Public sector and welfare system left government no room to manoeuvre - MEA

The government has been unable to provide a more powerful economic stimulus in its Budget because of insufficient funds mostly due to its commitments to finance an overburdened public sector and welfare system which "have left it with no room to manoeuvre", according to the Malta Employers Association.

In its official reaction to Monday's Budget the MEA said this situation has left the economy vulnerable and may delay an economic recovery.

The association, however, did welcome the government's commitment to further reduce public sector employment in 2010.

The MEA said that while the budget contains a set of positive measures "the main question is whether the thrust of these measures is sufficient to pull the economy out of the recession".

It added: "One questions whether a stronger stimulus package, even at the cost of a higher fiscal deficit for 2010, would have been a more effective strategy to steer the economy towards positive real GDP growth, especially given that the deficit is lower than the average for EU economies that are also facing a recession."

The MEA welcomed the government's focus on SMEs, in particular the €10 million microfinance fund and the tax credit scheme as well as and the allocation of funds towards research and innovation.

It also praised the increased budget for the MTA but said that "some reductions in VAT, or removal of the room tax would have helped further to relieve operators of increasing costs."

The MEA welcomed the various active labour market policy initiatives included in the budget such as additional funding for the ETC, the extension of the community work scheme, and the schemes to enable school leavers to obtain minimum qualifications.

It also praised the increased funding for childcare "which should work towards increasing the female participation rate in Malta, which is key to economic growth and sustainable welfare systems."

The MEA said the €2.5 million fund allocated to help enterprises in difficulty may be insufficient to deal with the demands of companies who are still facing the brunt of the recession during 2010.

"Considering that the funds allocated to subsidise household utility rates amount to €10 million leads to the conclusion that government has succumbed to political pressures at the expense of economic priorities," it said.

It insisted that the €5.82 cost of living increase will be a factor that can threaten jobs, and that can also lead to further inflationary pressures in 2010.

"The granting of COLA during a recession period will have an effect on collective bargaining. Many employers will not be in a position to give COLA and collective agreement increases."

The MEA also said the revisions in utility tariffs should be communicated immediately to consumers to remove uncertainties during the upcoming Christmas season.

It said the increased expenditure on infrastructural projects in 2010, many of which are through EU-funded projects, should provide an economic stimulus and improve the attractiveness of Malta as a tourist destination.