IMF calls for fiscal consolidation

The International Monetary Fund (IMF) has warned the government of the need of fiscal consolidation after it observed that although economic growth had been registered last year, debts in the Consolidated Fund had reached between 68 and 69 per cent of the GDP which, together with debts in the contingent liability, reached 85 per cent of the GDP.

Opposition finance spokesman Charles Mangion said the IMF had also warned on the banks’ exposure to real estate market weaknesses. There was no need of alarm, he added, but one had to take steps to keep these aspects in check.

Speaking in Parliament on the Bill implementing budgetary measures, Dr Mangion said that the privatisation of the Freeport had not given the desired results and the government had doubled its allocation from €6 million to €12 million for this year, with €12 million more promised for next year.

The opposition had criticised the privatisation agreement because the negotiations had been tied to the dollar without establishing the exchange rate for the interest to be paid on the loans made by the corporation, in such a way that revenue by the corporation would not cover these loan interests at today’s rates.

Dr Mangion also criticised the government’s decision to exempt the Grand Harbour Regeneration Corporation from scrutiny by the Contracts Committee and parliamentary committees when this corporation would have managed €3.5 million in 2010. The corporation’s management could negotiate directly without the need to issue a call for tenders.

He called on the government to bring the parliamentary motion tabled by the opposition on such exemptions for discussion as early as possible. The opposition strongly believed in the principle that what was paid for through public revenue should be subject to scrutiny. The freedom enjoyed by this corporation was not consonant with the Budget, which aimed at controlling government expenditure. The government had promised to revise its decision.

Dr Mangion added that everyone should agree with the motion if one wanted to give the message that accountability and responsibility were paramount where public moneys were concerned.

The pre-Budget document issued by the Ministry of Finance clearly indicated that Malta’s percentage rate of world business had decreased. The trade gap had decreased in 2009 because there had been less imports and no investment in machinery had been made.

It also showed that investment had totalled 15 per cent of the GDP when the EU average stood at 18 per cent. This was surely not compatible with everyone’s aim for Malta to be among the best performers in the EU. Investment was directly related to productivity in making the product cheaper and of better quality, and consequently attracting more buyers.

One had to look at the country’s competitiveness by increasing productivity and giving more efficient services. While wages in real terms had decreased during the last four years, as confirmed in the economy survey, government-induced costs represented 14.5 per cent of the product when the EU average stood at 2.5 per cent in countries where wages were much higher than in Malta.

The Budget made accounting calculations but failed to propose concrete steps on how to address administrative inflation.

The tourist industry was also affected negatively by the VAT increase on accommodation at a time when the governments of tourism-originating countries were giving people incentives to take holidays in their own countries. Although tourist per capita expenditure was better than in 2009, it was still less than in 2002.

Dr Mangion said that increases in customs and excise duties on alcohol, tobacco and cement were to increase government revenue substantially. The government was to receive €10 million more in excise duty on petroleum products. It had also increased excise duty on electricity by 50 per cent from €1 to €1.50 per megawatt hour. This was a further increase on the already-high electricity tariffs and would increasingly burden families and businesses. Kerosene product prices had also been increased by €30 per 1,000 litres.

In the face of such additional expenses for families the government continued to spend thousands of euros on receptions. This was not indicative of good governance.

He said that while the minister had boasted of the widening of tax bands, he had failed to mention that at the same time the government had increased VAT from 15 to 18 per cent, while also substantially increasing tariffs for many public services.

Dr Mangion drew the minister’s attention that the double taxation agreement with the US government had stopped functioning in 1995, and not under a Labour government as he had implied.

The chairperson of the World Financial Stability Board, Mario Draghi, had warned countries not to rest on the rate given by international credit agencies because these were also partly responsible for some of the problems in the international financial crisis.

He said there were Budget measures which required more explanation. One concerned the expense on the construction of the new Parliament building when the government had still not set up the fund for its development.

The rest of the report will be carried tomorrow.