Saturday, 11th April 2009 - 09:31CET
Economic stimulus: Public investment better than lower taxation - Governor
An increase in public investment should be preferred to lower taxation or higher benefits, should the government be considering a new economic stimulus, the Governor of the Central Bank has argued.
"An increased stimulus in the form of lower taxation or higher social benefits is not as cost effective as an increase in public investment expenditure. The latter is to be preferred since it tends to generate a smaller demand for imports, while raising the economy's potential output," Michael J. Bonello wrote in the Bank's annual report.
He also insisted that fiscal prudence remains necessary to safeguard both Malta's credit rating and investor confidence.
Mr Bonello said that in the current recessionary conditions, the only areas where a case could be made for higher discretionary public outlays were in sectors such as manufacturing and tourism, which were being increasingly impacted by the sharp contraction in foreign demand.
"A number of constructive initiatives have already been taken in this direction. Going forward, it will be important to recognise that public funds should be used to support activities that promise to be viable in the medium to long term."
Mr Bonello also argued that the resources to finance these additional outlays should be derived in part from savings elsewhere. He said two areas which offered scope for efficiency gains were education and healthcare systems.
"These together absorb more than 25% of general government expenditure and both are characterised by relatively less efficient outcomes in terms of output compared wit the EU average. The need to achieve savings in these areas is also accentuated by the growing fiscal burden of an ageing population," Mr Bonello said.
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With a similar framework in place, opportunity in the financial service sector would be spurred (comparable in magnitude to the housing loan market, in the long run).
Student loans have proved to be one of the best performing, low risk sectors in the US banking. There is nothing to stop similar legislation being implemented here. It is only a matter of culture. Both main parties must to agree on the underlying rationale.
Because these loans are extremely long term with monthly payments stretched out over the working life of the student, right up to retirement, they are always affordable to a motivated student.
The education sector can contribute much more to the development of the Maltese economy. There is a social aspect too. Students are guaranteed all necessary funding to pursue lifelong training programmes, underpinning personal and professional development.
What is very strange is that Mr Bonello is arguing in favour of subsidies via cuts in education and healthcare.
Students who were promised full stipends........pls note.
Healthcare at a price.........let the people beware.
What this "nice" country needs is a boost in competitiveness and incentive for work. Through lower taxation. The country's middle class (it's real economic motor) needs a real stimulus.