National interest in the Budget only starts building up in the two to three weeks before the presentation of the financial estimates in Parliament. What invariably sparks off discussion or, rather, controversy, is not the pre-Budget document presented much in advance in the hope of generating interest, but news of the cost-of-living allowance, which is given to all across the board.
Other vital issues often take secondary importance until, at least, Parliament starts discussing the votes of expenditure separately one after another. Yes, as is the practice, there will be the opening shots – the Budget speech and the reply from the Opposition – but it is at the debate stage when the details of the votes will be dissected.
The process takes so long that many find the exercise boring; however, in view of the financial pressures that are piling up and of at least three unresolved issues – the energy generation plan, the future of Air Malta, and public transport – the forthcoming Budget is of particular importance. Successful resolution of the three issues is vital to the economy.
A plan meant to provide an energy generation mix that would reduce the cost of energy production appears to have run into some difficulty. Only up to a few weeks ago, the project was firmly on track, but after much speculation it has now been admitted that the gas-fired power station, a key component of the plan, will not be ready by the target date – March next year. And the government has yet to explain how it is going to finance the cut in energy tariffs for the whole period until the project comes on stream.
Meanwhile, Malta has been asked by the European Commission to cough up an additional sum to the EU budget. The amount, €13 million, is not much, and, according to the Prime Minister, account of this top-up has already been taken in the draft Budget sent to the Commission.
As it happens, the Commission also asked the government for further details of some of the measures underpinning the Budget, specifically the indirect tax measures. Malta’s draft budget has now been “conditionally cleared” by Brussels.
But when news came out that the government plans to opt for further indirect taxation, many might have wondered why Labour was moving away from its core principles.
To two former Labour prime ministers, Paul Boffa and Dom Mintoff, this shift in taxation policy would have most certainly gone against the grain, for indirect taxation is bound to hit low-income workers more than those in higher-income groups.
However, the government says in the draft Budget that an analysis of the consumption patterns of different households indicates that the share of consumption of the product and services categories affected by the tax measures being proposed is highest among higher income brackets. “Consequently, in the case of this particular selection of indirect tax measures, the incidence of taxation is rather progressive.” However, it has yet to be seen which products and services are set to carry an added tax.
Despite the financial pressures and the string of unresolved issues it has on its hands, the government is forecasting a more positive economic outlook than forecast in spring. This, it says, is attributable, among other things, to the higher than expected economic growth rate in the first half of this year. Hopefully, Malta keeps up this rhythm so that the standard of living will continue to improve.