The Budget is expected to be big on expenditure, as it targets those who have benefitted the least from economic growth. Kurt Sansone asked three economists to outline the risks that this course of action may pose.

When Edward Scicluna stands up in Parliament tomorrow evening to read the Budget speech, many will be expecting him to splash out on the dosh.

Over the past three years, the Finance Minister has steered the economy to success with measures that have unshackled the labour market while keeping the deficit on a downward trajectory.

But now, as he delivers what is expected to be the penultimate Budget of this legislature, many anticipate that Prof. Scicluna will be more generous with cash handouts for pensioners and those in the lower income brackets.

These categories have not reaped the benefits that a lot of others have from a growing economy and the expectation is that this Budget will include measures that strike at inequality.

Prof. Scicluna may argue that this dovetails with the Labour Party’s socialist roots but the professor of economics will also have an eye on the financial repercussions of this exercise.  In a different lifetime, Prof. Scicluna had taken to task Nationalist administrations for allowing public finances to slip in election year. So it is a temptation he will probably want to avoid, even though the wind is in his sails.

There are long-term risks of being overly generous with public finances at a time of relative prosperity, according to economist Philip Von Brockdorff.

“It is good to address inequality and pensions but the minister must not ignore the issue of sustainability over the long term,” he said.

The biggest risk facing the Finance Minister at this juncture is to increase recurrent expenditure in a way that causes a snowball effect over time.

The minister must not ignore the issue of sustainability over the long term

With the government relying on the higher tax receipts that have resulted from the run of economic growth, the long-term commitments may come back to haunt the country when things slow down and income shrinks.

“The minister has to keep his eye on these long-term commitments that can be problematic when the economy stops growing at its current rate and when the funds from the Individual Investor Programme dry up,” Dr Von Brockdorff said.

Photo: Darrin Zammit Lupi

This sentiment was expressed last week by former Prime Minister and Labour MEP Alfred Sant, who advised caution in the face of pressure being placed on the Finance Minister to relax his grip.

However, economist Lino Briguglio believes that a policy which advocates higher public spending has its advantages because it would stimulate demand and help to further boost the economy.

Still, he concedes that it comes with risks. Income generated in this way may not filter down to all categories, he said. “An uneven distribution of income could usher in social discontent”.

Dr Briguglio highlighted the property market as another risk the Finance Minister needs to keep an eye on.

Special controls are needed, since there is the chance of a bubble being created.

“If this happens, it could create major volatility in the market as happened in various places including Spain and Ireland, apart from the fact that the current construction frenzy is creating considerable social discomfort and leading to environmental degradation,” Dr Briguglio said.

For economist Karm Farrugia, who admitted he will be glued to the TV screen tomorrow, the circumstances and the atmosphere could not be better for Prof. Scicluna.

“He has a growing economy that has solidified over the past two years and a deficit that is shrinking and I expect the Budget to redistribute wealth to those most in need.”

Mr Farrugia said the Finance Minister had always adopted a prudent approach when planning his Budget and this minimised risk.

“He [Prof. Scicluna] has always undervalued the level of government income and this has always turned out to be better than forecast, which should bode well as he navigates through the demands being made.”