The 2014 Budget is characterised by a determination to instil a sense of fairness in Maltese society while at the same time to encourage industriousness. In the context of a tough fiscal management scenario, achieving these aims is going to be tough, but it is a road worth following as the alternative route is sluggish economic growth and increasing stress on Maltese families and businesses.
The day following the announcement of the Budget the European Commission issued an update on its assessment of the Maltese economy for this year and the next. Unfortunately, we have to cope with the consequences of past trends that have shown that our economic projections in the last few years were often too optimistic. Winning back credibility with the European Commission will take some time and it is therefore very important that budgetary projections on economic growth, debt levels, and annual deficits must be realistic.
No single budget can address fully the long-term challenges faced by the Maltese economy: an educational system that is not delivering as much as it should; a pensions’ system that still needs to be refined; and a free health system that is still not sufficiently prepared to cater for the growing needs of our ageing society.
But this Budget has started to address some major elements of these long-term challenges. My favourite measure is that of providing young people with the opportunity of getting work experience through apprenticeship schemes and practical on-the-job training.
The incentives given to employers to take on young people as apprentices are a step in the right direction.
It is just as encouraging that employers are being given incentives to employ older workers who have been unemployed for a few years. Similarly, the provision of free childcare centres is an invaluable enabler to get more women in the active workforce. The strategy to get more workers in the official economy is one of the key success factors for our future economic growth.
The reduction in direct taxation has given rise to some understandable debate among economists. Rewarding people for being industrious makes economic sense and there is no better incentive to achieve this aim than reducing the income tax of middle earning individuals. Hopefully the improved spending power resulting from the reduction in income tax will help families to save more and also to spend more than they could afford to do when direct taxation was higher.
The strategy to get more workers in the official economy is one of the key success factors for our future economic growth
Perhaps the most important measure in the 2014 Budget is the reduction in water and electricity rates. With the new energy strategy being adopted by this Administration what seemed like an impossible dream is slowly becoming a reality. This is important for families as well as for businesses. There are still risks on the way to achieving a viable and affordable energy system. Such major changes in strategic direction are always challenging but important if we are to achieve our economic aims.
Some observers have asked whether the projections made in the Budget are achievable. The simple answer is that only time will tell.
The Minister of Finance has done well to project an economic growth of 1.7 per cent for 2014, significantly less than the 1.9 per cent projected by the Commission. But no economist has a crystal ball that can predict in an infallible way the outcome of our economic activities.
Projections are targets based on information that is available when these projections are made. Circumstances may change with little notice. On the day following the announcement of Malta’s Budget the Commission revised the projected economic growth in the eurozone downwards to 1.1 per cent. It is a fact that the eurozone area is still in trouble and this could affect us as this area is our main trading market.
While economic forecasts are important because they provide us with the metrics that determine whether we are being successful or otherwise in our economic management, it is quite conceivable that these forecasts may need to be reviewed if circumstances change.
In fact, it is advisable that such revisions are made at least on a quarterly basis to ensure that corrective action is taken sooner rather than later if such a need arises.
The 2014 Budget aims to instil some new confidence in the business community that has been holding back from investing for far too long. Achieving this objective in the context of a challenging fiscal scenario is crucial.
johncassarwhite@yahoo.com