The title of this week's contribution is a piece of jargon that has been used in Malta for several years. What it really means is the efforts made by successive governments to reign in the fiscal deficit to sustainable levels and possibly to balance the budget.
As we move inexorably to-wards budget speech day, this matter is expected to come to the forefront once more. This is not a matter that is exclusive to Malta. A cursory look at the September 12 edition of The Economist would show that the subject of fiscal policy and the need of most countries to address their growing fiscal deficit is mentioned in a number of contributions.
This issue is possibly judged to be the key economic priority as the world's leading economies move out of the recession. Fiscal consolidation should also feature as one of our economic priorities, even though I keep believing that our number one priority should be employment.
Our recent history shows that we are capable of achieving fiscal consolidation, so much so that we have managed to meet the Maastricht criterion of having a fiscal deficit of not more than three per cent of the gross domestic product prior to adopting the euro as our national currency.
During the current year, although our fiscal deficit is expected to breach the three per cent ceiling, it is probably still going to be the lowest within the eurozone, while other eurozone countries have run up a level of deficit that has even reached double-digit figures. The fact that in its assessment the EU has asked Malta to achieve fiscal consolidation by the end of next year is an indication of our merits and not of our demerits. This is why this topic merits serious discussion in our country, since any decisions taken today in relation to public revenue and expenditure will either serve as a boost or as a drag in the coming years.
One can note the experiences of other countries in this regard. For example, Spain is one of those countries whose budget deficit is expected to be around 10 per cent of the gross domestic product. It is also facing a shrinkage of its GDP to the tune of around 4.5 per cent and an unemployment rate of 18 per cent. The dilemma that the Spanish government is facing is what mix of fiscal policy measures should it have to bring down the deficit to three per cent. Which areas of expenditure should it cut and which taxes should it increase? That same dilemma is being faced by the UK government as it prepares its last budget before next year's general election. It is speaking of the need to make tough choices and of the need to reform further the public services.
In Malta we shall not be spared these tough choices even though our economy has so far performed better than expected in the light of the severe international recession. This is why there must be a serious debate on our public finances. It is the role of government to make decisions as to whether one should put more emphasis on enhancing revenue or on cutting expenditure to achieve fiscal consolidation. However, we should seek to achieve some form of consensus across the board as to what our deficit targets should be for the coming years.
We should also expect that those persons or organisations that are critical of the government's fiscal policy measures, put forward their own proposals. It is not enough for employers or trade unions or politicians to claim that this tax or that tax is wrong; they need to state what revenue enhancement measures the government should adopt.
Similarly if such entities do not agree with the government's decisions on how public expenditure is to be curtailed, they must make their own proposals on expenditure cuts. This is what making tough decisions is all about.
If the public at large is to make a proper assessment of the options that are available in terms of government revenue and expenditure then it cannot be faced with just one set of measures, namely those of the government. The public at large needs to be told what those alternative measures are. Such transparency in the debate on fiscal consolidation would make acceptance by society more possible and would allow for stronger monitoring of the government's fiscal policy.
I fear that without public buy-in of the so-called tough choices that need to be made and without strong and objective monitoring of government's fiscal policy, fiscal consolidation in a post-recession scenario may remain a mirage, as we would be unable to repeat the success we achieved in our preparation to adopt the euro.