Government's gamble

First of all I wish to thank the Director of Information (October 12) for generously commenting that my article "Dear Prime Minister" was quite interesting. He went on to state that "...there is no need for Mr Vella Bonnici to tell us this (that more needs to be done by the government to improve the economy) as it is known to all". He then went to great lengths to acclaim his master's achievements. Dear director, I understand that you were trying to do your job .

However, what you talk about was not the gist of my article. My suggestion to the Prime Minister was not to tell him anything new; but rather to urge him not to sacrifice the economic interests of our country for political expediency. Well, the proof of the pudding is in the eating. We now know what sort of budget was presented by Dr Gonzi; obviously the Prime Minister chose to largely ignore my suggestion. I just wonder what the other 4,500 persons, who were reported as having bothered to contact the Prime Minister, are now saying.

Perhaps, given that we are on the eve of a general election, and that the Nationalist government is desperate for votes, it could not be otherwise. Over these last months, we have been witnessing the government and Nationalist propaganda machinery (if there is any distinction between the two) mincing concerts, hospitals, saints and football players to churn out a "feel good" feeling. The Prime Minister defined the budget as a "prudent" one. To my mind it would have been more prudent had Dr Gonzi called a general election. Time will tell; but he could have presented a budget for just a few weeks.

In this blessed country, very few issues have secured the consensus of all the social partners and survived for so long. The cost of living adjustment (Cola) is one of them. Dr Gonzi's decision to depart from this agreement could prove to be the kiss of death to the Cola (which incidentally was the brainchild of John Dalli). Of course, the government does not admit this. If inflation keeps at the same pace, it would mean a wage freeze for the next two years. However, the Prime Minister may know that 2008 will be a year of rampant inflation.

Continued increases in the international prices of crude oil, grains and animal fodder coupled with a depreciated euro relative to the US dollar could rekindle inflation. And there is still a risk that there will be further price increases due to the changeover to the euro. In these circumstances the government's decision to top up the weekly 50c due by a further Lm1 was totally unwarranted. We could end up with a veritable inflation Molotov cocktail. The IMF had admonished the government about the risks involved if it fails to control local costs. The Central Bank, the primary custodian of inflation, could perhaps care to explain its position on this.

The government, which until a few days back was wondering where the Labour Party would find Lm12.5 million to finance cutting the electricity surcharge by half, managed to find Lm21 million. This besides the Lm20 million which it says are needed till the end of this year so as to keep this surcharge at 50 per cent rather than letting it increase to 82 per cent. The revised tax bands by themselves are estimated to cost the government Lm12 million in lost revenue. I believe it justified to ask whether the government is being realistic in its projections. It states that increased employment and higher earnings will compensate for this "lost" income tax. Yet incomes last year increased by only 0.4 per cent so any additional income tax must have come from the collection of arrears.

An inflationary budget will also hurt our competitiveness. True, a weaker euro could boost our exports, but this alone cannot be expected to make good for the likely increased costs. Part of the problem is the fact, as Mr Dalli has recently pointed out, that the Maltese lira has been pegged to an unjustifiably high entry point vis-à-vis the euro. We now have little room where to manoeuvre. Surprisingly, the constituted bodies have been silent as to how the budget is likely to affect the competitiveness of their enterprises and our country. This may be due to just political convenience. Or they too may wish the Cola dead; preferring future wage increases to be linked to productivity rather than cost-of-living considerations.

The bottom line of all this is that Malta has been living beyond its means. The sacrifices necessary to reduce the fiscal deficit were predominantly borne by middle and lower class families. The government, conscious that so close to a general election every vote counts, decided to help alleviate their pain. Its solution is a big gamble. The Prime Minister in his post-budget address stated that politics should not be about playing with people's livelihoods. And yet, this is what he has been doing all along. Malta is fast becoming a centre for e-gambling and the government seems to be catching the fever. Let us just hope that our families will be much stronger than the government's own finances.