In last week’s contribution I queried whether we are losing the plot. It was rhetorical question in that my own conclusion was and still is that we are indeed losing the plot because in my opinion we are giving financial markets more importance than the productive economy.

Last week I was commenting on the international economic situation and not about the local situation. I now ask the question in relation to the Maltese economy. Are we losing the plot in our country as well? We need to assess this question in the light of the forthcoming presentation of the Budget for 2012 by the Minister of Finance, the Economy and Investments.

Budget time is a time when most of us would wish it to be an occasion of an early visit by Father Christmas, either in the form of tax cuts, or in the form of reduced rates for water and electricity, or in the form of subsidies on products such as medicines. We tend to forget that the Budget has two important dimensions. First it represents government’s major tool of fiscal policy and through the Budget government provides direction to the economy.

Secondly, the Budget presents an estimate of how public resources will be handled in the coming year. In both respects, we need to look at the Budget primarily as an economic tool and only secondarily as a financial tool.

This year’s Budget is being presented against an increasingly difficult international economic scenario, as it has been on the last three occasions, that is since the second half of 2008. Economists are undecided whether the international economy ever emerged from the recession, and if it did, they are equally undecided whether we are moving towards another recession. The Maltese economy has performed rather well since the bubble burst in September 2008. The economic data seems to suggest that we have not lost the plot in our own economic policy.

However, we certainly cannot rest on our proverbial laurels. It is for this reason that, although we need to keep a watchful eye on what happens in the rest of Europe and the world, we must be forever vigilant in ensuring that our fundamental economic indicators maintain a positive trend in order not to risk losing the plot ourselves.

By this I mean our employment levels, investment, our exports of goods and services, our inflation rate and our gross domestic product. There are some considerations of principle that I would like to put forward in relation to the Budget and our economic policy.

First, there should be no doubt that fiscal prudence needs to be maintained. I have often mentioned my strong belief that, for economic reasons and not financial, we should introduce the concept of the balanced budget in our legislation.

In fact, we cannot just have fiscal consolidation at the expense of economic growth. A balance between these two objectives must be maintained. This may sound a contradiction in terms given classical economic thinking that governments need to run a deficit to stimulate economic growth.

I believe that there are certain decisions that need to be taken and that can stimulate growth, that do not cost any money.

This brings me to my second point. In the present situation we have a window of opportunity that may not be around again in the near future. We must do all that is necessary to rid our economy from the pockets of rigidities that still shackle it.

We must continue with the process of liberalisation and privatisation. We need to go through the process with diligence; but we must still go through it.

Thirdly we need to ensure that all public expenditure is providing value for money. We do not need more public expenditure. We simply need to make sure that we get a return for whatever we spend. In this regard, I am a great believer in publishing the expected outcomes from each public service department and public entity, for the money that has been voted to them. It has been proven a number of times that what gets measured gets done.

The fourth point is that we must maintain our focus on the productive economy. It is the productive economy that needs to be supported. In this regard, it is heartening to note the recent report of the World Economic Forum.

Malta has been described as an innovation driven economy. Sectoral value added as a percentage of GDP is at 65 per cent, among the highest in the world. It ranks among the top 20 for FDI technology transfer, telecommunications, safety of doing business and quality of the port and airport infrastructure.

Malta is one of 41 countries considered most likely to be able to sustain their competitiveness in the long term. On the other hand we know that the size of our market is small, and, therefore, must rely on our ability to export goods and services to thrive economically. This requires an efficient labour market and an efficient public service infrastructure.

My final point is the need to keep in constant view the common good. The term “common good” has many components and cannot be limited to general economic well being. We need to include other aspects such as social well being, cultural heritage, effective democratic institutions, education, as well as moral and spiritual well-being.

Linked to this is the relationship between ethics and economics. Every economic decision implies an ethical choice as an integral part of it. So the promotion of well-being cannot be limited just to the pursuit of maximizing consumption but to the development of the whole person and to the search of the common good.

Therefore, our fiscal policy as established in our budget cannot be short term and must also look at the long term impact. I believe that Minister Tonio Fenech is first and foremost Minister for the Economy. It is in this role that he presents the Budget to Parliament, because it needs to be a balanced one in order to strengthen economic growth and not irrespective of economic growth.