On Monday the Finance Minister will present his third Budget of this legislature. These are not easy times as the world has still not recovered from the financial and economic earthquake experienced two years ago.
Many governments across Europe and the rest of the world are struggling to make ends meet. Some are taking drastic measures such as reducing pensions and wages, increasing taxes and cutting spending on essential services.
Malta is part of the world and very much part of Europe. What happens in Europe affects us. If Britons are going to have less money in their pockets due to the austerity measures taken by their government, they will be less likely to travel. If they travel less it is reasonable to assume the number of tourists from the UK will decline. The same could be said about other markets. Only this week in France, people took to the streets to protest against government plans to reform the pensions. Things are not looking bright elsewhere. Earlier this year, Greece was on the brink of bankruptcy and EU states had to bail it out.
What does all this have to do with the Budget, one may ask?
A budget is a monetary plan for a specified period. We all make our own budgets. Families plan ahead and, according to their expected income, take decisions on their expenditure. Sensible families and individuals do not spend more than they earn and if one has to spend more than one earns this should be kept at a minimum and for as little time as possible.
Governments are no different as they need to plan their expenditure according to expected income. An ideal situation is to balance the books at the end of a financial year. An even better sitation is to register a surplus, that is, the government’s income being greater than expenditure. However, in the real world, things are different and governments’ realistic targets nowadays are to reduce the deficit as much as possible. Controlling the deficit is no easy feat and many governments are experiencing a spiral increase in their deficit. A double digit figure has become the norm in European countries today. On the other hand, the Maltese government managed to keep its deficit to relatively low levels.
Budget deficits have to be tackled as a country cannot go on borrowing to service its deficit. In short, there is a limit as to how much a country could borrow and for how long. EU countries like Britain, Spain, Ireland, Greece, Portugal and others are taking tough measures to deal with their spiralling levels of deficit. The people on the streets are being hit hard. Businesses are suffering as people have less spending power and, therefore, consuming less. Wage increases in these states are not only not on the table but the real challenge is to hold on to existing salaries. One of the measures taken by the British government to attack the deficit is to cut funding to universities and schools. For universities to cope they would have to increase tuition fees considerably and these would have to be borne by students and their families.
The situation in Malta is different, not because we are living in a different world but as a result of wise decisions taken in the past, such as joining the monetary union and adopting the euro. In the past two years, the government channelled its resources wisely to safeguard hundreds of jobs in the private sector by propping up those companies needing temporary assistance. We have to acknowledge the situation is still not ideal, especially in the job market but, then, we have to compare our state of affairs with other countries.
In Monday’s Budget, I expect the Finance Minister to keep on addressing the deficit. I am, however, not expecting him to announce a reduction in wages. I am not expecting any cuts in pensions and I expect the government to keep on handing out stipends to thousands of students. We take these for granted. Other countries envy us. Their budgets are very different from ours. Unfortunately, some of us tend to forget or want us to believe that Malta was immune to the economic storm.