One rather widespread criticism of the Budget Speech for 2014 was that it was too long. It was verbose. The second part of the speech detailed items of revenue and expenditure which needn’t have been included. Perhaps in the process the Minister did not explain clearly enough how the revised outturn for 2013 is to be achieved and in particular the tight rein that will be applied in 2014.
To an extent that is understandable. The Budget has to address two objectives. As a priority it has to target the Maltese economy, to help it grow in order to generate the resources required for the efficient administration of the country, such that the private sector has ample space to be the effective motor of the economy in deed, not just in name.
The resources have to finance non-discretionary current expenditure as well as discretionary spending, mostly in the capital budget. Secondly the Budget has to be all the time aware of the shadow hanging over it in terms of obligations under EU membership. This, as reflected, say, in the excessive deficit procedure, ties the Government’s hands to a considerable extent.
This was not brought out enough in the Budget Speech, possibly because it was not quite consonant with tied hands. The Finance Minister was generous with measures that targeted the whole of Malta’s society, including the family and the business sector.
The length of the speech allowed the Minister to make only brief reference to the documents which accompanied the speech, without touching their content at all. They were meant to enable the Minister not to add length to his speech through mostly technical explanations. Nevertheless the documents deserved more than a passing mention at the start of the speech.
This applies in particular to what was termed the Budget Document 2014. In a sense it was an economist’s alternative to the Budget Speech. Obviously written by an economist or a team of economists, albeit in language understandable by all, the Budget Document yields 22 pages of concise analysis of the fiscal situation and what is expected from the Budget this year and in the foreseeable future.
The succinct executive summary is followed by two main sections. Section one offers an economic review and outlook, and deals essentially with sustainable public finance. Which is a code future builders of the annual budget should keep at hand. The second part gives a fiscal review and outlook. Its six parts are both descriptive and prescriptive. Once again this section supplies a benchmark for future budget drafters.
The Budget Document yields 22 pages of concise analysis of the fiscal situation and what is expected from the Budget this year and in the foreseeable future
The third part of the document from p23 on lists the main 2014 budget measures. It repeats in telegraphic form what the Minister detailed rather more expansively. The highlights of the prescriptive part of the document were included in the Minister’s speech. They are: to ensure public finance sustainability; to raise potential output, in particular through increasing labour force participation, especially of women; raising skill and education levels; and increasing productive capital investment;
The key points also emphasise enhancing competitiveness and transparency of the markets, while strengthening consumer protection, reducing bureaucracy, especially the length of the public procurement process; safeguarding the successful financial sector; and prioritising the promotion of a diversified and balanced economy, with renewed importance given to the maritime sector.
The targets are clear, if rather obvious. They are achievable in as much as the whole government machinery pulls out all the stops to reach them.
Addressing Brussels as much as the Government administration, the Budget Document captures what the expenditure and revenue targets have to be for 2014 – 2016.
The structure of the Budget targets a decline in the government deficit by a further 0.6 percentage points of GDP, from 2.7 per cent in 2013 to 2.1 per cent. That is a very tall order but the Budget Document reflects the Government’s present confidence that it will accomplish it. The reduction in the deficit-to-GDP ratio, says the document, will materialise as a result of the Government’s commitment to fiscal consolidation, including restraints on discretionary expenditure and increases in expenditure efficiency.
The Budget Document in a table on the fiscal position from 2012 to 2016 posits a positive primary balance (that is, excluding servicing of the public debt) from 2013 through 2016, on a sharply rising scale. If that is achieved, the Government’s optimism would be vindicated, such that the overall deficit will decline to 0.7 of a percentage point by 2016.
Various mechanisms will be created to try to bring all this about. They will include a Fiscal Responsibility Act and the introduction of a rolling three-year medium-term budgetary framework for expenditure commitments. Under this top-down budgeting approach – which each ministry will have to follow – a spending total target will be set in compliance with the operative fiscal rules.
The top-down approach will also be complemented by a comprehensive spending review.
For the top offices of the ministers and parliamentary secretaries the Budget Speech will be a bible to keep within reach. I suggest that the Budgetary Document should also be kept close by.