Promises are hatching like chicks in a free-range farm. The latest is that made by the Nationalist Party to further reduce income tax through a widening of the tax bands. The Nationalists believe the cut would boost economic growth, now already running, according to the government, at four per cent. Others think the pledge is a political gimmick, similar to that made by Labour to halve the water and energy surcharge if they are elected.
When the tax pledge was first announced, no indication was given as to how much the proposal would cost the government in terms of revenue loss. This obviously led many to argue, correctly perhaps, that in the same way Labour were expected to back their proposal to halve the water and energy surcharge with details of how they plan to do it, likewise the Nationalists had to lay their cards on the table.
At first the Nationalists appeared reluctant to do this on the specious grounds that their pledge may be copied by their opponents. However, the other day PN leader Lawrence Gonzi put the price tag at €46.6 million (Lm20 million).This is a much lower estimate than that given by Alternattiva Demokratika - of between €100 million (Lm42.9 million) and €150 million (Lm64.4 million). In fact, in AD's view, the island would have to chalk up an economic growth rate of between nine and 13 per cent to make up for the amount the government would lose through its proposal. This would require quite a jump from the current government-estimated rate of four per cent.
Which is the correct cost of the tax pledge?
Now that the government has come out with its estimate, it should also say how it has worked it out. Cutting tax may well boost the people's purchasing power but it has also to be carefully planned so as not to upset the government's finances. On this score, the Nationalists appear convinced that, through the greater economic growth the tax cuts would generate, the government would recoup the amount within two years and that, therefore, they would also be able to keep to their target of achieving a budget surplus by 2010.
This is not bad at all, so long as their forecasts work out according to plan. Maybe, with hindsight, Dr Gonzi should have added the usual economic proviso to his calculations - "all things being equal". Given that the government's cost estimate is correct, and that cannot be gauged at this stage once the workings have not been published, would it be possible to bring about the level of growth the government has in mind, especially in the economic circumstances prevailing today, in so short a period?
The government is not unaware of these circumstances - the sharp rise in the price of crude and grains and a possible recession in the US. On the contrary, it is precisely because of these circumstances that the government feels it ought to cut tax in order to generate greater economic activity. "Our performance and achievements attest to our credibility," Tonio Fenech, the Parliamentary Secretary at the Finance Ministry said, at the same time puncturing that same credibility by arguing that the costings would not be published lest they are copied by the opposition.
It is quite true what he says about the government's performance and achievements but it would pay to be extra cautious, bearing in mind how hard it has been to get to grips with the Administration's finances in order that Malta qualifies for eurozone membership.
The problem with the PN's tax pledge is that, having been made on the eve of a general election, it may well be considered as a gimmick, along with the many others that are made in the election campaign, when, in fact, it is a continuation of a policy that has already been seen to bring about good results.