Why Labour risks a bailout
Last Sunday, Labour leader Joseph Muscat took me to task for expressing my fear that if Labour is elected and sticks to its promises, our country could be knocking on Europe’s door for a bailout in one or two years. Muscat was reported in The Times as having “rubbished” my claim.
The last time Muscat rubbished my claims, he was arguing that we should stay out of the European Union. And we all know how that turned out. But let’s stick to the matter at hand.
Muscat said that “Malta can never need a bailout because only countries that are indebted to other countries can require a bailout”. He pointed to last week’s report from Fitch rating agency as “his certificate” that Malta’s financial situation would remain stable irrespective of who won the next election.
Let me explain why I think Muscat is wrong.
In its report, which was shamelessly misrepresented by Labour, Fitch stated that “Malta will maintain a general government primary budget surplus in 2012-2014”. If anything, this is a certificate for the incumbent Government’s financial policies.
Fitch went on to state that “This implies that the incumbent Government will take the necessary action to ensure that the budget deficit remains below three per cent of GDP this year and that any new government emerging from the elections will set out a credible multi-year fiscal consolidation programme that incorporates the impact of ageing”.
Labour seized on the last part of this sentence as a ‘certificate’ that a Labour government would definitely set out a credible fiscal consolidation programme. But, in fact, Fitch is not saying that at all.
It is merely saying that its statement is based on the assumption that this would happen and not that it will certainly happen. So much so that in the original report – which Labour failed to read – Fitch uses the clearer term that it “expects” any new government – which may or may not be Labour – to set out a credible consolidation programme.
It added that “If there is material fiscal slippage this year or the post-election fiscal policy fails to deliver this, it could have negative rating implications”.
Labour did not quote that part of the report because it is hardly a resounding gurantee that a Labour government would be fiscally responsible. And this is precisely where my fears of a bailout under Labour come into play.
First of all, Labour’s key electoral promise is to reduce water and electricity bills. This will cost the country’s budget a bomb that we cannot afford. If we could afford it, we would have already done it. But we do not.
Just this year, we are already paying more than €30 million to subsidise utility bills, especially for vulnerable families. Now, if Labour keeps its promise to reduce bills in a meaningful manner, then we are looking at a bill – an annual bill, not a one-off – which is several times larger than this amount. Otherwise, it would be reducing your bill by just a few cents.
This alone would put our budget deficit outside the three per cent limit, not just for a year but for several. And it would turn the European Commission’s spotlight onto us. Investors will start getting worried and rating agencies may very well notch us down. This means lower investment and less jobs.
Secondly, Fitch insists that our consolidation programme must incorporate pension reform. And it warned that the main long-term threat to public finances is the unreformed pension system because pension expenditure is projected to increase dramatically.
Now, we all know that the Labour Party is not committed to a serious pension reform and has been opposing it for the past decade.
The moment Fitch realises that a new Labour government has no intention of addressing the pensions time-bomb it will not mince its words.
Thirdly, Labour has made a host of other costly electoral promises that would move our public deficit and public debt not just outside the Maastricht limits but well into bailout territory.
Among the more expensive promises are its commitment to refund VAT and car registration tax to about 18,000 regardless of the outcome of an impending court case. This bill would run into tens of millions of euros.
And then there are the promises that Muscat makes on the spur of the moment, keen as he is to promise everything under the sun. All costly promises that must be financed from somewhere.
Fourthly, Labour has been markedly flippant about the reform of public sector companies, from the shipyards to Air Malta. This means that it would continue using taxpayers’ money to subsidise them rather than get them to stand up on their own feet. Add that too to the public deficit and the public debt.
A quick back-of-the-envelope calculation is enough to show that delivering these promises would put the country in an unsustainable financial situation and even in the risk of default.
This is why I raised my concern that a Labour government would bring us closer to Greece than we may imagine. To dismiss my concern by stating that Malta will never need a bailout because its public debt is borrowed locally is superficial to the extreme. It is like saying that Labour can borrow money like there was no tomorrow and always be able to meet its obligations.
But we all know that spending sprees have their limits. Even the Labour leader should know that a country goes in default when it has unsustainable and irrecoverable debt, regardless of where the debt is coming from. If that happens, Labour may well be in government but you will have to pick up the bill.
I make just one disclaimer. My fears will not materialise if a newly-elected Labour government dumps its electoral promises.
But then Labour cannot have it both ways. It is either Muscat’s promises or our financial stability. Labour cannot do both.
Just think about it.
simon.busuttil@europarl.europa.eu
Dr Busuttil is a Nationalist member of the European Parliament.
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colin jones
Apr 23rd, 11:02
dr Busuttil you are just damaging yourself, while dr Demarco is 100% focused on reuniting the party to offer a better alternative to the present government and to strengthen our loved country, you are yet once again focusing on the old fashion methods. I was disappointed by your performance in the election and am disgusted by your inability to learn from your past mistakes. you are a liability.
j brincat
Oct 4th 2012, 13:56
Do you know, Dr Busutti, l what this beloved country of ours risks most?
It's having GonziPN elected for another term.
Do you know why, Dr Busuttil?
Because we have a record public debt of €4.9 billion (i.e. €4.900, 000,000) and to finance this debt (debt servicing) the government has to fork out €600,000 a DAY!
AND it is to be remembered that more than 50% of this astronomical debt was incurred under GonziPN!
AND in spite of all this GonziPN could afford to build a bridge costing €3,000,000 (the ‘festin’ alone amounted to €30,000) and €80 million (€80,000,000) for the Grand Valletta Project which encompasses the horrendous House of Parliament, the roofless theatre (against ALL public opinion) and a gate to guard and oversee the City but WITHOUT a gate.
AND you also know that GonziPN did not have the necessary fund to finance this project. So what did he do? He came out with a fancy idea of financing it through an SPV (Special Purpose Vehicle).
AND who is most famous for SPVs with their colossal fancy names?
AND who other if not the Greeks - those of the REAL bailout and we had to dig our hands in the in the national coffers (now a big ‘hofra’) to bail them out!
(jb)
NB: If the government survives the whole term we could end up another SPV – to finance the debt of ENEMALTA – the one mentioned by Fitch.
And how was Enemalta reduced to this sorry state? Wel, l you should know considering that bailouts have become your favourite topics.
j brincat
Oct 4th 2012, 11:43
Is this all your beef to your allegation of a possible bailout?
Seems that economics are certainly not your forte!
Stick to subjects with which you're acquainted - just an advice!
(jb)
Tony Ellul
Oct 4th 2012, 10:33
Simon Busuttil's last paragraph says it all. "Labour cannot do both. Its either our financial stability or Muscat's promises. From all the debates i watch on all three TV stations, I realise that if all the promises being made by Labour come to fruition, then they either must have some magic wand to generate millions of euros or as in all likelihood, spiral up the national debt by an astronomical amount, in which case of course we will need a bail out. There is another possibility which some politicians tend to master. Labour wins the election, then a month later the new PM appears on television and says that in view of the worse financial situation found in the coffers, he is unable to fulfill all the promises made!! It does not take a genius to understand that if W&E tariffs are reduced, the shortage of income must come from elsewhere and from where may I ask!!! It seems to me that this time around, Labour genuinely feel that it is their time to govern, and if the voters so decide, then so be it. But what I fail to understand that if this is the case, why don't they act more responsibly and instead of promising the earth come up with some serious and effective capital projects that can benefit the island and generate employment. In their last congress, no such projects were even mentioned let alone suggested. This is truly worrisome and warrants some serious thought. Political change may have its benefit in a democratic environment, but change must be for the better not for the worse! This government has made mistakes, some of which are pathetic, but when one analysis the pros and the cons, there is no doubt as to where the balance leans and it will be a real shame if we bring about the change that will lead us astray. Lets hope that common sense prevails to the benefit of all concerned, friends and foes.
Anthony Galea
Oct 4th 2012, 09:53
Talking about baliouts you are doing more harm than good and I think you started your campain on the wrong foot
Charles Massa
Oct 3rd 2012, 18:54
Dr Busuttil, il bail out il gvern tieghek se jkollu bzonnu meta u jekk jipprezenta l budget. Wara kollox l artiklu tieghek mibni fuq assumptions ma hemm xejn konkret. L ewwel net GONZIPN u ta qablu gabu lil Malta fis sitwazzjoni prekarja bid dejn sfrenat u interessi fuq is self. Imma nghaddu ghal argumenti tieghek
1) trahhia fil kontijiet ta dawl u ilma..... il prezz li qieghdin inhalsu il lum ma jirriflettix il prezz internazzjonali. Qieghdin inhalsu ghal inefficjenza li hemm Enemalta immexxija minn GONZIPN.
2) VAT registration hija taxxa li GONZIPN ha ingustament minn fuq il poplu. issa anki ikkonfermata mil Qorti. Bhal ma GONZIPN sab il flus biex jaghmel tijatru bla saqaf jew bridge to nowhere, hekk ikoll Dr Muscat bil hila tieghu isib flus biex irodd lura dawn il flus
3) Ghajnuna Shipbuilding u Air Malta. Suppost taf li l gvern tieghek ghalaq kompltament is Shipbuilding. Rigward l Air Malta suppost GONZIPN gab barrani ma il Maltin huma cwiec skont il Ministru, ki suppost ipoggi l Air Malta fuq saqajha
Finalment fuq il bail outs,fl Europa dawn kellhom bzonnom il Banek falluti li kellhom u ghad ghandhom. Il banek Maltin ghandhom kapital tajjeb u bad debts kontrollati.
Dr Busuttil huwa bniedem li forsi qieghed jaspira li jkun kap tal PN.......IMMA ma tanx beda fuq nota pozittiva
Anthony Paris
Oct 3rd 2012, 18:37
"It is like saying that Labour can borrow money like there was no tomorrow and always be able to meet its obligations." But Labor have never done so, whereas the PN have done exactly what you are predicting Labour will do. Who in their right mind would spend millions on a roofless theatre and a under utilized parliament building, and then turn to the Maltese population to fund it? Yes Joseph Muscat is right, one day the savings of the Maltese people that keep financing the Government deficits, will one day run out. Then we will face the music of international lenders.
C. Bartoli
Oct 3rd 2012, 16:35
I believe that there is a simpler explanation to this and history will repeat itself just like what happened in 1996 with the VAT fiasco. JM is promising that he will lower the utility bills and everyone knows that this would be difficult because of the fluctuating price of commodities.
Labour will be in power and everyone will stop paying their bills, waiting for the reductions. Reductions will never come and Enemalta will be short of money. The only way to replace that money is to ask for a bailout or increase the taxes.
B. Cachia
Oct 3rd 2012, 16:24
Well, the 75% debt to GDP ratio that we have now is almost entirely the handiwork of the present administration. So, if the past is any guide to the future it will be the present government that will lead us over the cliff.
Alex Falzon
Oct 3rd 2012, 16:10
Allura gvern Laburista l-elettriku biss se jwieghed li jrahhas... fil-hames snin li gejjn...?
anton cassar
Oct 3rd 2012, 16:03
Probably you`re right Simon.....But don`t forget that countries ask for bail outs after years of financial mismanagement !!!!!!!
John Zammit
Oct 3rd 2012, 15:19
You say a Labour Government will need a bail out so you know the financial situation quite well May I ask you Who was responsible for all this Dr.muscat or the one with "parvidejn sodi"
pat muscat
Oct 3rd 2012, 15:03
I think that it is Dr Gonzi that will be needing a bail out in the next Parliamentary session: Dr Franco Debono has declared that he will not bail him out!
pat muscat
Oct 3rd 2012, 14:30
Indebted people and indebted companies need bailouts:they need bailouts because of debt, something SimonPN knows about since his government is responsible for 25 years of deficits and a mountain of debt. The Church has announced it has a surplus after 3 years of deficits; it turned around it financial affairs in just three years, by due diligence, by being 'bil-ghaqal' something that SimonPN is not!
The Church took 3 years to turn a deficit into surplus, GonziPN is addicted on a spending spree and bu August wasalready some 150 million in deficit more than it planned.
Change will never come with Gonzi or SimonPN, because old habits-borrowing to waste -die hard!
Tony Borg
Oct 3rd 2012, 13:43
@ Simon Busuttil
Is the financial situation of the country that bad that a future labour government cannot help it's citizens in their electricity bills?
If this is the case then whose fault it is Dr. Busuttil?
JIMMY ATANASIO
Oct 3rd 2012, 13:38
it doesn't matter who gets elected because they're only doing it for themselves.the working stiff is only a second thought to what they get for being prime minister.nobody leaves parlament poor or haven't you noticed.they go in poor but they come out rich
John Azzopoardi
Oct 3rd 2012, 12:55
Let us all be honest about all this. Simon, Malta is not yet in trouble because of how the maltese citizens operate and lived within their means up until a few years ago. We are a small island, have good tourist revenue and maltese are known to be thirfty. Of course all of this can change in the coming years as we have been abusing credit in the past 10 years becuase we think that being in Europe will solve all of our problems and cash will be easy from the EU. Well, we all see what has been happening to our neighbors and if we are not careful, the same thing will happen to us, whether PL or NP are in power.
ANTHONY PAVIA
Oct 3rd 2012, 12:38
"that a Labour government would bring us closer to Greece",
Tsh! tsh! And there I was believing the PN were striving hard to reach that milestone in the last year in power. What! We are not even close yet?
Victor Laiviera
Oct 3rd 2012, 12:31
"if a newly-elected Labour government dumps its electoral promises."
Like the PN did after the last election - and most of the elections it won?
Maurizio Psaila
Oct 3rd 2012, 13:08
useless spinning facts Mr. Laiviera...
Either Muscat sticks to his very few costly promises and we hit rock bottom financially, or he aborts his simplistic plans and what is being perceived by Busuttil (and many others) would perhaps not happen...
saviour marquette
Oct 3rd 2012, 12:09
Simon the next PN leader,? wow the PN future looks bleaker then ever.
Karl Consiglio
Oct 3rd 2012, 12:41
Easy to say that if you support PL, but when you say such things you have to say why.
Mr Andrew Camilleri
Oct 3rd 2012, 12:08
Dr Busuttil, bailouts are needed when the banks are in trouble. Our banks are solid - without any help from GonziPN at all. Is Gonzi going now to take the credit for our solid banks too?
Maurizio Psaila
Oct 3rd 2012, 13:12
You are missing a very basic concept of EU membership Mr. Camilleri.
It is not us and them any longer. Eurozone zone is a zone made up of countries with a single currency, a single internal market and with a common interest in the well-being of all. If one country defaults fiscally or on monetary policy, it is in everyone's interest to see the country afloat again...
Mr Andrew Camilleri
Oct 3rd 2012, 12:02
"But we all know that spending sprees have their limits" - could you please sit down with Dr Gonzi and say this sentence to him. At the moment, in a total fit of panic, Gonzi is spending like crazy. Of course, this is all borrowed money. So that is how the spending is done - by borrowing locally. You make a lot of assumptions (some of them ridiculous) but you do not assume that a new government will do exactly like this one and borrow from the Maltese. I wonder why this as not crossed your mind.
Maurizio Psaila
Oct 3rd 2012, 13:19
Seems like Fitch had a cautiously optimistic outlook on the future of the country based on results registered by the government in office. Not otherwise. The report conclusions are positive.
So much so, that even Labour tried to spin it as a certificate of competence in the 'future Government of Malta' which will run its finances from 2013 onward...
Says two things about Labour. Firstly, that Labour shamelessly twisted what the rating agency said in its favour - which is not true - since it was an implication of the incumbent Government performance.
Secondly, makes it amply clear that Labour are convinced that it will win the election. Punto.
Mr Albert Dimech
Oct 3rd 2012, 11:39
"The moment Fitch realises that a new Labour government has no intention of addressing the pensions time-bomb it will not mince its words." Why don't you give them a call to make them aware? They made it clear that they see no risk in a new government be it PL or PN, you fail to state this simple fact.
The credit rating agencies have rubbished you Dr boogyman Busuttil, not J Muscat.
James Dimech
Oct 3rd 2012, 11:38
@ Paul Portelli
Speak for yourself.
I am proud and grateful that my country is part of the EU. And I will never forgive Muscat for trying to keep us out of it.
Joseph Muscat and Labour - Always on the wrong side of history
Paul Portelli
Oct 3rd 2012, 12:32
@james dimech
was labour wrong and on the wrong side of history on the Arriva case
was labour wrong and on the wrong side of history on the power station issue
was labour wrong and on the wrong side of history on the relations with china
was labour wrong and on the wrong side of history on the italian protocol
was labour wrong and on the wrong side of history on the vote to women
was labour wrong and on the wrong side of history on the introducing in malta social services
NEED TO SAY MORE?
Patrick Fenech
Oct 3rd 2012, 11:37
@PaulPortelli The National Debt at its current level is just 10% above the limit. Which for a country that invested in developing to an EU level is pretty good. The problem however is that recent economic conditions have pushed our debt reduction efforts way off course and instead of reducing our debt we have continued increasing it.
You are a bit confused though, my friend. What you call excessive W&E bills (if you look at other countries they are actually still much cheaper in Malta) are determined by the international price of energy and not the government. If the government subsidised that completely then the national debt would simply rise!! So you have to choose between the first and the second points cause you cannot have both....
... Unless you go for Muscat of course. He will magically break the basic laws of nature. (Believe what you may my friend... but you know what Bush once said: "Fool me once..... shame on me... Fool me... ERM... How does it continue...?")
Mr Andrew Camilleri
Oct 3rd 2012, 12:06
Mr Fenech: I disagree with you on two points; (1) how can you compare the price of energy in other countries without taking into account other facts, such for example the local low wages? (2) no, the price of local energy is determined by our government - it takes into account many other facts apart from the cost of oil, such as tax imposed on energy (VAT), the costs of running Enemalta, its debts, plans for the future, etc. So with a bit of careful long term planning, yes the price of energy could be reduced - increasing taxes (as simple Simon states) is not the only solution.
Paul Portelli
Oct 3rd 2012, 12:16
@ patrick Fenech.my friend compare like with like .the wages with the bills.do you honestly think the gonzipn goverment did well in the triffs of bills?
during the Fenech adami times malta saw a lot of progress.tell me how come under gonzipn he made half the debt of the country? do you think he is accountable?
put your hands on your conscience and give me the answer.
yes i feel its time to change and the change is for the good of the country
Maurizio Psaila
Oct 3rd 2012, 13:23
@ Andrew Camilleri: You see... That is the problem with Labour. On energy, but not only, it wants to see the tariffs on their own and NOT within its realistic picture - that is a realistic energy policy with all its positives and negatives.
The question is therefore straight forward. Under Labour, how will Muscat and Co finance Enemalta debts? ...
Paul Portelli
Oct 3rd 2012, 11:02
The last time Muscat rubbished my claims he was arguing we should stay out of the EU
- Simon Busuttil
AND HE WAS RIGHT AND SO WILL BE IN A FEW MONTHS TIME.
tell us simon did you ever pull Dr Gonzi's ear on the national debt?
Did you ever pull out Dr.Gonzi's ear on the excessive water and electricity bills.?
Karl Consiglio
Oct 3rd 2012, 13:18
Labour is a miser that knows nothing about investment.
Maurizio Psaila
Oct 3rd 2012, 13:26
One would rest his case after reading that Joseph Muscat was right in rubbishing Simon Busuttil on the EU....
Mr ALBERT LEONE GANADO
Oct 3rd 2012, 10:16
SB can only speculate on the management of government finances when JM is elected. Many of us are fully confident in the future economic and financial management by the PL team which the voting public can be assured is of the highest calibre. What SB is in a position to tell us is the full extent of the government debt profile, including the debt of parastatal bodies, financial guarantees given and deferred commitments and payments due which have to be honoured. The only way I can see a PL government needing a EU bailout is if they discover some unpleasant shock of a huge debt mountain based on creative accounting as happened in Greece. Otherwise SB can be reassured that promises on energy prices are fully planned and factored not like the recent unbudgeted decision of an unplanned 30 million utility subsidy based not on social concern but on the fear of losing more votes in the coming election.
Patrick Fenech
Oct 3rd 2012, 11:40
@ALG - Seems to me like you are paving the way for labour to get a bailout. I shudder to think what your real reasons are. For anyone who was following the elections in France, just see what Hollande did. He first promised everyone everything and then reneged on his promises!! Well, at least he had the guts to become a liar rather than throw the country's finances to the dogs. Because if he had given everything he promised his country would have gone bust.
What will it be with Muscat? Will he be proved a liar and renege on his promises that he will give everything to everyone? Or will he throw us to the dogs?
Mr Andrew Camilleri
Oct 3rd 2012, 14:48
Patrick Fenech: he always borrow one of Gonzi's better know excuses for ditching one of is major pre-electoral promises - that of reducing income tax. One the one hand we are continually told how well we are doing, but on the other not well enough to reduce income tax because in the space of a few months things changed. Or the one to the hunters and trappers that thier hobbies would go one even once join the EU. Politicians are all the same.
Mr Andrew Camilleri
Oct 3rd 2012, 15:07
@Patrick fenech: here is what Minister Austi Gatt said this orning abour President Hollande: ""When asked whether this was the right time for the project, in view of the economic situation, Dr Gatt said that other countries, such as France, were also investing heavily in capital projects to generate work." Imitation is the best form of flattery.
Robert Henry Bugeja
Oct 3rd 2012, 10:05
Dear Simon, we cannot afford (as you point out) to reduce our w & e bills due to our national debt ( which is truly a bomb)...
May I ask who is responsible for that "debt bomb" since your party enjoyed 25 yrs in Government? Surely not Labour is to blame. Apparently your party can find money to support a city gate project of 100 million euro during a financial crisis. It found the sum of 3 million to subsidise independent schools when most of our state schools are in shambles. It also found 20 million to hand over to Dr. Portelli to rent his hospital when our NEW hospital has cost us an arm and a leg and still cannot accommodate all patients and their cries.
So please, with regards to the bailout, you should ask yourself who is really responsible for our financial mess before presuming the aftermath of next election. I cannot fathom any person who has a standard education believing that our country's financial damage has been done due to fresh Labour Government. And one last question; If, as your party leader so pompously claims, that you were so successful in everything you did, why is he so afraid to go to the polls and take the peoples judgement??
Alex Falzon
Oct 3rd 2012, 11:15
Because half the population does not appreciate anything is done in this blessed country... the PN in government did not leave our coffers full and letting the population in a miserable state such as going abroad to buy food stuff... the PN used the money to make Malta a competitive country ...
Joseph Camilleri
Oct 3rd 2012, 09:53
But what about the current state of play with respect to the national debt that Gonzi and his Government are primarily responsible for? Isn't this what would be pushing Malta towards a situation whereby a bailout, or whatever one wants to call it, becomes more possible?
Why not be honest about this basic fact? The EU countries that have hit the wall, were the ones with spiralling deficits year-on-year leading to a national debt figure that was fast becoming unsustainable. Let us not forget that in Malta, this situation was brought about by successive PN Governments, quite notably by those led by Lawrence Gonzi. The latter has not so far denied Joseph Muscat's repeated claim that over 50% of the national debt was created by Gonzi-led Governments.
I see no reason why we should stick to the same driver who's been responsible for driving the car so recklessly.
Peter Murray
Oct 3rd 2012, 09:36
Whats wrong with a bailout?As a bailout is the only way we will get our money back given as loans(sic!) to distressed EU countries never to be seen again(Spain will soon apply for a bailout-mark my words).Then all we have to do is renege on our borrowing -like Greece will eventually do.So what's the big deal about a bailout?
James Dimech
Oct 3rd 2012, 10:51
What is wrong with a bailout ???
I think some people should not have a vote ...!
Sean Bonello
Oct 3rd 2012, 11:26
Agreed with James
ANTHONY PAVIA
Oct 3rd 2012, 12:34
James & Sean, your democratic credentials shine so bright under the European sun! Your stance is as anti Europe as your probably misguided reasons for joining in the first place.
colin jones
Apr 23rd, 11:07
peter murray, do you have in mind what kind of interventions they re getting because of the bailouts? the eu is dictating almost everything to greece and cyprus.
malta wont need a bailout if we stick together as a nation, this is not about the future of the PL and Muscat this is about the future of us all, lets not be partisans and work business as usual. we are all maltese,
James Dimech
Oct 3rd 2012, 09:25
Actually the situation is worse than Busuttil is making it out to be.
Today we have a report by Edward Scicluna saying that stipends will be increased for students coming from "familji fil-bzonn". - i.e. the Labour electorate who believes that the world owes them a living and who need their stipend to bleach their hair, pimp up their car and buy mobile phone top ups.
Labour = Big Bailout.
Mr Andrew Camilleri
Oct 3rd 2012, 12:10
Unfair comment. It seems like the well-off do not want their poorer relatives to do well.
Please choose the reason of your report below: