Not falling into place
This has all the makings of being a rum year for the reinstated Nationalist government. The transiting political focus has spared it close scrutiny, directed as it was upon the goings-on within the Malta Labour Party. That entity had to deal with the...
This has all the makings of being a rum year for the reinstated Nationalist government. The transiting political focus has spared it close scrutiny, directed as it was upon the goings-on within the Malta Labour Party. That entity had to deal with the aftermath of a calamitous general election loss; an analytical report on how and why that came about, whose drafters had to be cruel to be kind; a leadership contest which saw a new triumvirate installed; and a contest for the remaining administration post, which left in office the two officials blamed along with the previous top triumvirate for the 2008 electoral defeat.
The considerable concentration of media and opinion attention on the opposition's internal affairs permitted the government to escape with little analytical criticism of the external ones of its own. Now, the things that have not fallen into place for it are becoming more evident.
In particular, the monthly return of public revenue and expenditure has been consistently signalling that the fiscal targets for this year will not be reached. Revenue from income tax and VAT has been increasing as expected. The former source is helped along by the swollen cost-of-living increase decreed by the government at an old lira above the level indicated by the 12-month moving average of retail prices up to September 2007.
A stable to rising level of employment also helped, but not as significantly.
VAT receipts increased reflecting to an extent stealthily but steadily rising prices. Once the country had moved into the second half of the year the minister of finance had to admit that the official target for the outturn of the year would not be met by an unidentified margin.
Expenditure has been outstripping revenue, notwithstanding the fact that capital outlays on the Mater Dei hospital have tailed off through final payments and that, as hopefully quipped by the Prime Minister, the government has not taken in hand the building of another similar hospital. The subsidies inherent in the public sector - such as to the Water Services Corporation and Enemalta - are not as easily quipped away, not with the price of crude oil and its derivatives galloping away as it had been doing up to a few weeks ago.
It has since fallen quite dramatically, and it may be presumed that those in charge of sourcing it for Malta are carefully covering forward, meaning that subsidy outlays should not be as high, moving out. But that effect will not be felt for some time. Nor has the anticipated effect helped to brighten the outlook for the structural deficit in 2009. The government is committed to balance the budget by 2010, but that is now becoming an even more challenging target.
Certainly, that fact has had the effect of making the government rethink its electoral promise to include substantial tax cuts in the budget for 2009. The plan was to slash some _47 million off the forecast receipts next year. The government was confident it would make up for that through increased economic activity. More correctly, it would have anticipated a rake-back via increased VAT receipts on higher consumption. But those plans are now in the ante-room to a fiscal limbo.
The government concluded, not without good reason, that it had better not take chances. Part of the good reason is crystallising now, in the plans put forward to whittle the dockyard workforce in anticipation of an effort to privatise it. The finance minister estimates that the four options announced to lure yard workers into leaving the enterprise, with a substantial sum in hand, or taking early retirement or the prospect of it plus a smaller sum for others, could cost up to _49million. That's mighty close to the _47 million the Prime Minister had undertaken to slash from income tax.
The Finance Minister held out the hope that the up to _49 million outlay for the dockyard would be recouped from privatisation proceeds. It remains to be seen whether that will prove to be no more than a fond hope, for privatisation will prove more difficult and complicated to conclude than may be signalled by early interest referred to by the government.
On the other hand, it is not inconceivable that the authorities foresee a by-product from the privatisation of the 'yard, in that parcels of land currently tied up in it will be released, and the government will be able to offer them for development, and generate one-off revenue that way.
Early days yet in this sector. Meanwhile, the government has to take note of the fact that surveys carried out since the election suggest a sharp drop in consumer and industrial confidence. Exports too are falling, which is not massaged off by the fact that imports too have declined.
The ministry of finance also has to live with problems of its own making, like the delay in introducing a new tax regime for car imports. Car sales have now plummeted, with a lagged effect on government revenue.
Political attention is now focusing on the way the government was spending money before the election. MaltaToday and its sister newspaper Illum have been running stories of massive direct orders placed in regard to some aspects of the running of Mater Dei Hospital, including its security and car park services.
The Opposition has been careful in taking that up, calling upon the newly-installed auditor general to seek from the government to give appropriate answers as to why the route of direct orders was chosen and, to boot, in a context where the government was left paying idle public human resources while it forked out payments to private operators through the direct orders.
It is summer, but the living is far from easy. The public finances will come under closer scrutiny and so will the overall government machine when parliament returns from its holidays next month, with the last bit of the Labour jigsaw in place, as the party's new leader takes up his place in the House.
The considerable concentration of media and opinion attention on the opposition's internal affairs permitted the government to escape with little analytical criticism of the external ones of its own. Now, the things that have not fallen into place for it are becoming more evident.
In particular, the monthly return of public revenue and expenditure has been consistently signalling that the fiscal targets for this year will not be reached. Revenue from income tax and VAT has been increasing as expected. The former source is helped along by the swollen cost-of-living increase decreed by the government at an old lira above the level indicated by the 12-month moving average of retail prices up to September 2007.
A stable to rising level of employment also helped, but not as significantly.
VAT receipts increased reflecting to an extent stealthily but steadily rising prices. Once the country had moved into the second half of the year the minister of finance had to admit that the official target for the outturn of the year would not be met by an unidentified margin.
Expenditure has been outstripping revenue, notwithstanding the fact that capital outlays on the Mater Dei hospital have tailed off through final payments and that, as hopefully quipped by the Prime Minister, the government has not taken in hand the building of another similar hospital. The subsidies inherent in the public sector - such as to the Water Services Corporation and Enemalta - are not as easily quipped away, not with the price of crude oil and its derivatives galloping away as it had been doing up to a few weeks ago.
It has since fallen quite dramatically, and it may be presumed that those in charge of sourcing it for Malta are carefully covering forward, meaning that subsidy outlays should not be as high, moving out. But that effect will not be felt for some time. Nor has the anticipated effect helped to brighten the outlook for the structural deficit in 2009. The government is committed to balance the budget by 2010, but that is now becoming an even more challenging target.
Certainly, that fact has had the effect of making the government rethink its electoral promise to include substantial tax cuts in the budget for 2009. The plan was to slash some _47 million off the forecast receipts next year. The government was confident it would make up for that through increased economic activity. More correctly, it would have anticipated a rake-back via increased VAT receipts on higher consumption. But those plans are now in the ante-room to a fiscal limbo.
The government concluded, not without good reason, that it had better not take chances. Part of the good reason is crystallising now, in the plans put forward to whittle the dockyard workforce in anticipation of an effort to privatise it. The finance minister estimates that the four options announced to lure yard workers into leaving the enterprise, with a substantial sum in hand, or taking early retirement or the prospect of it plus a smaller sum for others, could cost up to _49million. That's mighty close to the _47 million the Prime Minister had undertaken to slash from income tax.
The Finance Minister held out the hope that the up to _49 million outlay for the dockyard would be recouped from privatisation proceeds. It remains to be seen whether that will prove to be no more than a fond hope, for privatisation will prove more difficult and complicated to conclude than may be signalled by early interest referred to by the government.
On the other hand, it is not inconceivable that the authorities foresee a by-product from the privatisation of the 'yard, in that parcels of land currently tied up in it will be released, and the government will be able to offer them for development, and generate one-off revenue that way.
Early days yet in this sector. Meanwhile, the government has to take note of the fact that surveys carried out since the election suggest a sharp drop in consumer and industrial confidence. Exports too are falling, which is not massaged off by the fact that imports too have declined.
The ministry of finance also has to live with problems of its own making, like the delay in introducing a new tax regime for car imports. Car sales have now plummeted, with a lagged effect on government revenue.
Political attention is now focusing on the way the government was spending money before the election. MaltaToday and its sister newspaper Illum have been running stories of massive direct orders placed in regard to some aspects of the running of Mater Dei Hospital, including its security and car park services.
The Opposition has been careful in taking that up, calling upon the newly-installed auditor general to seek from the government to give appropriate answers as to why the route of direct orders was chosen and, to boot, in a context where the government was left paying idle public human resources while it forked out payments to private operators through the direct orders.
It is summer, but the living is far from easy. The public finances will come under closer scrutiny and so will the overall government machine when parliament returns from its holidays next month, with the last bit of the Labour jigsaw in place, as the party's new leader takes up his place in the House.