Charles Mangion

The Budget presented by the government is not merely an accounting exercise but a tool for the government to spell out its economic and social vision by way of the policy choices it makes.

Within the context of a monetary union, where monetary policy has been delegated to a supranational body like the European Central Bank, fiscal policy takes on a more crucial role as it is the only major policy tool that remains within the realm of democratically-elected national parliaments. It is crucial to safeguard this sovereignty in fiscal policy by instilling fiscal responsibility. The financial stability of a country remains an essential element for a healthy business environment, investment and social cohesion for sustainable economic and social developement.

The step taken by the government to introduce the Fiscal Responsibility Act in 2014, together with the establishment of the Malta Fiscal Advisory Council, has tightened surveillance over fiscal behaviour, which has been welcomed by various institutions as a credible commitment to ensure sound public finances.

During the last three years, the government has consciously adopted a two-pronged strategy, complementing each other, with one oriented towards taking business-friendly policies to encourage investment and,  hence, stimulate economic activity and employment and the other aimed at enhancing the purchasing power of families to stimulate domestic consumption.

The Budget that is required by Malta is one that continues to foster growth in a sustainable manner

A key policy decision to achieve both objectives was the 25 per cent reduction in electricity tariffs. This enhanced the purchasing power of families and improved competitivness for business. Families also benefitted from a cut in income tax, a reduction of tax on rental income, savings of taxes for first-time buyers of residential property and other reforms like free childcare. This did not only halt the anaemic growth and rising unemployment under the Nationalist government but also boosted investment and economic expansion accompanied by strong employment growth and contributed to improve living standards and reduce social inequalities.

On its goal to reduce relative poverty, this government has already taken measures. The past three budgets kick-started economy and employment growth, which, in turn, led to a reduction in poverty for those of working age and, consequently, of children as strong employment growth and lower income tax rates have all boosted household disposable income.

However, the challenge to continue reducing relative poverty within particular segments of society remains. Last year, the government began to address the pensions issue by increasing pensions for the first time in 25 years and further measures in this regard would contribute to reducing poverty.

The Budget that is required is one that continues to foster growth in a sustainable manner. Weaknesses, such as excessive bureaucracy, slow judicial processess and limited access to finance and credit,  particularly for SMEs, should continue to be addressed.

Reforms in procedures applicable in the engagement of foreign employees, where these are required, more expedient rules related to insolvency of firms, efforts to reduce skills mismatch, more efficient but less risk-orienated access to finance and  retraining existing workers to address skill shortages should also continue to be encouraged.

While social considerations ought to be the main focus of the upcoming Budget, the government needs to balance such initiatives by maintaining fiscal stability and an investment-conducive business environment.

The Budget remains a balancing act between these main objectives which in my opinion are also underpinned by efficient tax compliance and the exercise of diligence in the government expenditure programmes. Private sector-led and diversified economic growth remains a guiding principle. However, the full benefits of sustained economic economic growth can only be realised when each category within society feels its well-being has improved.

The results of the budgetary action taken by the government during the past three years bodes well as Malta has recorded very strong results without compromising public finances. It was able to reduce its fiscal deficit and public debt to exit the European Union’s excessive deficit procedure and now will continue on the path towards a balanced Budget.

Charles Mangion is Labour member of Parliament.

Mario de Marco

The annual government Budget exercise should have one solid aim: that of securing the financial and economic future of our country and of our people. At the same time, it needs to address certain social realities and needs. To achieve this aim, while addressing a social dimension, we must build on our strengths and address head-on the challenges that we face.

Certain sectors of the economy, particularly tourism, iGaming and the financial services, are flourishing and contributing, as they have been doing for the past eight years, to overall GDP growth. We need to protect and secure the continued positive performance of these sectors not least by investing in infrastructure and human resource development.

Having said that, we cannot ignore the challenges that we face.

To a large extent, our economy continues to move forward, buoyed by the momentum of actions taken by past administrations

The Opposition is concerned about the loss of competitiveness of our manufacturing industry. We are concerned about the rapid increase in public sector employment. We highlighted the increase in the number of people living in poverty or at risk of poverty. The cost of running government increased by 23 per cent over the past three years. This increase has resulted in national debt shooting up by €1 billion. The government appears to be not overly concerned about these facts. We do not share the same complacency.

The government is inflating the public sector and consequently increasing the recurrent payroll together with other recurring expenditure items to unsustainable levels. The increase in expenditure is currently being sustained by one-off events and higher than average economic growth. Fiscal prudence was abandoned as the government started dispensing with public property in a reckless manner that reeks of political cronyism and partisan gain.

New challenges are emerging.

Firstly, we are seeing a growing disparity between sectors of society. The economy is not benefitting us all in the same manner. Secondly, the Panama Papers threw a spotlight on financial jurisdictions such as ours. This could potentially lead to forced changes to tax regimes which can have damaging effects on economies that depend on the attractiveness of their tax laws. Thirdly, the full impact of Brexit on the global, European and local economy will be felt in the coming months. As part of the European and global community, we should prepare ourselves for the economic fall-out as the UK leaves the EU.

There are other challenges. The future of Air Malta is unclear as talks with Alitalia seemed to have faltered. Our pension system and certain elements of our healthcare system are contributing to increased poverty in Malta, as more and more people are finding it difficult or impossible to make ends meet.

These and other challenges require planned counter measures to ensure that our economy remains resilient in the face of adversity and that we all move forward together. Turning Malta into a concrete jungle, which seems to be the government’s favourite and only solution, is certainly not the sustainable solution that the country wants or needs. If anything it could potentially lead to further problems down the road.

This government has so far failed to develop a long-term plan just as it failed to attract new strands of economic business to our shores. To a large extent, our economy continues to move forward buoyed by the momentum of actions taken by past administrations. Eventually, this momentum will subside, at which point we will need fresh impetus to take us forward. The Sadeen university, the sale of citizenship scheme or the new power station are not going to provide this impetus. Malta needs better. Malta can do better.

The Budget presents the government with an opportunity to address the country’s challenges. The Opposition, as it did last year, will be presenting its recommendations and proposals to the government in its pre-Budget document, which this year is themed Let’s All Succeed… Together. This is the ethos, the thinking on which the Budget should be built: an economy that favours all and not just the few.

Mario de Marco is Shadow finance minister.

If you would like to put any questions to the two parties in Parliament send an e-mail marked clearly Question Time to editor@timesofmalta.com.

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