There was a time when Nationalist administrations prided themselves as being pro-business. Not any- more; now the government is only pro-itself and is fast becoming the biggest threat to the competitiveness of our country. As the Minister for Finance admitted in his Budget 2011 speech, “inefficiency, waste, excessive red tape and corruption are our enemies”.
Last year, in the mid of a recession, the government announced a micro-credit scheme for SMEs. We are now out of the recession and the scheme is still not operational.
This year, in a last-minute decision, the government announced an increase in VAT on tourist accommodation. The industry is rightly up in arms. The government now says it will consider granting some concessions. Why has no proper consultation taken place? The tourist industry has publicly been saying that though tourist numbers were up its profits were not. It also complains there is no strategic direction. They found little comfort in the Budget speech. Gone is the talk on dialogue and working together.
There was a time when Nationalist administrations claimed they wanted to roll back the state to leave more space for private sector initiative. In 1995, total government expenditure accounted for 39.7 per cent of Malta’s GDP. Today, it accounts for 43.9 per cent of GDP. The pre-Budget 2011 document (a most futile exercise given that the actual Budget completely ignored its findings) indicated that government revenue was likely to fall by 0.4 per cent of GDP. It projected that government expenditure would be cut by 1.4 per cent of GDP. This was to be achieved primarily through increased efficiency and cutting waste. Come Budget 2011 and the projections change radically: Government revenue will increase by 6.9 per cent to €2.791 billion. Indeed, the government seems to be unable (Or does it lack the political will?) to curb its expenditure. The easy way out is to collect more taxes. Tax revenue in 2011 will be up by €130 million or 5.7 per cent. Income tax will yield an additional €11 million, social security a further €36 million and VAT another €60 million.
These monies will not result just from the projected three per cent economic growth rate. Is the government again being over optimistic? The prolonged income tax and social security amnesty on back payments will not be enough to raise revenue by the estimated amounts. Regarding VAT, economic growth and inflation is unlikely to yield more than €30 million. The tourism VAT hike will yield €6 million. So there is a shortfall of at least €24 million.
The only hint in the Budget speech as to where this money can come from is that government departments and agencies are being directed to collect 10 per cent of arrears. Is an amnesty on VAT arrears in the offing? How come the government did not give any more details? And why did the government not issue such a directive as part of the pre-Budget 2011 exercise?
In any case, how ethical is this amnesty syndrome? To what extent is fiscal discipline being eroded? Is this the only style of governance the Nationalist government can give to the country? Obviously, it has few places left where to hide. A significant part of the country’s assets have been sold and national debt has peaked about 70 per cent of GDP. (The EU is obliging the government to bring this debt down to below 60 per cent of GDP by 2020.) This is the price of the “money no problem” culture.
Interest on public debt next year will exceed €208 million. The government is now relying on these amnesties to raise its cash flow and solve its deficit problem. The question is: What will happen once these “one-off” revenue streams dry up? It is sad the government continues to live from hand to mouth.
It is true Malta’s economy continues to grow. But this growth is limited to a few sectors such as financial services and i-gaming. Many others continue to face serious structural challenges. The best the government could do was to inject some stimulus money to help a few enterprises from firing people. There is no strategic direction to guide our enterprises to move forward. Vision 2015 was only vaguely referred to Budget 2011. This is not surprising given the government’s fire-fighting rather than far-sighted approach.
The main losers of Budget 2011 are, once again, the middle classes. It is ironic that, whereas last year, in the mid of a recession, employees received a weekly wage increase of €5.82 plus a “refund” on their water and electricity bills amounting to some €2 a week, this year, with Malta’s economy being technically out of the recession, the COLA increase amounted solely to €1.16.
There are no vouchers, bonuses or tax cuts. Instead, we will be facing increased taxes on energy and petroleum products. We were told it is good economic sense for domestic prices to reflect the price of crude oil. No one has explained why these prices have to be laden with excise duty and VAT. Is it wise to tax energy at a time when oil prices could be firming?
The purchasing power and standard of living of our families has been falling for the last four years. Eurostat data confirms that, in 2011, families in Malta will be worse off than they were on the eve of the millennium. For employees this has been a lost decade. Sadly, the erosion of wages and salaries is not even leading to enhanced competitiveness. Our economic strategy has failed and Budget 2011 does little to improve the situation.
fms18@onvol.net