Monday is Budget Day. We know what the cost of living adjustment to our salaries will be, but there are still expectations about social and fiscal measures that may affect our pockets.

This year we need to view the Budget against the scenario that was referred to last Wednesday in this newspaper, namely the decision taken by the EU finance ministers that member states with a fiscal deficit higher than the threshold of three per cent of the gross domestic product, may be fined up to 0.2 per cent of their GDP. For Malta this could be as much as €10 million.

This scenario is creating a dilemma. The issue is not so much that there is now more pressure on member states to adopt a policy of fiscal prudence. Fiscal prudence has been advocated for a long time and is seen to be a good thing. The issue is that fiscal prudence needs to be adopted at a time when tax revenues may not be as high as in previous years and economies may still need an element of stimulus, given the impact of the international recession.

The dilemma for EU member states lies in the nature of economic policies that need to be adopted, and Malta is not exempt from it.

Traditionally, it was thought that if a government wanted to provide a stimulus to the economy, it would need to spend more and collect less tax revenue. This would normally have brought about a budget deficit, which would be covered in the following years as the economy grows.

Thus fiscal prudence and economic growth were not seen to move in tandem. Today, we are facing a different situation. We need to achieve economic growth without increasing the fiscal deficit. Thus, it is no longer an either / or situation, but we are having to satisfy both requirements. Economic growth is demanded by operators in the economy and the public at large, while fiscal prudence is being dictated by economic policy makers.

The timesofmalta.com of last Wednesday also carried a vox pop showing what people generally want from the Budget.

Reference was made to lower water and electricity rates, student stipends, the “living wage”, and other issues. Add to that the call by the FORUM group of trade unions to reduce the top tax rate to 25 per cent, and one gets a clear idea of the very big variance between expectations and the parameters that the Minister of Finance must adhere to in what is the most significant economic policy making document of the year.

Moreover, the external economic environment is also not yet fully stable. Speculators are back in action, with little regard to the problems they have created in the recent past.

The world’s leading economies also need to reach agreement on exchange rates, as some currencies are undervalued, thus creating a situation of competitive advantage for their exports.

This situation has forced the government of Japan to bring interests rates down to zero per cent, in an effort to force the down the value of the Japanese yen. With this lack of stability in the international environment, the policy options for our Minister of Finance become even more limited.

Within this context the principle of equity becomes a critical factor. By equity, I do not mean a fair distribution of income (which in any case is necessary) but the acceptance of the responsibility that each and every one of us has to pay all taxes due, to eliminate waste and not to lay claim on public resources to which we have no right.

Government should not need to impose the principle of equity on us, but it should be the role of us all to live it.

I do not think that is hard to imagine the impact on public finances if there were no tax evasion, no social benefit fraud, no waste by public entities, no demand for services that we have no right to.

It may sound idyllic. However, if we really want to have a policy of fiscal prudence and at the same time achieve economic growth, without causing undue pain, this is what we must do. It goes back to a question of values and the common good.