Matters of principle

In his contribution entitled How Should We Subsidise? (October 14), the Minister for Infrastructure, Transport, and Communications, Austin Gatt, seeks to defend the government's proposals to revise water and electricity rates presented at the MCESD meeting. At the outset, this clearly shows that the position of the minister responsible for piloting such proposals is in stark contrast with earlier government comments.

In a nutshell, the minister, and also the government (since he explicitly says in various instances "we, the government"), argues that water and electricity tariffs should not be subsidised as a matter of principle because, according to him, why should one subsidise the energy consumption of high-income earners (or pool owners) or businesses irrespective of size and economic power?

But then, the question which immediately springs to mind is: Why don't the minister and the government apply the same logic to other areas, such as health, education and, for example, children's allowance?

By the same logic used by Dr Gatt, why should health services be free? Why shouldn't the pool owner pay for receiving medical treatment at Mater Dei Hospital or pay for educating his children at a public school? And why should he receive children's allowance or stipends for his children studying at the University? Isn't the system of giving free medicine to all and sundry rice conducive to waste and benefiting the pool owners as much as the "unemployed"? What about the incentives for the use of solar water heaters? Aren't these applicable in the same way for the village grocer and the big bank headquarters? Surely, as the minister put it, the government could give more subsidies to those who really need them.

However, all these questions beg a more profound question. If the government believes in the principles spelt out by the minister in that article, which he says are also the government's views and not only his, then are we to expect the end of free universal healthcare and public education? Are we to expect, by the same logic, that University stipends will be means tested or done away with altogether? These are the questions the government needs to come clean about and answer in an unequivocal manner.

It is clear that this government is being policy-inconsistent in the arguments it is putting forward as to why utility tariffs should be increased in such an exaggerated manner. The government is not only inconsistent but has even made colossal U-turns insofar as children's allowances go because, after introducing means testing, it scrapped the whole idea, "incidentally" prior to an election, just to return to the previous system of universal benefits.

But, to add insult to injury, Dr Gatt says that the proposed changes to the electricity tariffs are "a feather in the cap of this government because we are promoting a socially-just and environmentally-sound policy". After having examined the percentage increases of the proposals endorsed by the minister, it is clear that these proposals are socially regressive because the highest percentage increases in the proposed tariffs are applied to those who consume relatively less!

Therefore, one can only assume that either the minister is not aware of the percentage increases in the proposed tariff structure or, worse still, for the minister social justice means extracting more money from low- and middle-income earners/consumers than from high-income earners/consumers (the pool owners).

The truth is that the issue at stake is the health of public finances.

To hold on to power and win the March 2008 election, the government had to boost recurrent expenditure dramatically a, clearly, the tax cuts announced in the previous budget were insufficient to improve the living standards of the electorate in the face of galloping inflation and very low wage growth.

This has now created a big hole in public finances, which is far in excess of the limit allowed by the Stability and Growth Pact for euro area members. Therefore, somehow the government needs to bridge this gap. The options are very limited because, from a political perspective, raising income tax is definitely out for this government, which even pledged tax cuts in the upcoming budget. Another option would be to raise VAT or extend its coverage to food and medicine. But that was only resorted to as recent as 2004. Cutting recurrent expenditure is also very difficult because of commitments made. One option would be to cut down on capital programmes and forfeit EU funds. This is one route the government has clearly opted for given the lack of EU funds flowing in during 2008 to the extent of making Malta a net contributor to rather than a beneficiary from the EU budget.

However, it appears that another preferred option is that of raising utility tariffs. This would have been perfectly marketable at a time of rising oil prices. Fortunately for the public (and unfortunately for the government's tactics) oil prices have dropped somewhat lately and, given the risks of a global recession, especially in industrialised countries, which appears to be inevitable, it is unlikely that oil prices will rise appreciably in the near future.

But then, this is the price people have to pay when they are lured by appealing but unaffordable measures unleashed by the power of incumbency during an electoral process.