I refer to the editorial entitled “Half the story” (TMID, 13 May). It is obvious that a number of the conclusions reached in this editorial result from a misinterpretation of my response to a precise question put to me during a recent pre-budget consultation meeting with people from business, the constituted bodies and trade unions.

The question put to me was whether, within the context of the present economic realities, the government was still intent on implementing the pledged tax cuts in the coming budget.

Now let me start by emphasising a very important point. As clearly stated in the Nationalist Party’s electoral programme, and repeatedly by the Prime Minister during his many campaign speeches, the proposed economic stimulus package put forward by the Nationalist Party was designed to respond effectively to the worsening international economic situation. The claim in the editorial, therefore, that the government is now trying to retract from its electoral pledge by conveniently blaming the worsening economic reality is manifestly incorrect.

My response to the question put to me during the consultation meeting was that we have to consider this electoral pledge in the context of the wider economic scenario. I added that, as a country, we need to decide on whether we are serious about wanting tax cuts or whether we are rather keener on increasing subsidies. It is clear that we cannot have both. And it was necessary for my audience at the consultation meeting – trade unions and business bodies included – to focus on this. Do we reduce taxation and stimulate the economy and job creation or do we continue increasing subsidies which will undoubtedly lead to higher taxation and a cut in investment?

The Nationalist Party never promised to halve the present surcharge on utility bills. Rather, it contested Labour’s electoral proposal in this regard, on the clear understanding and realisation that, given the uncertainty in the oil markets and ever-rising price of oil, it was foolhardy, if not outrightly irresponsible, to make such a promise. Indeed, during the first two months of this new government’s life, the international price of oil has already increased by around 27 per cent.

I would like to think that everybody understands and appreciates that such a development – which is out of the control of any government – is leaving a significant impact on our public finances and is likely to have an impact on our future utility bills.

Some of the social partners and others are advocating that the government carries the burdens of these ever-increasing costs, with calls for an MCESD meeting to decide on active measures to be taken by the government to address the resulting cost-of-living pressures. Their suggestions to address this situation range from wage rises to higher subsidies. Such an approach might provide a short-term solution to the current inflationary pressures which are resulting from increasing commodity prices. However, for how long could they be sustained? Would this approach make our economy more resilient and competitive? What will happen in a year or two when the investment needed in jobs would not have been made?

It is the government’s firm belief that tax cuts would increase disposable income, encourage work and would address much better the inflationary pressures being faced by our families and businesses. Subsidies tend to encourage the waste of electricity, gas, food and whatever else is being subsidised. Subsidies distort the market and place a significant burden on public finances. On the other hand, income tax cuts increase disposable income, reduce pressures for wage rises, reward work and thereby support sustainable economic growth. This government believes that this is sound economic logic and, therefore, the way forward.

Hence, this is why I felt the need to emphasise our collective need to make a clear choice. The government cannot be continuously accused of not doing enough to protect everyone from the vagaries of the international markets by increasing subsidies, and then be expected to also cut taxation and thereby reduce the very revenue that is required to finance such subsidies while making it more difficult for employers to invest in new jobs.

I firmly believe that the government has an obligation in the current economic situation to ease inflationary pressures and, thereby, avoid possible second-round inflationary effects which would erode our economic competitiveness. I also believe that the government has an obligation to support low income families in order to help them maintain or even improve their quality of life. However, when high commodity prices become permanent in nature, as now appears to be the case, the economy needs to adjust to this reality.

Among other feasible measures, we need to counter inflationary pressures through actions that would improve disposable income such as possibly by wage adjustments, tax cuts and social assistance to low income families. If this basic principle and logic is accepted by all, then we can start having our tax cuts as from the next budget.

I must also emphasise a second point. The Nationalist Party’s electoral programme makes it clear that the new government will aim to attain a budget surplus by 2010. Many constituted bodies and unions have responsibly supported this aim and continuously exhorted all political parties to commit themselves to this important objective because failure here would be detrimental to investment confidence and, more importantly, to job creation.

In conclusion, to ensure that expectations are not raised unnecessarily in the short-term, we all need to recall that the Nationalist Party’s electoral programme – like those of the other political parties that contested the 2008 elections – was a five-year programme. This means that the proposed measures – taxation measures included – were to be implemented over the five-year life of the government and parliament. In the course of the electoral campaign we were asked when we intended to implement these measures. I am on record – as are other spokesmen for the party – as having stated that, as was done in the last two budgets, these measures will be implemented progressively and in a prudent manner so that we do not jeopardise our targets. This, with the intent of starting to implement our programme as from the 2009 budget.

It is very clear that neither the Prime Minister nor myself told only half the story during the electoral campaign. Neither are we telling only half the story now.

Tonio Fenech is Minister for Finance,

the Economy and Investment