.
Also, a government with enough economic awareness might jib at the prospect of boosting disposable income to boost consumption and, in Malta's particular case, suck in imports. Budget resources are best allocated, other than to redistribute income and enhance social justice, to bring about or encourage ways to improve economic performance.
Which is why the Finance team will also have spent considerable time assessing the budget proposals submitted by the Federation of Industries. The FOI package is a well thought out exercise targeting sensitive measures, some of which are new, others are in need of widening and deepening.
The Finance team will not have ignored any submissions made to it. Working responsibly, it would start with a critical review of any prevailing weaknesses as well any strong points and start by addressing them.
Remove or reduce the weakness, build further on the measures that are working - that should be the first mission statement of all those responsible to prepare budgets, whether for an enterprise, or for the country.
With public budgets there is the little spot of bother of having to keep the politics of the situation in mind. The situation today is that, although the next general election need not be called before another 10 months, it seems to be not very far away from round the corner. The Budget will be interesting from that standpoint as well. The Prime and Finance Minister wants very much to be elected on his own ticket.
The balance he will present between proper budgeting for what the country needs and the political priorities which are impressed upon him by his own analysis and the advice of his party gurus, will be the measure of whether the coming Budget is a serious enough exercis
The budget speech, which the Prime Minister will deliver on Monday, is unlikely to contain a lot of the proposals which would cost money to implement. In particular, one doubts very much whether the call by the GRTU for a wholesale revision of the income tax system will be translated into formal proposals by the Finance team.
The GRTU at least did the right thing by costing its proposals, something which is zealously done abroad, but rarely attempted in Malta, particularly by the political parties themselves, at least not in public. According to its estimate the various proposals - to raise the tax thresholds, broaden taxable income bands and streamline tax rates - will cost some Lm40 million in foregone revenue. The government's loss would be the consumer's gain. A cut in income tax would add an equivalent amount to disposable income. Those who find more money left in their pay packet will probably spend most of it, and save the balance.
The part spent will yield the government revenue in the form of Value Added Tax on the extra goods and services consumed. That part of the money saved and placed in banks, or invested in bonds and shares will yield further revenue, in the form of final withholding tax at source on the interest earned on deposits and bond coupons. The government would therefore claw back an unquantified amount of the revenue foregone, making the net impact less than the Lm 40 million estimated by the GRTU, unless the tax on spent marginal income has been taken into account in its estimate.
Whatever the net figure, I doubt that a responsible Finance Minister would implement the proposal at a stroke, or much at all.
The GRTU said the foregone revenue could be made up for through reduced government expenditure, that is, better value for money for every lira or euro spent by the public authorities. No doubt, some savings could be made, starting with cutting the inflated political administration to a less indecent size. But to find Lm40 million of tax savings is asking for a lot. Moreover, if the government of the day finds that it can afford to reduce revenue, it would probably think twice before putting the bulk of the reduction into taxpayers' pockets. There is such a thing a social objective to the budget. If there are resources to spare a government with a social conscience would surely try to ensure that it allocated a generous part of them to improve the circumstances of those who live at the margin of our society, often in conditions that would be totally unacceptable to the rest of us, but regarding which those who really exist below the poverty line have no choice whatsoever.
Also, a government with enough economic awareness might jib at the prospect of boosting disposable income to boost consumption and, in Malta's particular case, suck in imports. Budget resources are best allocated, other than to redistribute income and enhance social justice, to bring about or encourage ways to improve economic performance.
Which is why the Finance team will also have spent considerable time assessing the budget proposals submitted by the Federation of Industries. The FOI package is a well thought out exercise targeting sensitive measures, some of which are new, others are in need of widening and deepening.
The Finance team will not have ignored any submissions made to it. Working responsibly, it would start with a critical review of any prevailing weaknesses as well any strong points and start by addressing them.
Remove or reduce the weakness, build further on the measures that are working - that should be the first mission statement of all those responsible to prepare budgets, whether for an enterprise, or for the country.
With public budgets there is the little spot of bother of having to keep the politics of the situation in mind. The situation today is that, although the next general election need not be called before another 10 months, it seems to be not very far away from round the corner. The Budget will be interesting from that standpoint as well. The Prime and Finance Minister wants very much to be elected on his own ticket.
The balance he will present between proper budgeting for what the country needs and the political priorities which are impressed upon him by his own analysis and the advice of his party gurus, will be the measure of whether the coming Budget is a serious enough exercis