A jobs-friendly budget

Last week I had expressed my hope that the budget that was due to be presented on Monday by the Minister of Finance would be one that had realism deeply embedded in it. I had also stated that the realism in the budget meant doing all we could to safeguard present and future jobs, to maintain a steady flow of investment, and to strengthen our human, social and physical infrastructure to support that investment. I was not to be disappointed, because although there were many who labelled the budget as an environment-friendly budget, I believe that this is a jobs friendly budget.

The budget speech also included, as is customary, an analysis of the state of the local economy against the background of the current international economic scenario. What emerges is definitely not a gloomy picture for Malta. Admittedly, the fiscal deficit is higher than it was planned to be, but this can be largely attributed to the subsidy given to Enemalta Corporation to maintain water and electricity charges at a level lower than the international price of oil warranted. As a result of this and given that the international economic outlook is likely to remain negative for the coming 12 to 18 months, the government has announced that it is postponing its target to achieve a fiscal surplus by one year.

On the other hand, we had three per cent growth in the gross domestic product in real terms (that is after accounting for inflation). Employment trends for the 12 months leading up to June this year are very positive.

The number of persons in full-time employment increased by 3,426 during these 12 months. During the same period, the number of persons in part-time employment increased by 2,594, while the number of registered unemployed decreased by 476, to 5,861. Thus it was imperative for the government to maintain these employment trends to ensure that the negative impact of the international financial crisis and the economic recession be contained as much a possible.

The jobs friendly policies listed in this year' budget speech may come as no surprise to most. These include further liberalisation of the internal market to introduce more competition and eliminate rigidities that eventually lead to inefficiencies. They also include further privatisation of state-controlled enterprises and assets that are not considered to be of strategic importance, and which the private sector can operate more efficiently, and further investment in infrastructure and education. What is also noteworthy is an investment of €91 million on environment-friendly measures (which explains why the budget was labelled as an environment-friendly one).

In their own way, these items of expenditure are expected to create direct jobs. However, on top of this, €47 million are being spent on investment incentives and a number of measures were introduced aimed at incentivising work. These latter measures are essentially in the form of tax benefits. The investment incentives cover a number of areas and are packaged under different schemes, including vocational education and training. Then there is also the additional expenditure on tourism, on both the marketing effort and the enhancement of the product.

It would have been very easy to reduce the budget to a computation of income tax based on the new bands. Those who have done that may find that the reduction in the income tax to be paid would be roughly equivalent to the additional amount that has to be paid for water and electricity. It is recognised that the higher water and electricity rates are the result of the international price of oil over the last 12 months or so. The international economic slowdown has also brought about a reduction in interest rates, and as such, home owners that are still paying a mortgage whose rate of interest is variable, have started to experience a drop in their mortgage repayments, which is not insignificant.

So there are costs and benefits that arise from the developments that happen beyond our shores. To this one may add the increased competition in the retail sector (which is also the result of specific government policies) that has brought about the possibility of lower prices for a range of products. This is why we cannot be short-sighted and we need to focus more on how the budget may or may not impact on job creation rather than on whether the minister of finance has given me more cash than he has taken.

The budget is more than just an exercise in collecting taxes and distributing cash. It is about the direction of the economy and whether that direction generates confidence and stimulates the creation of wealth. In my opinion this year's budget, drawn up in the midst of one of the most difficult international economic situations we have ever experienced, meets this requirement fully.