A history-making budget speech

History will be made this evening when the Prime and Finance Minister delivers his budget speech for 2008. It will be the first time that an Opposition Leader will have participated in drawing up the speech. Alfred Sant has pronounced that, if the financial outturn is as good as the government is making out, the Finance Minister should announce a cost of living increase of Lm1.50. Lo and behold, that is exactly what Lawrence Gonzi will do. The employers had feared as much and tried to resist the move. To no avail. Tonio Fenech finally let the cat out of the bag on Friday and confirmed the size of the increase (The Times, October 13).

That will leave no doubt that this will be an election budget. It will also register the fact that our politicians do not give a rotten fig about the impact of their stance on the economy. The statutory cost-of-living increase is tied to a mechanism precisely set by the Retail Price Index.

This time round, this mechanism should yield an increase of between 50c and 75c per week. In doubling or tripling that, the government will deliberately add to any inflationary pressures that arise next year, whether brought about by the euro conversion, international commodity and other rising prices, or both.

At a time when every sparrow in our trees knows that, as the IMF has reminded us, Malta must increase its competitiveness, the budget will kick the hallowed objective where it hurts. Never mind that, thereby, it will also be implying that the government doesn't believe that the official Retail Price Index worked out by the National Office of Statistics is correct.

Never mind also that is contradicting itself like crazy. It is pressing importers and distributors to undertake not to raise prices between now and March.

Meanwhile, it is fully aware that the cost-of-living increase will work into supply costs and, therefore, raise consumer prices of goods and services within the first few days of the new year.

If the Prime Minister agreed with the Leader of the Opposition that there was a case to leave more disposable income in people's pocket during 2008 he should have gone about doing that through the tax system. Last year, the Prime Minister said in the pre-budget consultation document that he had Lm12 million to responsibly give away during 2007, and then proceeded to double that.

This year the document did not give any figure regarding projected spare financial resources. Nevertheless, the Prime Minister and his team are saying that the financial outturn has continued to improve, so much so that balancing the budget is in sight.

If it truly believed that scenario, the government should be announcing tax reductions for those who are taxable, as well as a negative tax for those who are not taxable. Since it claims to have the means, it should use them to put t2.50 a week in people's pockets. That is, by digging into its own pocket - not by sticking its hands into the pocket of those who provide employment and have to be competitive in order to do so. It is not helping the workers, but merely using them.

Whether the Opposition Leader had got wind that the government planned to ditch the Cola mechanism and give a discretionary cost of living increase, or whether he was simply manoeuvring the government, the Prime Minister will be the author of the foolish deed. He is making an economic mistake as well as a political error.

As for the Leader of the Opposition, should Labour fulfil the expectation of winning the coming general election, people will expect it to anticipate inflation and also give cost of living increases unrelated to the official Retail Price Index.

As the pilot of the economy, the government should not steer courses that lead it towards the shallow. Yet, that is what will be happening this evening through a politically-shallow measure.