Last Monday the Minister of Finance, the Economy and Investments presented the Budget for 2011. We need to keep in mind that the Budget is more than a list of initiatives or measures that the government is planning to take next year.

Taken as a whole document, the Budget represents the fiscal policy of the government for the coming year. For example, when the UK Chancellor of the Exchequer announced last week the spending review, he was making a statement about the fiscal policy of the UK government.

This aspect of the Budget is critical, as we also need to keep in mind that, nowadays, the government has little room for manoeuvre in terms of monetary policy, thereby leaving only fiscal policy.

And even in the area of fiscal policy, the room for manoeuvre is restricting itself with the latest proposal that countries that go over the three per cent threshold in relation to the deficit-to-GDP ratio will eventually be fined by the EU. Thus, the Budget is an economic tool that has a social dimension as it redistributes income across the population, thanks to the measures and initiatives announced.

The question that needs to be asked is whether the Budget for 2011 is good for the economy or not.

To answer this question we first need to assess what the economic requirements of the country are today. I believe that there are four priority areas, which I have often referred to in my past contributions.

We certainly need to have a fairer economy, where the common good prevails. We need fiscal consolidation such that the deficit in public finances is maintained at sustainable levels. We need economic growth that creates wealth and jobs. We need to have a sustainable economy that guarantees growth for future generations through the quality of government expenditure.

How does the 2011 Budget measure up against these criteria? I believe very well. There was sufficient emphasis in the Budget Speech on the need to have a more cost efficient public sector and how this can be achieved.

Personal income tax was not touched and no new taxes were introduced other than an increase in the excise tax on cigarettes, tobacco, alcohol and fuel.

The massive increase in planned investment in education and training is proof of the government’s commitment towards the creation of jobs and towards future generations.

The additional benefits for pensioners are in accordance with the need to have a fairer society. The initiatives supporting economic activities such as manufacturing and tourism will help to generate new investment and safeguard jobs.

We also need to look at the quality of government expenditure. The government could easily have taken a popular measure such as reducing the rates for water and electricity. However, this would have been a very short sighted policy.

In such an instance, consumption of the utilities would have gone up and the benefit of the government subsidy on rates would have ended up in the pockets of the oil sheiks, and certainly not in the economy.

By investing in education, health, the environment, industrial activities and the social welfare system, the government has adopted a policy that would benefit the country directly today and in the future.

To put it crudely, we know that there were not enough resources to spend a euro on education and a euro to subsidise water and electricity. Since there had to be a choice, a euro spent on education has much more value for the country than a euro spent to subsidise the utility rates.

Maybe, a good indication of the effectiveness of the government’s economic policy in the last five years is the study published this week by a Brussels-based research institute, the Lisbon Council, and the financial service company, Allianz. This study shows that Malta is the only country, other than Germany, that has boosted its competitiveness and its fiscal sustainability in the eurozone in the last five years. They reached this conclusion on the basis of a scoreboard they developed and which included debt, labour, productivity and trade indicators. That Germany and Malta happen to be the eurozone’s largest and smallest economies is incidental, but it certainly gives us great comfort that we measure up very well in terms of our economic performance.

The Budget debate may still be in its beginning, since next week there shall be the speeches of the Leader of the Opposition and the Prime Minister in Parliament. These interventions will help to deepen the analysis of the Budget. However, to my mind, the 2011 Budget demonstrates competence on the part of government in the area of economic management.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.