Fuelling subsidies at the MCESD

Iam sure that some time after the hoo-ha that has been provoked by this year's budget and the reduction of subsidies on water and electricity tariffs dies down, we will look back at the economic strategy that prompted these measures and realise that it is in the right direction - which is quite different from saying that these measures will not hurt.

All things considered and barring a few niggling details, the first budget of this Lawrence Gonzi administration indicates that it is acting responsibly.

The budget this year cannot but be considered as a wake-up call to many:

• to consumers who are waking up to the perennial truth that they must pay for what they consume and that prices imposed on us by foreign markets - in fuel, food and imported goods especially - have no relation to what we (think we) can or cannot afford;

• to trade union leaders who must come to terms with the truth that cost-of-living increases unrelated to productivity cannot but fuel even more of what they purport to solve;

• to industrialists and hoteliers who must accept that the taxpayer cannot and should not subsidise their production costs;

• to the whole population that needs to wake up to the fact that public expenditure on investment is infinitely more productive than subsidies on consumption, particularly on imports such as oil products; and

• most importantly, to government itself regarding the workings of the Malta Council for Economic and Social Development (MCESD).

The experience of the consultations on the subsidies on water and electricity tariffs with the bodies represented on the MCESD has once again showed that this is a forum for different lobbies to pursue their members' interests rather than the national or common good.

The MCESD set-up, in fact, disenfranchises the taxpayer who foots all government bills, and disregards the economic and democratic underpinnings of public decision-making. And when it comes to the hard decisions, the MCESD collapses into a babble unworthy of a mature nation.

My opinions of the MCESD have been confirmed this year in the fuss kicked up over the tariffs. There is no question that subsidising them is an economically wasteful exercise and a huge environmental folly. It is obvious even to the layman that this would be tantamount to subsidising OPEC and oil-producing and refining companies.

Subsidies are funds (tens of millions of euros every year) that can be invested in alternative energy and energy conservation, the infrastructure and in the creation of jobs, and are instead wasted and seep away from our economy. Subsidies also fuel the dangerous fiction (especially for a small open economy like ours) that what happens abroad should be of no concern to us in mollycoddled Malta.

These arguments should be more than clear for individual MCESD members, most of whom have more than a passing interest in things economic. Yet these same members unite to defend the subsidies they have been enjoying.

Subsidies have not only wrought economic burdens on our society and on the unrepresented taxpayer; they have also become a drug that clouds good judgment in the bodies of economic deliberation - a drug that feeds on itself, leading to ever bigger and more dangerous fixes being needed for the same fleeting effect.

This did not escape Adam Smith, the grandfather of modern economics, who more than two centuries ago commented in The Wealth of Nations that subsidies change incentives to industry from seeking to supply better products and services in order to achieve fair profits to harassing the government for ever more subsidies.

If the MCESD is to function properly and fruitfully, there is a different way forward. First of all, the MCESD has become a negotiating body, which is not what it is about. It should be clearer in the way the council works that it is a consultative body and that decisions are taken by those who are elected, representative and accountable, that is, by the government and Parliament.

It is the government that must decide and take responsibility for whatever decisions are taken and it cannot hand over its power to limited interest-groups who have no responsibility to the electorate.

Secondly, the council should give due importance to taxpayers. Labouring under the impression that it is the government that represents taxpayers is sterile and unrealistic. Innovative ways to represent taxpayers must be found; more so as there are no taxpayers' organisations in Malta.

Thirdly, a number of economists should also be members of the MCESD not only to advise members and government on economic strategies to be adopted but also to act independently with no strings attached to the council members or to the government and actually take full part in deliberations and pronouncements.

It is good to talk, and consultation bodies are necessary. We need not follow what has happened in many countries where consultative bodies like the MCESD have been completely abolished. But there should be no doubt that the way things are done at the MCESD needs to be thoroughly overhauled.

micfal@maltanet.net