The decision by the European Commission to close its excessive deficit procedures against Malta signals an important milestone in the government’s efforts in continuing to strike the very delicate balance between supporting economic growth and ensuring financial sustainability. Though distinct, they are, at the same time, directly related objectives.
Prudence remains the way forward...- Tonio Fenech
The government has been stressing the importance of achieving a balanced budget since the previous legislature. This was clearly stated in our electoral programme and we were on track to achieve this goal.
In 2009, the government responsibly decided to postpone such a decision and invest further in the economy, through incentives, schemes and capital projects to assist it through an international economic recession. We have been successful in achievng this.
Last week, the European Commission carried out an employment review, comparing employment rates around the EU with those pre-crisis in 2008. It concluded that no fewer than 15 member states have seen their employment levels drop. We have witnessed the second best increase, at 3.9 per cent, behind only Luxembourg.
This result has been achieved by no mere coincidence. It is a result of responsible and targeted decisions that aimed at enhancing economic growth by supporting the right business environment.
This includes a substantial capital investment programme, ranging from the investment in a new power station extension, coupled with the best solutions in terms of emissions capture on the market, which is critical for our economic development; a waste water treatment plant, which ensured that no sewage water is thrown into our seas; millions of euros into new roads, the embellishment of our fortifications, palaces and historical centres.
These have a direct impact in the sense that they generate immediate economic spillover and create employment but they also enhance the quality of our country, in terms of making it more attractive to investors, tourists and locals.
Secondly, the government introduced specific initiatives aimed at business and industry. These include the over €50 million allocated for e-business, start-ups, investment in innovation and alternative energy; the MicroInvest scheme, which provides generous tax benefits to small businesses that invest and employ people; the MicroCredit scheme, which facilitates access to finance; the refurbishment of industrial estates and the numerous new and expansion projects approved by Malta Enterprise for new factory spaces around the Maltese islands.
Investment promotion efforts have paid off as investment levels have been exceeding EU levels and are being reflected in diverse growth in different areas, including manufacturing, tourism-related services, gaming, financial services and other new areas like the digital and creative industry.
Thirdly, we have invested in people in the clear belief that trained and flexible human resources are crucial to attract top quality investment.
While other countries were busy slashing their education budgets, the government has clearly marked education as an area that required further and continued investment. Our efforts to improve our schools, the University, the Maltese College of Arts, Science and Technology and the Institute of Tourism Studies are producing qualified personnel that are being taken up in better quality jobs being created in our modern, developing economy.
We have been financially responsible and acted where it mattered.
When Labour suggested cutting VAT, imitating the UK in 2009, the government pointed out the fallacy of this way-forward, which would have had a substantial financial impact but little economic gain. The UK not only reversed this decision but, like many other European countries, had to increase VAT.
Difficult decisions were also taken, including the review of electricity tariffs, which were, however, accompanied by unparallelled support measures to assist families, including through eco reductions, energy vouchers and advantageous schemes to support family and business in investing in energy-saving or clean energy sources.
Most importantly, despite Labour’s efforts at depicting doom and gloom, during the four years of this legislature, the government reduced income tax twice, with the latest saving working parents up to €840 annually.
We have removed a number of taxes, including the TV licence, the departure tax and credit card tax.
We have given numerous tax incentives to parents sending their children to private schools, to cultural and sport activities or to child care centres and to students who invest in specific areas of education.
We have also successfully defended the non-introduction of VAT on food and medicine.
Malta was indeed one of the few countries to have reduced its tax burden over the past 12 months.
Yet, Labour has the gall to define a €40 million expenditure review, intended to improve administrative and operational performance, as austere. This criticism by Labour shows the shallowness of the arguments that the opposition make, despite their claims. This effectively means they have no clear ability to deliver the stability that the country’s economy requires.
Truth is the Commission’s decision to close its excessive deficit procedure highlights the government’s success in responsibly guiding Malta stably through the rough waters of the current international storm.
While Labour continues to find its way around in understanding how a real economy works, the Commission’s decision means that we have managed to achieve economic growth and job creation without endangering the longer-term sustainability of our finances.
It does not mean though that we have reached our final destination. The situation out there is still very troublesome. Prudence remains the way forward as we continue with our efforts to steer Malta in these times of international crises.
The author is Minister of Finance, the Economy and Investment.