GDP growth in Malta is being fuelled largely by increased government expenditure, primarily as a result of the increase in compensation to employees, finance shadow minister said this afternoon.
He said in a statement this was confirmed by the Central Bank’s Quarterly Review which stated that “government consumption rose by 8.3 per cent on a year earlier, reflecting additional spending on both intermediate consumption and compensation to employees, notably in the public administration, health and education sectors. It contributed a further 1.6 percentage points to growth”.
Dr de Marco said sustainable economic growth should be driven by the private sector.
“The Opposition is pleased to note that tourism and financial services, in quarter four of 2014 contributed positively to economic growth. However other sectors – including manufacturing and construction – are contracting or stagnant and consequently did not contribute to economic growth. Industrial production registered drops in the four quarters of 2014. The drop in industrial production is reflected in a drop in exports. As a result, the quarterly review reports that in quarter four of 2014, exports contributed negatively to GDP growth.”
He said that while certain elements of the private sector were contracting, the public sector's role in the economy was growing.
Public administration education, health and related activities contributed 1.2 percentage points to nominal GDP growth in quarter four of 2014. Comparative figures for 2008 showed a 0.6 contribution.
“Government's contribution is at par with what it was at the height of the economic and financial crisis in 2009. In 2009, government had to intervene to stimulate private sector growth due to the international economic crisis which led to a sharp drop in private sector economic activities.
“The international economic situation today is far more favourable and therefore there is no economic justification for increased government role in the economy,” Dr de Marco said.
He added that the additional monies being spent by the government were not resulting in improved services and were not helping the country's competitiveness.
“The public sector wage bill has been inflated by €127 million over 24 months, largely due to the increases in the public sector work force
“These include hundreds of people employed in positions of trust and others who were recruited simply because of their links to people close to government. Public expenditure also increased due to increased public transport subsidies which trebled without delivering an improved public transport and due to handouts paid in dubious deals.”
Dr de Marco said the government's economic policy to date was based on driving growth through increased public expenditure.
“This policy is not sustainable and there are already signs that the rate of growth is starting to decrease. Government should focus its energies on stimulating private sector growth not least by helping those sectors, including manufacturing that are currently underperforming,” he said.