Dependence theme
The government remains cautiously bullish about the state of and outlook for the Maltese economy. It is tending to focus on actual or perceived positives, while trying to rationalise away what appear to be negatives. This has been going on without...
The government remains cautiously bullish about the state of and outlook for the Maltese economy. It is tending to focus on actual or perceived positives, while trying to rationalise away what appear to be negatives. This has been going on without fail, and was reflected again in the first public comments by the Prime Minister for several weeks, as he let the summer begin to cool off.
Dr Lawrence Gonzi spoke to the media on Sunday week in a carefully stage-managed event, after addressing supporters at the San Ġwann PN club, under the banner Flimkien b'Impenn għall-Ġejjieni. That is the theme on which next week's Independence Day celebrations will be based. In the process he hinted at the well-known dependency of our economy on external developments.
The PM and Tonio Fenech, the finance minister, focused on the financial situation, which has deteriorated up to July relative to a year previously, and on employment. Dr Gonzi saw an "obvious" reason for the deterioration in the public deficit. He recalled that children's allowances were paid to every family in January, something which had not taken place in 2007. The "bunching" was a partial explanation to the widening of the financial deficit by 36 per cent in the first seven months.
There were other not similarly identified reasons which resulted in government expenditure overrunning the budget. The government remained committed to meet the deficit level it had targeted in presenting the budget for 2008. The PM - addressing his spending ministers more so than the public - emphasised that his government was determined to control its expenditure, recognising that it was higher than estimated, and to continue to increase its revenue, which was up as well. Dr Gonzi expressed confidence that "the economic rhythm is strong enough".
Probably he had been briefed about the GDP figures for the second quarter, which saw a seemingly satisfactory increase in real terms over the 2007 second quarter. What neither the PM nor the finance minister went into, however, was the composition of the real quarterly increase. The breakdown subsequently given by the National Office of Statistics showed that government expenditure continues to be the main engine of real growth. No doubt the government's economists will feel duty-bound to remind their political masters that real growth should not depend on government outlays, especially when these are exceeding their estimate. Sadly, what seems to matter on such staged occasions is the impact on general impressions. Behind the scenes, however, action will be taken to place more realism in the estimates of revenue and expenditure being prepared for 2009.
In one of his deeper thinking moments while referring to the income tax cuts promised on the eve of the general election, Dr Gonzi did not rule them out. But he felt obliged to say that the final decision on whether they will be implemented - and, if so, how - will be taken when a good analysis of surrounding economies and Malta's is carried out by the start of October.
One would have thought that such analysis is carried out on an ongoing basis. It is well known already, for instance, that the UK is heading for recession and that growth in the rest of the EU will be, at best, weak.
The PM and the finance minister should also have realised by now that the pre-election promise on income tax was rash. It did not allow for priorities which could become higher during the year, nor for the need to package tax cuts with other less politically palatable measures which may have to be taken in the not too distant future. Do not expect, therefore, more than a token start to the election promise to slash income tax by no less than €47 million.
The PM saw the fact that the UK economy and those of other countries are not passing through a "positive" period as a cause for concern. That concern will translate among other things into the state of the tourism industry, examined in this column a week ago, and in the level of exports as demand slows down in our main markets.
The prime minister was right to try to project optimism in the face of the coming challenges. But optimism alone will not do the trick. There is underlying employment growth in the economy and Minister Fenech forecast more of it. He said that with the expansion and opening of factories, over the next two years the manufacturing industry alone will generate 4,800 jobs.
May that prove to be the case. But it remains to be seen what kind of jobs they will be, how they will be filled and what they will mean to the hard core of unemployed who may not possess the skills which will be demanded. In this context an intervention made by Social Policy Minister John Dalli at the same event was probably the most important point of the whole occasion.
The minister said that he had instructed the Employment and Training Corporation to concentrate on training workers in more than one skill, to improve their flexibility and employability.
He was wise to do so. The ETC is an important public policy tool which has to be wielded with foresight, focus and dexterity. It also needs to be refined, both in the sense indicated by Mr Dalli and also in the way it measures its results. I am not certain, for instance, that proper track is kept of the individuals given training by the authority, to provide feedback on effectiveness and what need there might be to fine-tune or modify existing training facilities.
With Minister Dalli's new instructions the need for such tracker studies becomes more relevant. Especially in the year ahead, which is likely to be tougher than what the PM and the Finance Minister are allowing for.
Dr Lawrence Gonzi spoke to the media on Sunday week in a carefully stage-managed event, after addressing supporters at the San Ġwann PN club, under the banner Flimkien b'Impenn għall-Ġejjieni. That is the theme on which next week's Independence Day celebrations will be based. In the process he hinted at the well-known dependency of our economy on external developments.
The PM and Tonio Fenech, the finance minister, focused on the financial situation, which has deteriorated up to July relative to a year previously, and on employment. Dr Gonzi saw an "obvious" reason for the deterioration in the public deficit. He recalled that children's allowances were paid to every family in January, something which had not taken place in 2007. The "bunching" was a partial explanation to the widening of the financial deficit by 36 per cent in the first seven months.
There were other not similarly identified reasons which resulted in government expenditure overrunning the budget. The government remained committed to meet the deficit level it had targeted in presenting the budget for 2008. The PM - addressing his spending ministers more so than the public - emphasised that his government was determined to control its expenditure, recognising that it was higher than estimated, and to continue to increase its revenue, which was up as well. Dr Gonzi expressed confidence that "the economic rhythm is strong enough".
Probably he had been briefed about the GDP figures for the second quarter, which saw a seemingly satisfactory increase in real terms over the 2007 second quarter. What neither the PM nor the finance minister went into, however, was the composition of the real quarterly increase. The breakdown subsequently given by the National Office of Statistics showed that government expenditure continues to be the main engine of real growth. No doubt the government's economists will feel duty-bound to remind their political masters that real growth should not depend on government outlays, especially when these are exceeding their estimate. Sadly, what seems to matter on such staged occasions is the impact on general impressions. Behind the scenes, however, action will be taken to place more realism in the estimates of revenue and expenditure being prepared for 2009.
In one of his deeper thinking moments while referring to the income tax cuts promised on the eve of the general election, Dr Gonzi did not rule them out. But he felt obliged to say that the final decision on whether they will be implemented - and, if so, how - will be taken when a good analysis of surrounding economies and Malta's is carried out by the start of October.
One would have thought that such analysis is carried out on an ongoing basis. It is well known already, for instance, that the UK is heading for recession and that growth in the rest of the EU will be, at best, weak.
The PM and the finance minister should also have realised by now that the pre-election promise on income tax was rash. It did not allow for priorities which could become higher during the year, nor for the need to package tax cuts with other less politically palatable measures which may have to be taken in the not too distant future. Do not expect, therefore, more than a token start to the election promise to slash income tax by no less than €47 million.
The PM saw the fact that the UK economy and those of other countries are not passing through a "positive" period as a cause for concern. That concern will translate among other things into the state of the tourism industry, examined in this column a week ago, and in the level of exports as demand slows down in our main markets.
The prime minister was right to try to project optimism in the face of the coming challenges. But optimism alone will not do the trick. There is underlying employment growth in the economy and Minister Fenech forecast more of it. He said that with the expansion and opening of factories, over the next two years the manufacturing industry alone will generate 4,800 jobs.
May that prove to be the case. But it remains to be seen what kind of jobs they will be, how they will be filled and what they will mean to the hard core of unemployed who may not possess the skills which will be demanded. In this context an intervention made by Social Policy Minister John Dalli at the same event was probably the most important point of the whole occasion.
The minister said that he had instructed the Employment and Training Corporation to concentrate on training workers in more than one skill, to improve their flexibility and employability.
He was wise to do so. The ETC is an important public policy tool which has to be wielded with foresight, focus and dexterity. It also needs to be refined, both in the sense indicated by Mr Dalli and also in the way it measures its results. I am not certain, for instance, that proper track is kept of the individuals given training by the authority, to provide feedback on effectiveness and what need there might be to fine-tune or modify existing training facilities.
With Minister Dalli's new instructions the need for such tracker studies becomes more relevant. Especially in the year ahead, which is likely to be tougher than what the PM and the Finance Minister are allowing for.