Bringing the budget on the level

As with every budget, the one presented by Finance Minister Tonio Fenech can be viewed on several levels. Such as - does it fulfil what the government promised? Is it as relevant as could be in the circumstances? Is it a good set of stepping stones into the foreseeable future? There are other levels, but those three will suffice for the moment. Towards the close of this column I'll introduce another one.

For starters, the 2009 budget does not fulfil what the government promised, both in the 2008 budget and in the heady days before the March general election. A year ago, the previous Finance Minister, Lawrence Gonzi himself, targeted a low structural deficit as a step towards balance in 2010. The actual deficit for this year is now estimated to be triple that forecast.

Monday's budget speech mentioned that as an aside, and then returned several times to explain the main cause why the forecast was blown away. Fenech stressed and reiterated that €110 million of the bloated €200 million deficit will be due to the terminal payments made to shipyard employees to lure them out of their job before privatisation, and to the much higher subsidies that had to be given to Enemalta because of the hike in oil prices earlier this year.

Never mind that the Shipyard outlays should have been roughly foreseen months ago. Allowing for the two mitigating factors, the budget deficit for 2008 is still going to be a third above the Prime Minister's forecast. That's no mean deviation. If a family budget overruns by that margin, the household would be in dire straits and the housekeeper would have a lot of explaining to do. The Finance Minister offered not a word in explanation for the one-third slippage. Which leads to the pre-election promise that income tax would be slashed to the tune of €47million annually, preferably with effect from 2009. Not - pious hands waved - as an election bait; but because that will stimulate the economy. So ran the ploy.

Well, the economy needs stimulating all right, given the effects of the global recession and the money to be taken out by the government's massive hike of utility tariffs, and what will also be mopped up by the budget measures themselves. That notwithstanding, the minister offered tax cuts of only a quarter of the pre-electoral promised amount. And if anyone wishes to know where the economy stimulation theory has ended up, ask Bob's uncle.

Is the budget as relevant as could be in the circumstances? What is of priority relevance in people's minds is the savage impact of the high utility prices imposed from the first of last month, as the government rushed into a maze of contradictions over its past stance towards tariffs, and its cock-up with the capping mechanism which did not tie massive consumers to energy and water-use saving measures. True enough, tariff changes by Enemalta and the Water Services Corporation should not form part of the budget. But a budget speech should definitely refer to the economic rationale behind the heavy changes, and their social impact too.

The Finance Minister was expected to explain how it is that 30 hotels will now receive lower electricity bills, and over 60 high water consumers will pay less too. So wrote Austin Gatt, unwittingly indicating thereby that there was something awry with the accounting exercise carried out to determine the new tariff rates and the dismantling of the capping mechanism. But Fenech offered not a single word about the utility tariffs. The man of the moment totally ignored the burning topic of the moment.

Is, then, the budget a good set of stepping stones into the foreseeable future? Split that into sub-levels. The measures intended to discourage energy waste and environment-harming consumption seem good in themselves. But the budget leaves a nagging feeling that higher vehicle licences and related rates are more of a fiscal measure than one to nudge people away from dirty emissions. The forecast revenue tables bear out that feeling. Also, the 15c tax on plastic bags ignores the original drive by George Pullicino towards biodegradable plastic. Many outlets have moved that way. Yet the imposition, as announced, will tax such bags as well.

On another sub-level, the capital budget is in the right direction and so are measures to shift industry into a higher playing field. But the latter are too low, with the amounts spread over four years. If, at least, they move in the right direction, they are not very firm stepping stones.

The fourth level that struck me is a personal one for Tonio Fenech. He served for four years as the sorcerer's apprentice. Gonzi initially kept finance under his wings while Fenech cut his teeth and gained political weight. Now Fenech is on his own. This is the first of what should be a series of five budgets by him, a political exercise as well as a financial one.

It is the start of Fenech's growth as a major candidate for the PN leadership should Gonzi lose the 2013 general election and call it a day. MEP Simon Busuttil, the other likely main challenger, will have been watching closely from that perspective. As likely as not he will notice that Fenech will be building quite a head start.