Budget that opts for range rather than depth - MEA

The Malta Employers Association has praised the government’s decision to postpone the target of a balanced budget to 2011.

It said in a statement this morning that the fiscal budget this year had already been deteriorating due to a surge in recurrent expenditure, and budgetary controls were still essential to ensure that the deficit could be reined in to targeted levels.

The MEA said that any evaluation of the budget had to be seen against the backdrop of a gloomy international economy and shifting challenges.

The most pressing priority under these conditions was to safeguard jobs and prevent a deceleration of economic activity.

It was essential that the impetus of government expenditure would be directed towards an expansion in activity in the private sector, rather than to feed the insatiable appetite of the public sector.

The MEA said that the easing of income tax bands, plus the cost of living adjustment, should increase disposable income and help to maintain consumer confidence which was justly affected by the bleak international events and also the prospects of higher utility tariffs.

The real impact of this measure would depend on the extent to which utility tariffs would be revised, during 2009, to reflect the falling price of oil, and also on the rate of inflation, which was expected to be significantly lower than that experienced in 2008. This should also serve to soften wage demands from unions to compensate for a reduction in disposable income resulting from the revised tariffs.

The budget measures were spread to affect as many sectors of the economy as possible, and one of its flaws could be that the measures were spread too thinly with the government going for range rather than depth. So it contained no real spectacular measures and the overall result tended to be rather bland.

The real question was if the measures proposed were sufficient to ward off a major economic slowdown.

The MEA said the budget contains a much needed thrust to change a culture of dependence on fossil fuels towards a wider diffusion of alternative energy measures by both residential and industrial sectors.

Although this was commendable, the tax on diesel and the cost of commercial vehicle licenses would negatively affect many businesses, particularly those in the distributive trades. Families who also could not afford to change their cars frequently would also be negatively affected by the change in the car registration taxes.

The association said that the budget rightly channelled funds into the educational sector, but these allocations should be accompanied by specific targets related to the reduction of school drop outs and an increase in employable graduates from the tertiary institutions.

The tax incentive to increase the female participation rate was a welcome measure and a positive example of how one could introduce family friendly measures that were cost neutral to employers.

The fact that the government also intended to set up a community work scheme for the long-term unemployed was also welcomed by employers, as were the efforts to assist SME’s by reducing bureaucracy, introducing start up incentives and assistance in sourcing new markets.