Since rebel Nationalist MP Franco Debono has pledged that he would vote against the Budget, creating a situation where 2013 is not budgeted for and, hence, making the calling of a general election inevitable, Labour leader Joseph Muscat has attempted to combine his two opposing strands of policy.
These are: a more socialist style of subsidised economy, primarily by promising that utility bills will be lowered and a more conservative approach to the economy by taxing less, increase direct investment in the private sector and subsidising less – primarily by retaining the “positive aspects” of the 2013 Budget presented by the Nationalist Government, which include the gradual reduction of higher income tax rates.
For the first case to be feasible, only a classic socialist model is viable, that is, get the rich to pay higher taxes to subsidise the whole population.
There are no other economic models to explain how this may be viable as the possibility of increasing efficiency in power generation has not only been exhausted but, to top it all, Labour’s choice of “upgrading” the power station is a threefold capital expense.
Remember that Muscat has promised to first change the power station fuel, going from heavy fuel oil to diesel and, then, a few years later, convert it to gas. Under prevailing economic mechanisms, the only way to sponsor this is by either raising utility rates dramatically or increase taxes.
Therefore, as Labour has promised to lower tariffs, the latter is the only solution.
This brings us to the “positive aspects” case, which is inversely related to Labour’s utility pledge. There is definitely no way the two can work together.
Under the Nationalist Party Budget style, increased government revenue to sponsor the utility cuts is not possible, which brings Labour’s whole argument to a complete dead end.
Unless, that is, one goes for one of these three alternatives:
1. Break the promises you made the day after you are elected to power – at least Labour will be happy as it will finally be in government.
2. Decide to increase consumption taxes elsewhere.
3. Since there is no way that these two systems can complement each other, government revenue will decrease:
a. Keep borrowing, as it’s the “easy way out”, blaming the previous administrations for it.
b. Borrow till interest rates are unsustainable; increase the deficit above the three per cent of GDP laid down by Maastricht.
c. End up bailed out under an EU plan – the same as Greece, Spain, Ireland and Portugal.
d. Unemployment will rise, taxes will go even higher and wealth will drastically decrease.
e. If that happens, Labour can always say it was the PN’s fault by reiterating the slogan till people believe it, in the same way that the electorate believed that water and electricity tariffs would be reduced.