Whether Budget 2014 will surprise many or not is a moot point. But what seemed to have surprised some was particular financial data contained in the reports sent to the European Commission last week. These data, published by my ministry, were draft proposals that were to be discussed with the Commission.
They showed that the Government wanted to raise new revenues from sources other than direct taxation to make up for expansionary measures coming from a lower rate of tax for certain middle income earners and new expenditure measures aimed at spurring economic growth and assisting the poor and others with special social needs.
It does not need repeating that Malta’s deficit reached 3.3 per cent last year and is expected by the Commission, the International Monetary Fund and the rating agencies to continue in that forbidden region this year and next. To boot, the Opposition claims it was my ministry’s own doing because it failed to tweak the 2012 financial figures surreptitiously, à la Gréce.
As for this year, the blame is too on the new Government for having approved this year’s Budget without reversing some measures. Very little value is given to the seamless transition between two administrations that ensued because the inherited Budget was approved without any fuss, and companies and families were allowed to get on with their business and daily life.
This would not have been the case if the new Government had spent months keeping the country on tenterhooks to draw up a new Budget. Statistics show that retail expenditure started its upturn after the rapid approval of this year’s Budget in April. Every week was costing the country millions of euro in lost sales, lower wage incomes and lost public revenues.
The Opposition, which almost had 25 years to bring Malta to a 2013 modern European economy with a commensurate standard of living, now wants quick results. It notes that six months have passed and some pills are still out of stock, stretchers may be seen in hospital corridors, school children still leave school earlier than their counterparts in Europe, and Enemalta is as close to bankruptcy as before.
But look closely. The conversion from oil to gas is no longer a pipe-dream as depicted before the election. The 19 contenders, now shortlisted to two, are no ghosts. We now also realise that the cost of energy production had less to do with the global price of oil and more to do with home-grown mismanagement, for which the previous party has been booted out of government by an exasperated electorate.
As for health and education we are now convinced that building a new hospital, like the building of a new school, would not on its own improve the dismal indicators by which we are judged in these sectors – waiting periods for hospital services in the first instance and early school-leaving rates and illiteracy rates in the second.
The problem is not that these services are ‘provided free’, which properly read, means ‘provided from taxation’, rather than paid for at the point of provision. Neither is the problem lack of funding. On average, Malta provides the same budget ratios for these services as any other EU member. The problem is years of neglect, during which bad management practices have filtered down and across all levels of management and administration and accepted as the norm.
The Budget speech will not be long. Nor will it try to confuse people
Let the Opposition members bay and scream that the problems of six months ago are still there. Whoever thinks that these deep in-built problems can be cured by a band-aid does not understand or does not want to. A well- planned restructuring requires a full understanding of the problems and a well thought-out carefully executed plan.
Of course, short-term palliative care is required and has to be applied. Where there is an obvious case of financial haemorrhage, a tourniquet is required to stop the blatant squandering of the country’s resources. Of these, we hear almost on a daily basis.
This brings us back to the current budgetary process, which is a depositary of all the ministries’ aliments. The setting up of the Spending Review Unit, together with a determined and Cabinet-supported review exercise by my ministry, and which excluded the health, education and social service sectors, yielded a €20 million saving over the second part of the year.
These savings could have hurt the pride of their respective programme managers but had no influence on the service being provided. These savings were then put to good use in the health and education sectors, which were under-budgeted in spite of promises to the contrary.
This Budget, for the first time, is laid bare for all to see. Any new discretionary expenditure has to be compensated by new discretionary revenue. This was the truth that surprised and shocked many. But any other way will increase, rather than reduce Malta’s deficit and debt ratios.
The Budget speech will not be long. Nor will it try to confuse people. No more inflated revenue projections to create unnecessary and short-lived illusions. The past double-speak – one for Brussels and one for the local consumption – is disappearing. There is only one for both.
Some might fear that this realistic approach is not political enough. People want to dream. I disagree.
This approach will make our evaluation and search for real sustainable solutions that much sharper and smarter. Our precious budgetary measures will be spent according to a set of priorities.
Firstly, to encourage people to start work or work more, and businesses to create the work for them.
Secondly, to assist the most disadvantaged and needy.
Thirdly, to settle injustices and anomalies. In this sense, truth be told, the Budget holds no surprises.
Edward Scicluna is Minister of Finance.