Budget 2013: more of the same
In Malta, every day is election time so it was quite surprising for the Prime Minister to claim that Budget 2013 will not be an election budget.
The tragedy is that Parliament has stalled over the last 14 months. The GonziPN Administration chose to hold on to power at all costs. Now the country is in a blind alley. The only sure thing is that the price of fuel has gone up again. Who says that Parliament is there to serve the people?
It was hoped that January 2013 will bring a changed sense of fiscal discipline. Only a couple of months ago, Parliament ratified the Treaty on Stability, Coordination and Governance (the fiscal compact) whereby 25 EU states bound themselves not to consider the Budget as a domestic matter any longer and to respect the set rules. Unfortunately, old habits die hard.
Budget 2013 is a trade-off between GonziPN’s electoral wishes and the parameters stipulated by the European Commission. The Government wanted to avoid a repeat of last year’s experience when it was obliged to cut down Parliament-approved expenditure by €40 million.
To manoeuvre around EU oversight, the Minister of Finance opted to set a dangerous precedent: committing the Government to give additional tax cuts in the following two budgets. This is purely a face-saving measure to appear to be delivering a key promise made by GonziPN in its 2008 electoral programme. At a time when, according to the minister himself, the EU is not yet out of the tunnel, this is sheer irresponsibility.
Moreover, the tax cuts are not only regressive (as is the abolishing of stamp duty on property transferred from parents to children) but they completely ignore the needs of the lower middle and working classes. Caritas and other institutions tried in vain to raise awareness as to the poverty creeping into our society. The best that the Government could offer these families were marginally higher children’s allowances. Subjecting minimum wage earners to income tax adds insult to injury and whoever is next in government should change this at the first opportunity.
In his Budget speech, the minister boasted that the EU had dropped deficit proceedings against Malta. What he failed to mention is that on the same day the European Commission included Malta among 14 countries to undergo an in-depth economic review to determine the real impact of the debt crisis.
Malta’s national debt continues to soar and has now topped the €5,000 million mark (this not taking into account the debt of public corporations guaranteed by the Government which would push the debt figure to over 90 per cent of GDP).
That the Government is controlling the overall fiscal deficit is praiseworthy. What is worrying is that this is consistently being achieved at the detriment of capital expenditure. This not only impacts negatively on Malta’s ability to absorb EU funds (in 2012, Malta will absorb less than two-thirds of the amount projected) but also betrays structural problems in the Budget. The Government is investing less because it keeps spending more on current costs, which it is unable to curb.
Budget 2013 contains a number of positive initiatives even if it lacks any innovative measures to boost economic growth, which next year will come mostly from the recovery of domestic consumption. It could not be otherwise given the Government’s inability to plan strategically. Budget 2013 makes a passing reference to Vision 2015, which will be obsolete by the time that its formulation is completed!
If the Government really wanted to kick-start the economy it should have revised the electricity tariffs to give some respite to our enterprises and families. Unfortunately, the situation is further complicated by the BWSC mess. It is not clear what provisions the minister has made in the 2013 estimates to compensate for the problems encountered in the commissioning of the plant at Delimara and restarting the inefficient Marsa power station. There is a provision of €25 million to Enemalta, which is meant to subsidise (was that not a dirty word?) electricity but which will not lead to lower electricity tariffs.
In the energy field, the Government is now captive to its past mistakes, its failure to think outside the box, develop a holistic energy policy and invest in alternative energy. Its solution to finance the subsidy to Enemalta is to raise, once again, excise duty on fuels by an additional 2c/litre. The Government keeps taxing fuels as if they were a luxury and not an essential commodity for modern life (especially given the chaos that Arriva is in).
Half of the price of petroleum products goes into taxes and, next year, from excise duty alone, the Government expects revenue of €120 million. How wise this is when there is still a possibility that the price of oil starts to rise again is questionable.
The Government is shortsighted in ignoring the ‘multiplier’ effect that the cost of fuel has on the economy as a whole and which this year led to Malta having one of the highest inflation rates in the EU.
Budget 2013 is essentially more of the same as Malta has had during this legislature. It is time for a change that will bring new ideas and enthusiasm in public management. It appears that the majority of PN councillors think the same.