One would have thought that, with the general election out of the way, the endless controversies over all sectors of the economy, aside from controversies elsewhere too, would take a break. After all, looking back, the state of the economy is expressed in figures which should be matters of fact. Looking forward is more open to interpretation since forecasts are made on the basis not only of past trends, but particularly of basic assumptions by the forecasters.
The Finance Minister would do well to carry out a critical review of the revenue composition
If there was an area where this should have prevailed and controversy at least eased off, it was about the out-turn for 2012 and the Budget for 2013. The 2012 out-turn was presented by the National Office of Statistics, which has won respect for its objectivity and professionalism, and its mandatory adherence to Eurostat rules.
The NSO narration of the 2012 outcome came after the general election, but was made by the same people, the same professionals who had been in office since well before the election. No transfers, let alone wholesale transfers were made after the general election result.
Very wisely and as expected, the new Minister of Finance, Edward Scicluna, himself a top-notch economist and fully equipped on the statistical front, let the NSO get on with its job. He knew what he was doing. As he remarked, most of key personnel at NSO were former students of his at the University.
The out-turn, the same as would have been presented had there been no change in administration, showed that some of the forecasts underlying the 2012 Budget had not been met. In particular the structural deficit relative to output (Gross Domestic Product) was considerably more than former Finance Minister Tonio Fenech had forecast in presenting his estimates for 2012. That came as no surprise to those of us who follow the fiscal and economic scene closely enough. Mr Fenech’s 2012 forecast had seemed too optimistic from the word ‘go’.
Rather oddly, the out-turn produced on the basis of the NSO and Treasury figures was looked upon with suspicion by the Nationalist Opposition. The old bad habit of turning a blind eye when things go off track in order to live in denial built on myriad excuses prevailed once more. Nationalist speakers cast suspicion on the realised figures with winks and nudge nudge.
If that is not the way to do things if one wants to be a responsible Opposition, worse was to follow in respect of the Budget for 2013. The Budget, again presented by former Finance Minister Tonio Fenech, had failed to clear the House. A Nationalist MP voted against it at the outset, thereby bringing down the Government.
In a rather remarkable but realistic reaction the Labour Opposition immediately said that, if it was elected in the coming general election, it would retain the Budget as presented by the defeated Nationalist Government. And so it did, although the Labour Finance Minister made it clear it was not his budget.
The unusual Labour government stance was based on two reasons. Firstly, it did not want to create further uncertainty than brought about by political turbulence and the imminent general election. Secondly, once the Budget for 2013 had been cleared by the European Commission a Labour Government would not wish to enter into fresh lengthy discussions after the general election. Particularly so, since the Government had a legal limit by when to fund its expenditure.
It came to pass that Labour was elected. True to its word, it presented the Budget prepared by the defeated Nationalist Government. With a couple of necessary adjustments. The Nationalist Budget had not provided for the cost of collective agreements concluded by the outgoing Nationalist Government. And there was a provision for marginally higher expenditure on the cost of government because of the larger Cabinet, although unit for unit the Labour ministries and parliamentary secretariats are to cost less than their Nationalist counterparts.
The Labour Finance Minister also pointed out that the forecast deficit relative to GDP was set to be higher than forecast by the Nationalists, though he undertook to weed expenditure in order to keep the shortfall below the mandatory three per cent.
The Nationalists voted for the Budget, but with bad grace. They alleged that increased deficit was caused by the higher outlay on ministries and secretariats and again implied hanky panky. Surprisingly, the European Commission, which had approved the Budget before the marginal adjustments, also raised a severe eyebrow.
Controversy has broken out again. Rather than concentrate of facts innuendo and mudslinging are already at the fore of the debate.
The new Opposition also refused to have a representative on a new committee intended to foster economic growth. It came up with the ridiculous excuse that the Government representative would thereby be acting as a consultant to the Government.
While this new debate unfolds, there is a gap in the Government’s position which I find worry. It reworked the deficit by essentially looking at the expenditure side. Revenue estimates have been ignored. It is not at all impossible that the Nationalist drafters had once again been liberal with their revenue estimates, not least by including unsustainable forecast receipts to push the deficit forecast under three per cent.
To my mind the Finance Minister would do well to carry out a critical review of the revenue composition. He might be saved nasty surprises building up by the end of the year, when he comes to present his Budget for 2014.