The year that has just started will need to be remembered for the great amount of discipline that needs to be exercised across a number of economic aspects. The discipline that will need to be exercised should not be limited just to Malta but also internationally.
The first rule of discipline will need to be about public finances. Fiscal deficits will need to be reined in and brought under control. The requirement is not only for the members of the eurozone or the EU as a whole.
It also applies to countries such as the United States, China, Russia, Brazil, India, etc.
When there was the debt crisis in South America, there was still a huge negative impact on the rest of the world. With a balanced budget, speculators have far less room for manoeuvre and ensures sustainable economic activity in the future.
The issue here seems to be waste and tax evasion. So rules two and three are to eliminate waste in public expenditure and eliminate tax evasion. In order to give a dimension of the issue of waste, we can take Malta as an example.
The 2012 Budget estimates a structural deficit of €145 million.
This represents five per cent of total estimated expenditure. The private sector is used to having to cut down its costs by such a percentage. Should not the public sector get used to the same thing? Should there not be a sense of discipline aimed to eliminating wasteful expenditure? This is not the politicians’ job but the job of the civil servants.
Another job for the civil servants across the world is to tackle tax evasion. They need to exercise the right moral suasion to ensure that everyone pays the taxes due. Again taking Malta as an example, one notes that a 5.6 per cent increase in tax revenues, over and above what has been estimated would be enough to balance our budget.
Is not there at least a level of tax evasion in Malta equivalent to 5.6 per cent of tax revenues, which also translates into 2.2 per cent of the gross domestic product?
An important rule for consumers (rule number four) is to rediscover the importance of saving. Over the last decades savings rates have decreased considerably as persons tended to rely on debt for their current expenditure and on the welfare system to support them on a rainy day. Both these apparent safeguards (but they have proved to be no safeguards at all) may not be there in future in the form we know them today.
This forces consumers to discipline themselves to save more in the coming year and beyond.
Rule number five deals with the trade unions. It is still difficult to understand why the trade unions have been so intransigent in Greece and seem to be unwilling to do anything positive to address the economic problems of their country.
Trade unions have an important role in society only if they are capable to look at the bigger picture and not their parochial interests, which are not always the same as the interests of their members.
Their task to defend the weaker segments of society, especially those with lower incomes, is not made easier by a very difficult economic situation. Acting with discipline is a must for them as well.
My final rule, rule number six, is discipline in the financial markets. Speculation needs to be tackled head on. The banking system needs to be reformed with the splitting up of investment banks and retail banks. Hedge funds need to be contained and regulated effectively.
Financial institutions were meant to be there as a support for the economy. Now the tables have been turned – the economy is there to support financial institutions.
In Malta we are not exempt from this requirement for discipline. We need to appreciate that although the international recession has not overwhelmed us, we are still going through difficult times and it could get rougher. On a number of fronts, such as tourism and financial services, there are threats that could impact negatively our economy.
The Maltese public appears to be well aware of the difficulties beyond our shores and do tend to give credit to the fact that the economic governance of our country has been more than satisfactory.
However, we do need to continue being vigilant and in this regard it is imperative for us to have more discipline within the political parties. The economic governability of this country cannot be jeopardised because of the antics of some people or irresponsible lobbying by certain segments of the country.
The economy does not manage itself. It requires good governance and, in the coming months, to achieve this, we need to have a high sense of discipline that pursues the common good and not the personal ambitions of the few.