The Pre-Budget Document 2016 sets out government’s policy priorities and gives a fairly good idea of what we can expect in the 2016 Budget.

In the first instance, there’s unlikely to be an enormous giveaway with fiscal prudence being the order of the day. National debt and public spending need to be kept in check. The focus will therefore be on ensuring tax is paid and tax revenues maximised.

True, the economy is growing, boosted no doubt by the fall in energy costs. The economy is expected to grow further in 2016. We’ve also seen further growth in jobs but public sector employment has continued to rise offsetting, somewhat, efforts to reduce both the national debt and public spending.

The growth in jobs, be they public or private, has filtered through to the revenue in the form of taxes and an increased VAT take. However, positive economic indicators such as low unemployment are dependent to a significant extent on public sector expenditure, besides job growth in private sectors such as e-gaming and the financial sector.

Both these sectors remain growth areas in our economy but it’s time for the economy to renew itself. New investment opportunities are needed and the Pre-Budget Document refers to areas that could provide both investment and employment opportunities.

Our economic potential remains somewhat constrained by bureaucracy, administrative costs and not so cheap access to finance.

The link between labour demand and supply also needs to be revisited and supported by an institutional set up that conducts ongoing and in-depth analysis of labour market developments. This would facilitate both policy development and analysis in a labour market that is rapidly changing and where educational institutions need to play a more dynamic role.

Social inclusion… is laudable but tax evasion and avoidance remains a huge challenge for our tax authorities

Our manufacturing sector has lost ground in recent years but it remains and should remain a key economic sector. And the tourism industry’s contribution to our economy, despite all the euphoria about numbers and records, needs to be evaluated in the context of sustainable development as well as the objective to push towards high-end tourists. Instead, we now have a massive influx of tourists increasing the pressure on our infrastructure and transport.

As for transport, it would be unthinkable to expect a cut in fuel duty. Almost certainly, the opposite. To give him his due, the Minister of Finance is caught between a rock and a hard place when it comes to fuel duty. A further increase in fuel duty is bound to draw the ire of business but the use of commercial and non-commercial vehicles will continue to rise in 2016. Transport in general is an important contributor to our national economy but the negative external effects can no longer be ignored. These effects can impact negatively on other sectors in the economy as well as our growth potential.

Our public transport cannot operate without subsidies but the rationale for providing these subsidies can only be justified if it helps to reduce the use of cars on roads. The modal shift objective cannot be left out of the equation. Otherwise, subsidies would represent no return for the honest taxpayer.

We’ve all heard about fiscal morality. It’s about time we did something about it. Social inclusion, which is one of the aims of the 2016 Budget, is laudable but tax evasion and avoidance remains a huge challenge for our tax authorities. This too explains the widening inequality prevalent in our country. The 2016 Budget is expected to set the direction towards reducing inequalities but whether budgetary measures will effectively reach this objective is another matter. Research shows that European Union enlargement has contributed to increasing inequality, and though it is not the only explanation, reducing inequality needs to be one of our country’s policy priorities.

Philip von Brockdorff is the head of the Department of Economics at the University of Malta.

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