Better call a fiscal spade a spade

Malta's financial situation is nowhere nearly as bad as that prevailing among various members of the eurozone and the wider European Union, where the plight of the United Kingdom is now revealed in its full extent. That is not to say the situation is acceptable. The comparison has become an embedded part of current political rhetoric, with such inane comment like, whereas other countries are implementing austerity measures, Malta is opening more places for the aged.

We should count our blessings and put hope in the forefront of our thinking, certainly. That is made easier by the fact that there are indeed those who will have to suffer the impact of austerity measures for at least the next three years, amid potential social and political turmoil.

Nevertheless our situation is far less rosy than it is made out to be. An indication of that was given by the shadow minister of finance, Charles Mangion, following the recent NSO publication of the government's estimated revenue and expenditure between January and April.

Dr Mangion argues, unlike the administration's claim and popular perception, that the fiscal deficit did not get any better in the four months to April, when one took into account considerations that cannot be ignored.

These include the fact that recurrent expenditure was reduced (year-to-year) by €4 million, in spite of the much lower subsidies on water and electricity, a lower outlay of €15 million for medical requirements and the fact that this year there was no spending in the form of terminal payments to shipyard employees.

Capital spending was down by €14 million. Government sources attribute this to the completion of payments for Mater Dei hospital, but the fact is that there is a lot of capital expenditure still to be made, especially on the infrastructure.

On the revenue side the Labour finance spokesman points out that it includes €42 million from a one-time income tax amnesty given last year and extended into this year. Such extensions do tend to generate acceleration among those who hesitate whether to take advantage of the original amnesty.

Adjusting for such movements which are not immediately evident on first reading of the figures, the January-April improvement in the fiscal imbalance is quite less than the bottom line makes it out to be.

Along with that add the fact, which Dr Mangion did not fail to miss, that the national debt during the period under review rose by €49 million, with the central government debt approaching €4 billion.

The ballooning size of the public debt is one of the most worrying features of the financial situation. The government is aiming to reduce the fiscal deficit in relative terms, as a percentage of nominal GDP, to bring it down to the Maastricht-set three per cent level. While that is happening (assuming it does) the public debt will continue to rise.

For the public debt to decrease, the government has to realise one-off receipts from privatisation proceeds, or run a fiscal surplus, or both. Either of those results is not very likely. There is not much left for the government to privatise, besides Enemalta and the 25 per cent share in the Bank of Valletta. (Air Malta has so far been placed beyond current privatisation reach.) And the likelihood of a budgetary surplus is at this stage a wild dream.

This means that the hefty interest bill will have to continue to be paid on the public debt for the foreseeable future. Even if the public debt stabilises, the interest charge on it is likely to grow since it is unlikely that the European Central Bank will hold interest rates at present levels for years to come, even if, in the meanwhile, they might dip further.

There is a situation to grapple with and from what I hear the Ministry of Finance is trying to run a very tight ship to keep expenditure under control and raise as much revenue as can be.

What I find unacceptable is the attempt at calling a spade something else.

For instance, the Finance Ministry issued an immediate reply to Labour's finance spokesman's comments. It said that the EU had confirmed that, last year, Malta was one of only two members to reduce their deficit (Estonia being the other).

Furthermore, stressed the ministry, several European countries were forced into austerity measures, including raising taxes, sacking public sector workers, and raising the retirement age. They also reduced their social and education spending.

The ministry went further: in the height of the crisis, it said, Malta had controlled unemployment, while investment in the public sector continued.

Let us say all the ministry's claims are correct - it strikes one with blinding clarity that it did not reply to one single assertion in Charles Mangion's comments on the fiscal situation, implicitly admitting to every one of them.

There is obviously much digging left to do to tidy up the fiscal garden, which is why it's more important than ever to call a spade a spade.