A realistic Budget

I must admit that the Budget that was presented by the Minister of Finance last Monday at first surprised me. We are not living in normal times, as far as the international economy is concerned, and this has impacted negatively our economy in a number of respects, including exports, tourism and public finances.

Therefore, the expectation of a Budget that would appear to have a cataclysmic effect may not have been out of place. This also needs to be placed into the context that for those who lived the Budgets of the 1970's and early 1980's, even when times were normal, Budgets were very abnormal events.

Once I had read through the Budget speech (downloaded from the website of the Ministry of Finance) and let it sink in, I recognised that this was indeed a clear policy statement of government's fiscal policy and how government intends to use fiscal policy to achieve its economic and social objectives.

In this regard I feel that as a country we have matured, and we have left behind us, hopefully for ever, the times when the Budget used to be just a list of prices that have gone up and the distribution of some crumbs to provide an element of comfort.

The Budget has a clear thrust. It wants to achieve fiscal consolidation in the long term, by bringing the deficit to GDP ratio below the three per cent level by 2012, but it is giving priority to job creation, investment, price stability and social cohesion.

The stability of the local banking system is such, that government did not need to spend taxpayers' money to bail out financial institutions, as has happened in other countries. It could dedicate all its resources to provide a stimulus to the local economy to meet the challenges that the international economic situation will continue to present even next year.

The six aims stated in the Budget fit well into this thrust. Over the next year, government shall be seeking to increase economic and financial stability, increase price stability and competition in the local market. It shall also be incentivising productive investment to create prosperity and work, while continuing to invest in health, social security and education.

In support of the economic programme, it shall continue investing in infrastructure, the environment, roads and cultural heritage and shall start to implement its vision for Gozo as an ecological island.

Putting it simply and crudely, I always believed that if it was a question of options, it is far more important for government to dedicate resources to grow the economy by investing in job creation and giving incentives to the private sector to invest than to dedicate resources to reduce the fiscal deficit.

In any case, once the economy grows and the business sector invests, the increased revenues through direct and indirect taxation will contribute to the reduction of the fiscal deficit as has happened in recent years. In this respect the Budget demonstrates a strong belief that the business sector shall know how to exploit fully the opportunities being presented.

In effect, this Budget is a very interesting exercise in assessing behaviour. When times are bad, some people fall into the trap of looking inwardly, become pessimistic and become risk-averse. They start looking at what cannot be done rather than at what can be done. In terms of visual behaviour they look at the economy with closed arms. Others take an opposite view. When times are bad, they look outwardly, take an optimistic view of things and look at problems as challenges. They have a can do attitude. In terms of visual behaviour they look at the economy with open arms. This Budget does look at the economy in that direction.

Very often we use the word realistic in a euphemistic way. We use it to replace the word pessimistic. However, the word realistic means sensible, level-headed, credible and genuine. In this respect, this year's Budget was indeed realistic as it sought to maintain a balance between the various goals that government has.

The Budget is realistic also because it is achievable and hence, credible. However the Budget is also interesting as it is very evident that the Minister of Finance is seeking to maximise the use of all the resources at his disposal to achieve a positive multiplying effect on the economy.