The Parliamentary Secretary at the Finance Ministry, Tonio Fenech tells Natalino Fenech there's nothing wrong for a government to let the people share in the success of the country.

A lot of discussions take place about the budget and these drag on literally until the eve of when it's presented in Parliament. But, in essence, how much is really changed at the eleventh hour?
One does not change major decisions on the eve of the budget. But there are things that get changed following the meeting with the Parliamentary Group on Saturday, and in the last meeting with the Prime Minister on Saturday afternoon. You don't wake up on Sunday morning and decide to revise the tax bands. All the measures in the budget are worked and planned out well in advance and detailed projections are made. The revision of children's allowance and the revision of tax bands were the major decisions taken, but there will be other measures one may decide to lay more stress on in the final moments.

The government had down-played the revision of income tax before the budget. Was this a way of managing people's expectations?
No, it's not a measure of managing expectations. When we issued the pre-budget document, we repeatedly said that the revision of tax bands in the previous budget had been positive but did not have the same impact on everybody. Our first priority was to make the impact felt more by families who have children and the children's allowance was always on my mind.

The tax bands issue was never shelved. The Prime Minister had promised it in the last budget, but everybody had forgotten about it. We said that if we meet the deficit criterion, and the economy would be sound, the tax bands could be revised again. The extent of tax bands revision depended on the performance of the economy and what the priorities were. So if there had been other priorities, the revision of tax could have been given less importance.

But you had said the revision of tax would not be a major policy.
We had Lm21 million to distribute in all. The initial planned tax reform was smaller. But when we made our calculations after considering several options, it emerged that we needed about Lm5 million for the children's allowance, so in the end we could afford to go for a more tangible reform in tax bands.

The budget is a process. We base our projections on monthly trends. After we see how much we have to spend on every ministry, we have to see what's left and start prioritising and changing: A bit less here and a bit more there, and constantly re-working the models. I was more confident on the income tax revision because the monthly revenue figures were increasing and when you extrapolate them and see how much the revenue will be in the next year or five you will be able to say, yes, we can sustain this growth level. We are not guessing, but estimating. Estimating with caution.

So there is an element of risk in your projections.
Last year, we estimated with a double caution. I knew that revenue from income tax would be better but we wanted to play safe. One must keep in mind that we are scrutinised in detail by EU officials who will look at every figure. They look at past experience and we have to justify every measure. Our technical people will meet EU technocrats who will go through everything with a fine toothcomb. The budgetary process is very serious. It's not about throwing figures in the air. When you have the figures in hand you can start deciding where to spend more.

In the last days before concluding the budget, we decided to spend more on Mcast and on the University. This is the whole scenario. The pre-budget document sets the priorities, then we ask people to give us their views and we take it from there. That's why the budget contains such an array of measures.

The Prime Minister said the budget could have been more generous. As you played a major role in drafting the budget, you should know what he means by that.
The stability and growth pact obliges us to cut the deficit by 0.5 per cent annually. The EU encourages you to do more. We have reduced the deficit by Lm20 million, that's an improvement of 0.75 per cent. So we easily had another Lm5 million we could have used. But that would have delayed our targets to achieve real sustainability by 2010.

It would not have been prudent either as things can happen and circumstances can change and the country needs to have a cushion to soften any impacts we might have to face over the next year because of international prices.

The government could have been more generous, but we were responsible. We produced a responsible budget that meets targets and shares the country's success with the people, but within reasons of sustainability. Had we also used those Lm5 million, the criticism of walking on a tightrope would have been justified.

Does the public sector have the required infrastructure to implement the measures announced?
The schemes we announced were all tried and tested. We had policies that sounded nice but, when we talked about them, we found them impossible to implement. One of the proposals for energy efficiency was to give five energy efficient bulbs to each household. It sounded like a good idea as energy efficient bulbs lead to less electricity consumption, lower bills and less pollution. But, think about it, you'd have to issue a tender, which will be very big and everyone would want it. You can imagine the tendering process and appeals.

The tender would be given to the offer which costs least, which may not be the most efficient lamp. Above all, most energy-saving lamps are thread type while many people in Malta still have bayonet type chandeliers. So how do you go about it? Do you give five bulbs to someone who can't use them or entice him to change the chandelier? Not to speak about logistical problems of delivering them, ensuring they are not stolen or broken and all other things you can think of. So the proposal, which could have been very popular, had to be scrapped. We can embark on a campaign to show people how economical and beneficial these lamps are rather than give the free bulbs.

Rest assured that the policies we announce are the ones we believe we can implement.

What would you have liked to do and did not manage to?
To be honest, nothing. When I embarked on the process for this budget, I did not think we could go this far. We were confident that results were good and that we'd be able to deliver some goods. Our efforts to control government expenditure without cutting down on priorities paid off. I'm actually pleased that we managed to do what we did.

How much did public participation influence the budgetary measures?
A lot. The decision to remove succession duty tax for spouses on their property was a suggestion by the public, as was the breast screening measure. Many proposals came before the pre-budget document while others came later. Even the children's allowance measure was changed following consultations as we were initially thinking about a tax credit system.

We had other proposals we could not find a way to implement, like the proportionality concept in part-time work, where one would pay a national insurance contribution related to the number of hours worked.

We had a proposal to tax overtime at a flat rate of 15 per cent, but that could have created a problem in industry.

I can assure you the consultation process changed the face of the budget. I was not offended when someone said this budget was a vox pop. I do not think people regret seeing the measures they suggested being implemented. That is why we consult, to implement what sounds good. We wanted people to feel they contributed to it. I think few expected the revision in tax bands though!

Some sections of industry and some economists are saying you should not have given the anticipated increase of Lm1 once the retail price index indicated a 50c rise. Why did you do this?
If we told people that the mechanism they should trust to gauge price increases worked out the cost of living increase compensation to 50c we would have undermined the credibility of the mechanism.

I go shopping every morning and it's not the first time that the shop owner, who knows who I am, shows me invoices to prove that prices have increased. There is something extraordinary happening in the food sector and you can't just close your eyes and ignore this because the statistical mechanism that measures the overall increases in prices truly shows the increase to be only 50c.

But you either have an index or you don't.
If we had to have a credible budget it had to respond credibly to the reality of increasing food prices. I do not accept criticism that the Lm1.50 will hurt the country's competitiveness. We could have done a lot of other things that would have hurt competitiveness, such as giving back a day of vacation leave for public holidays falling on weekends. I do not think that giving a Lm1 increase in anticipation of the increases there will be next year hurts competitiveness. It may create a bit of a burden, but it's temporary. It's also preparing the economy to adjust slowly to avoid second-round effects, which no economist has so far spoken about.

What would have happened come January, when people start feeling the pressure of prices next year and start clamouring for unions to intervene to get pay rises? I am sure unions would have asked for more than Lm1 a week. Wouldn't that have hurt industry more? I feel our measure helped create a stable level of industrial relations which we so much need to help the economy grow.

We have used this mechanism when the price of oil increased and it worked well. I will not be surprised if the cost of living increase for next year will be of Lm3. But, then, we will only be giving Lm2 because we would have already given Lm1 this year and industry would have less of a shock.

The Labour Party is saying too little too late. Economists are saying too generous. Who's right?
I would say it's a responsible budget. We have adequately addressed a number of issues. We have shared the results of a growing economy with little impact on industry. We reduced the deficit and invested. Now that the tree is bearing fruit, should we just keep staring at it? Why shouldn't we eat some it if? This is what we promised when we started and that is what we did. It's part of our vision.

Before the budget, the MLP tried to guess what we would be doing and started speaking about issues such as the departure tax and the car registration tax. They mentioned the Lm1.50 cost of living increase - they must have got wind of it from our discussions with the social partners. They raised expectations about these issues, as they wanted to boast they governed from the opposition by forcing the government to do what they spoke about. But I think we pulled the carpet from under their feet by exceeding all expectations. Our budgets are a continuation; one builds on the next. I will let people judge if we delivered too little as Labour are saying.

Incidentally, Labour is also trying to take credit for a measure on housing which they claim is in their policy document. Apart from the fact that it is not there, this measure was proposed to us, and probably to them too, by the GRTU and by the Building Industry Consultative Council. We are a government that listens and implements, not a party that only talks.

Will there be more revisions of tax bands in the forthcoming budget?
Well, it depends on whether people leave us in government or not. The country fares well only when it has a responsible government. If people vote for us, they will get more tax revisions in other budgets!