Away from economic history

Iregularly bump into individuals who ask me why is it that many of my articles have an economic history bias, rather than strict focus on current happenings, especially from our midst. The reasons are obvious: experientia docet (time is the best teacher), and by nature (and age!) I am always very sceptical of most of what I find myself analysing locally.

The institutional trappings of financial independence may still be there but that’s about it- John A. Consiglio

Why, I was for example asked, wasn’t an article on the Budget produced by you? The topic, for reasons which I will expound, nowadays only captures my interest in a very sporadic manner. It is in the nature of man to constantly have higher expectations, and, besides that, I nowadays find myself increasingly succumbing to the notion that, given that the room for total autonomy of autochtonous fundamental and important economic decisions is becoming increasingly restricted in consequence of our EU membership, then now and henceforth any Maltese Minister of Finance simply does not have much room for manoeuvring in alternative manners. The institutional trappings of financial independence may still be there, but that’s about it.

And so, within such a context, it always ends up that it is simply pointless to indulge in relating the Budget to my expectations for the economy, let alone for myself! And my, and many other quiet observers’ feeling is also that increasing are the number of Maltese who are now sensing that we, as citizens, and all our politicians as such, are becoming ever less and less powerful when confronting the strapotere of them who – from outside the country – are taking the more important decisions for us.

This 2012 Budget, inevitably formulated in a context of “hold the reins tight and steady”, will not achieve any miracle in the area which constitutes the country’s biggest problem, our national debt. I have been saying for long – and also showed elsewhere with a numerical exercise article – that ours is an economy which, over a long term, say a 20 year, spread, has not grown at rates comparable to those of other countries which in the same period have run faster and faster ahead of us. I don’t care much if these are outside Europe: they are far ahead of us, that is the fact. And, again, our growth is of course much hampered by our national debt.

I have for long been writing about unutilised national assets.The apparently terrifying (political) prospects of introducing a Long Vacant and Unutilised Property Tax falls squarely in this area. Such a tax, apart from providing absolutely needed funding to government, would also definitely have the effect of shaking the property market. But, as said, in Malta political interests have always come ahead of the country’s economic good. It will have to be a very, very, brave government which will take by the horns this bull of such plentiful economic assets (hidden, static, comatose) invested over various spans of time into that sector, and act in a manner that brings such assets back into the nation’s productive economic mainstream.

On the national debt we are often also far too often falling into the mistake – some conspiracy theorists have also described it as a well laid out trap – of consoling ourselves that, compared to other EU member states, ours hovers at “only” around 70 per cent of GDP. For a small country like ours even that is a level which, in a context of our limited national assets, is too high for us and for the generations coming after us.

During the Budget announcement week a new offer to subscribe to Malta Government Stocks was issued. This, in a sense, is obviously symptomatic of the fact that, until the wheel turns in the series of annual deficits, government needs to borrow heavily will persist. I do not subscribe to the idea that big and aggressive projects, deals, capital investing (including FDI) will do the trick to reverse the trend. I much rather fancy rapid accumulation of many micro decisions impacting annually on current and capital expenditure, therefrom onto the budget deficit, and thence public debt growth.

Within such a context my humble view is that it is wrong to persist on embarking on big capital projects – even if having positive potential long term growth benefit – at the current rate or unselectivity levels (e.g. the new Parliament and Theatre). It would be wrong to interpret this position as being totally against all capital spending. It is the size and rationale that needs changing.

Contrary to what many seem to hold, I, an eternal optimist, subscribe to the thinking that as soon as the Greek, Spanish, and Italian scenarios settle down, and it may even be sooner than we think, Malta, a very small country, will benefit from even small improvements there. I still subscribe to the notion that much more can and should be done to help exporting Maltese manufacturing industry, perhaps still the major contributor to the real economy, and widen its external markets.

Even in economics the proof of the pudding is in the eating. Journalists, and pundits, and feature writers like myself, can bla-bla until doomsday, but what economic science will continue to teach is that the adequacy of measures intended to boost growth can only be measured in the medium and long term. As said, pure economic history analysis (say over a 20 year period) suggests that Malta is not growing at encouraging rates.

This means that measures taken many years ago have not been the great success than many so often, in fits of political self-praise or even cross-party jingoism, boast of. When we then come to short term interpretation, we inevitably find ourselves drawn into analysis that relies heavily on the political cycle. And that is a discourse that does not interest me at all.

Maltese society, as opposed to the Maltese economy, is rapidly taking on an “upstairs and downstairs” physognomy. I sense a growing gap between the powerful (potenti) and rich (abbienti), and those downstairs. In such circumstances any government must perforce have more resources so that – if it so wants to – it may help and favour ever wider swathes of the populace.

Government, any government, must accept a fiscal policy that selectively aims and focuses on those points in the economy which can and should help other points of the same economy. This is probably the only road open to it where an economy is not growing in all of its component parts.

This is why forms of property taxes, windfall taxes on certain institutions’ profits, higher income tax rates on HNWIs, conspicuous expenditure taxes (boats, big cars, etc), et simila, and an all-out attack on VAT avoidance especially by professionals, self-employeds, and SMEs, are all examples of measures which, in certain circumstances, one can sing avoidance until the cows come home, but reality then always catches up on whoever is in government, and makes them simply inevitable. And please notice that I have not spoken about tax hypothecation or allocation at all.

Or is it a case of saying “EU Commission permitting”?