In the last couple of weeks the National Statistics Office published the data for 2010 related to the gross domestic product and public finances.

This data provides a strong indication of the outcomes of the country’s fiscal policies, and even in other countries, is much analysed.

It shows not only the growth that the country has experienced but also the quantitative impact of government on the economy. It also provides scope for controversy – one of the basic ones being whether government should spend more or less to achieve economic growth.

Admittedly what we have here is just numbers, in that we know by how much the economy has grown or whether the public finances are in a sustainable position.

However, we have no indication of the quality of public services or whether the impact of economic growth has trickled to all segments of the economy. A higher level of expenditure does not necessarily mean a better quality of life for the citizens nor better public services. The need for reform or otherwise does not emerge from these numbers.

In 2010 the growth rate of the gross domestic product in nominal terms was 6.8 per cent, while in real terms (that is after accounting for inflation) it was 3.7 per cent.

This growth was mainly driven by the financial services sector (then a multiplier effect on other services sectors), certain elements of manufacturing and tourism. This has also meant that exports rose in real terms, as did imports. In terms of incomes, the growth occurred mainly in the operating profits of business enterprises rather than wages and salaries. Private consumption expenditure grew only marginally in nominal terms but actually shrank in real terms. This epitomises the point that economic growth does not necessarily mean a better quality of life for all.

Real estate, renting and related business activities remain Malta’s largest economic sector, followed by manufacturing and wholesale and retail activities. However, this has not always been so.

In 2004, the year Malta joined the EU, the largest sector was manufacturing, closely followed by wholesale and retail, while renting and real estate was in third place, at a significant distance.

The three sectors that experienced the highest growth since 2004 were the financial services sector, electricity, gas and water (one needs to understand why we had this phenomenon in this sector) and community, personal and social service activities. Public administration accounts for just 6.5 per cent of total value added.

In terms of recurrent revenue, this has increased by 6.5 pert cent in 2010 over 2009. The main contributor has been income tax. Indirect taxes (VAT and excise taxes) also made their significant contribution. Income tax revenue grew by 8.4 per cent (probably as a result of the drive to collect funds through an amnesty), while revenue for indirect taxes increased by 6.8 per cent. The growth in revenue from social security grew by 4.9 per cent.

In terms of total expenditure, this has increased by 5.1 per cent. However, while recurrent expenditure grew by 4.2 per cent and interest payments grew by 2.5 per cent, capital expenditure increased by 14.8 per cent. Wages and salaries take up 20.4 per cent of total expenditure while social security benefits take up 26.1 per cent.

Given that 46.1 per cent of total expenditure is taken up by fixed aspects such as wages and salaries and social security benefits, one wonders what room for manoeuvre the government has in directing public expenditure where it is really needed.

Next come the ratios. The negative balance between recurrent revenue and total expenditure (€279 million) represents 4.5 per cent of the gross domestic product. Total government expenditure takes up 44.9 per cent of the gross domestic product, while income tax represents 12.8 per cent of the GDP.

I believe that there needs to be proper dialogue, not just among the social partners, but also with civil society, on this data and what it implies to the country as a whole.

There needs to be a proper understanding that each decision taken implies a choice, a choice that will eventually reflect itself in the gross domestic product and public finances.

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