The pre-Budget document is intended to meet two objectives. It is a review of the economy roughly up to the time that it is drafted, reaching out also to the social sector. And it is kite-flying. The Ministry of Finance suggests possible areas that may be tackled in the full Budget, both positively – to do, and negatively – to leave out.
What the Budget will definitely leave out, for instance, is a fulfilment of the Nationalist Party’s electoral promise to slash income tax. That had already been made clear months back. It continues to be made clear now as the Budget drafting season approaches. On the other side of the picture one kite flown is a suggestion that the 60 kp/h speed limit, in those roads where it exists, will be raised to the top limit of 80 kp/h. This kite has no place in the pre-Budget consultation sky, but an economic argument was attempted for it.
The document drafters suggested that a higher speed limit would save on emissions. Unfortunately they did not take into enough consideration the potential costs of implementing the proposal, arising from a possible increase in traffic accidents. Emissions have their health and economic cost, and must be cut, not least through a more proper deployment of the warden system. Traffic accidents too have their health and economic costs, at an extreme they mean death.
Fortunately this kite was swiftly shot down by Prime Minister Lawrence Gonzi. Over the weekend he maintained his past stand and put-paid to raising the speed limit, other than for sensible adjustments where the cameras are not well enough situated. He did not go into the high risk involved in encouraging more official speeding, as if we do not over speed enough as it is.
The PM said that to cut emissions one should encourage more people to use the public transport system. Perhaps that might come about once the new system is put in place and we get more passenger-friendly transport which lives up to its name of being a service. Then again, perhaps not as much as expected – we are too used to using our car for even the shortest of distances within our town or village.
In contrast, proper use of wardens and traffic policemen could cut down on over speeding and on cavalier attitudes towards stop signs, zebra crossings and other markings. It would help no end if Lawrence Gonzi would expand his determination for speed limits to stay, which I applaud, into action on wardens and traffic cops.
I found this year’s pre-Budget document particularly interesting in its descriptive part – how things stand, more than its prescriptive sections – what might be done, for what it had to say about private investment as disaggregated in its component parts and as measured in relation to EU averages. This was pithily summarised in the front page of this section on Thursday.
The most striking point was headlined – “Private sector investment ‘below EU average’”. It deserved to be that, for it shows that such investment has to be massively increased if we are to catch up with middling EU performance, let alone the best runners. That is the minimum objective why we joined the European Union. Reading more deeply, the description of our investment quantity displays a candid admission that the economy has not been performing nearly as well as it is made out to be.
Economic growth depends upon real investment. Without enough of it you cannot get enough real growth to ensure a steadily rising standard of living, let alone a standard rising fast enough – faster than in the past – to help us catch up with better performing EU members.
The admission exposes the gloss that is continually put into our economy, in the same manner that the austerity measures demanded of its workers by STMicroelectronics revealed the foolishness of those who spin that we have escaped the global economic downturn practically unscathed.
The pre-Budget document analysis of the quantity of private sector real investment is counterpointed by its focus on the quality of such investment. Much of it was in the financial sector, mostly a balance sheet factor, which is good but does not have a multiplier effect and an effect on real incomes anywhere like investment in tourism and manufacturing. Furthermore a considerable part of private investment went into an increase or renewal of the housing stock.
With our islands having one of the highest house-owning ratios in the world, it has always been the case that housing bulked large in the real investment total when disaggregated in our national accounts. But in the past it was better supplemented by real investment in the productive sectors.
Some investment is still taking part there. It is not nearly enough, which might explain why employee income, aside from the financial sector, has barely risen at all over the past year.
The Malta Enterprise chairman told this newspaper’s sister on Sunday that the moment we lose our labour cost competitiveness, our attractiveness for foreign direct investment will be significantly dented. Yet there is more to competitiveness than labour costs, such as real investment in the private non-financial productive sectors. Full circle.