The Government was wallowing in “a problem of fiscality” while completely forgetting economic growth, with no mention of what could be done on a macro-economic level, Labour MP Alfred Sant complained in Parliament on Tuesday.
The main problem in the past 14 years has been the reduced rate of growth
The last half-hour of the session turned into a political sparring match between Finance Minister Tonio Fenech and Dr Sant and Karmenu Vella for the Opposition.
Continuing the debate on the resolution on the Ratification of the Stability Treaty, Coordination and Governance, Mr Vella said the Opposition agreed with the Government not to accept the full fiscal union that the EU was pushing for, but this did not mean that accepting part of this union would help the Maltese economy.
The EU’s overall intention was good, but if committed to certain fiscal criteria it would be limiting its fiscal policies. Indeed, Malta should have started years ago on seriously reining in its fiscal deficit, even without EU prodding.
Mr Fenech countered that economic growth was the Government’s first priority, which was why it had taken the difficult decisions that had to be taken.
Earlier, Mr Vella said the Government often spoke of correction mechanisms without any details.
For years now it had been sending its draft Budget to Brussels, discussing and then presenting an agreed Budget that was different to the original. But the correction mechanisms were still to be seen.
The Government would then tell the EU that economic targets had not been achieved and request an extension.
There were inherent timeframe difficulties in the system. At the end of 2012, the House would be considering results achieved up to September, and the real year-end results would not be known until April. With all the belated compensations for shortcomings, the public debt continued to rise.
Mr Vella asked if the minister could explain what the medium-term targets were on the deficit. On the other hand, debt accumulated over 25 years could not be wiped out over 25 months.
Up to June, Malta surpassed the €5billion mark in national debt, and there was no way of saying how much that figure would rise by the end of the year. With more than €1 billion in Government guarantees, the figure meant over 90 per cent of the GDP.
If Malta wanted to dip to 60 per cent with a static GDP it would have to dive down to €4 billion, or 20 per cent less.
Even with a spell of continuous surplus budgeting of €50 million a year it would take 20 years to eradicate the national debt.
Mr Fenech said the medium-term objective was for Malta to prove it was slashing its debt.
The postponement of achieving the Government’s aims in the Budget for 2010 had been forced by the 2009 financial crisis. The Government was now aiming for a 2.2 per cent deficit with fiscal balance by 2015. Even now it was continually taking corrective measures, with which the Opposition invariably found fault. Without increasing taxes, corrective measures had to come from reducing public spending.
Dr Sant said the main problem in the past 14 years had been the reduced rate of growth, with one of the lowest levels of productivity in the EU.
On top of it all, the Government was getting involved in the bailout problems of various countries.
The EU Treaty was putting a straitjacket on member states, especially in the south.
Mr Fenech said Dr Sant always saw things differently.
The EU had lauded the aid schemes for the self-employed sector, which had remained among the strongest in the bloc. Malta’s rate of growth had been higher than in many countries.
The Government had put priorities aside to help industries out of the financial crisis, but this had been at a cost of not reducing the deficit. One wondered what Labour would have done in the Government’s place.
Mr Vella asked what records the Government could still speak of except for a higher national debt. Its style of economic growth had only led to an increase in poverty while industries bemoaned Government-induced costs and bureaucracy. Economic growth must not depend on increased public spending. Did we need the new Parliament building in order to keep the economy going?
The Government must stop taking the people for a ride, he said.
At the beginning of the debate, Mr Fenech emphasised that this year’s Budget was being drafted in a different scenario from past years. The Budget now had to be subject to the procedure established under the stability and growth pact.
Interaction with the European Commission was essential so that the objectives of lowering deficits below the three per cent mark and reducing public debt under 60 per cent of GDP could be reached. Forecasts were important in the presentation of the Budget.
Mr Fenech also referred to the Malta Employers Association’s proposal of decreasing public debt by two per cent every year for the next five years, claiming that it was unwise to go for such an ambitious aim. The Government should not take aggressive action to reduce public debt.
The EU was promising to reduce public debts in a sustainable way over a 20-year period.