As the European Council in Brussels was drawing up a competitive pact last month to pave the way towards sustainable growth and as government politicians were constantly patting themselves on the back for keeping the island’s economy on track, a reform barometer report put Malta among the laggards in the European Union. However, with so many political developments and natural disasters happening at the same time, it looked as if public opinion swept it under the carpet, as it were. But keen followers of the economic scene did not and will naturally continue to analyse the government’s moves to see how it will be meeting the string of commitments made at the European Council.
According to the reform barometer, Malta actually improved its performance last year when compared to that of 2009 but, even so, it remained among the “below average performers”. It performed best in high technology exports, annual hours worked, the unemployment rate and government deficit. In fact, it ranked among the best member states in these lines, winning the top position for its hi-tech exports in comparison to the total country exports. It was also praised for its control of the structural deficit, no mean feat considering the economic scenario in the wake of the world’s financial crisis that triggered the recession.
Malta was one of the first countries to emerge out of the recession but, once again, times are getting difficult and, although the government is quite optimistic about the way the economy is performing right now, it is quite uncertain how the situation is going to develop in the months ahead. The political tension sweeping North Africa and the Middle East and the impact this is having on the price of crude oil as well as the earthquake and tsunami in Japan, not to mention other factors as well, have brought about new economic uncertainties.
Why has the reform barometer listed Malta among the laggards? As it has been remarked so many times before, the island is still falling short of expectations when it comes to the carrying out of reforms in trimming welfare and health expenditure. The report says, very significantly, that “if Malta wants to improve its growth potential in the coming years” it has to reduce unnecessary welfare programmes and to rationalise health expenditure”. But these are hot potatoes the political parties would rather not handle for fear of losing political support. The report could have also added unnecessary government (that is, taxpayers’) support in education.
Yes, Malta would, of course, want to improve its growth potential but, at the same time, the two main political parties do not want to lose any of the support they have and it is therefore most unlikely they will do anything that would, even remotely, give the impression they plan to cut welfare and health expenditure.
In the same manner, there appears to be growing resistance to calls for modifications to the wage adjustment mechanism in a bid to improve the falling level of productivity with the government strongly arguing the mechanism in use today has suited Malta well. Others, both in Malta and abroad, disagree with this view, holding it is adding to unnecessary labour costs.
It may well serve a political purpose to prolong dealing with hot potatoes but sooner or later the country would have to come face to face with reality and, as it always happens, the taxpayer would then have to foot the bill for inaction.