The global crisis has clearly shown that government policy can either foster or undermine social cohesion. In order to meet the ever-increasing demands of society in general, governments have gone much beyond what they can afford. They too have been afflicted by the vice of consumerism with government debt spiralling out of control.

The debt is inherited and, one day, someone will have to pay for it- Stephanie Cutajar

This gives strength to the argument that short-term generous and populist measures can bring an economy and a political system on its knees. An entrenchment of long-term goals in our economic planning is needed and the Budget is one such tool. The Budget is a blueprint of measures that are aimed at getting us to where we envision ourselves. Therefore, yes, the Budget, affects you more than you think.

As an economic tool, the Budget plays an important role in determining the path of a country’s economic and social development. The Budget is no automatic panacea. Its success not only lies in the measures per se but, more importantly, in their implementation and absorption by society in general. Understanding the delicate situation we are in is warranted.

Economic indicators are already warning about the possibility of a double dip recession that will further weigh down on an already delicate European recovery. This exceptional situation makes the Budget 2012 like no other ordinary budget.

As a small and open economy, we are dependent on foreign export markets. They suffer, we suffer. Budget 2012 was designed against this backdrop and had to find the delicate balance between growth-enhancing measures while reducing the deficit.

Who benefits from a reduction in the deficit?

Over the years, the political class gave the impression that a sustainable fiscal position was not a concern. Many politicians embodied Keynes’ statement that “in the long-run, we are all dead” and spent like there was no tomorrow. However, the Greeks and other Europeans woke up to this tomorrow! The debt is inherited and, one day, someone will have to pay for it.

Reducing the deficit is the first step towards reining in rising debt levels. In addition, a low deficit exudes confidence in the economy. Consumers and investors are not worried that taxes or revenue-generating measures will be introduced to bring in the needed revenue. This makes a country with a low deficit more attractive to investors.

Above all this, the crisis has shown us that a reduced deficit gives a government more room to manoeuvre in times of need.

Deficit reduction is therefore a cornerstone of attracting investment. Investment for the benefit of whom?

In times when the external situation is delicate, a domestic strengthening of the economy is needed. Investment is one pillar that not only sustains present growth but, more importantly, generates employment.

Investment is an important theme of Budget 2012 with measures aimed at both public and private investment.

Government investment in the economy is significant with a vast array of capital projects underway, spanning different sectors from restoration to education, health and infrastructure. Apart from improving our potential, such investment is generating jobs and wealth for our families.

In addition, numerous schemes, such as MicroInvest, MicroCredit, the guarantee scheme and other sectoral incentives, will be important contributors to economic activity and job generation.

The Budget and social well-being: mine, yours and ours.

Unfortunately, citizens are only interested in the direct policy actions of the government in the Budget. Much weight is given to taxation, subsidies and benefits. However, the Budget is wider than this and its implications impinge on us all. We need to be aware of the importance of a healthy and sustainable economy even though the benefits to this do not accrue to us immediately.

Responsibility and prudence in our expectations are essential. We cannot risk gambling our present and future well-being. Populist proposals are nice to hear, however, reality can bite us one day and the pains inflicted will by far outweigh the short-lived benefits.

This Budget is woven on the principles of prudence and responsibility and will help us to continue weathering the turbulent times. It keeps our well-being, today’s and tomorrow’s, close to heart.

stefcutajar@gmail.com

The author is an economist.