30 September 2014

PL Calls for ‘real’ financial statistics to be published

 - Sunday, 16 September 2012, 00:00

by Annaliza Borg

The Labour Party yesterday called for real statistics on the state of the economy and finances to be published and is holding the European Commission responsible for problems that may arise in the future, noting that Malta never had such high debts in the past.

The real picture showing debts, deficits and pending payments should be made public before the general election, the party said. The truth about Enemalta too needs to come out because this is probably losing more money, because the more it sells the more it loses money due to its inefficiencies.

In a press conference yesterday, Labour Party spokesperson for finance Karmenu Vella said structural problems are going from bad to worse. In the first two quarters of the year, debt levels surpassed the government’s targets for 2014 and have gone up to €4,860 million.

In reality, the government still has to cope with the Excessive Deficit Procedure, even though it is trying to hide the real picture. Credit rating companies did not revise their ratings after Malta was downgraded earlier this year.

When it comes to the deficit, the target should have been 2.3 per cent of GDP and debts were expected to rise to €154 million by the end of the year. In reality, by June, the deficit had shot up to €333 million.

“This is one of the greatest records of failure for the government,” he said. “To reach its targets, the government must have a surplus of €180 million by December.”

Mr Vella added that economists are worried the government would not reach the 2.3 per cent deficit figure, or at least the three per cent deficit-to-GDP ratio the EU establishes for its members.

The government’s cash flow is similar to what it was in 2010 when the year closed with a deficit of 3.7 per cent of GDP.

The debt target for this year is 69 per cent of GDP but according to the latest figures available, general government debt reached 75 per cent of GDP – a figure that excludes the money lent to Greece and Special Purpose Vehicles to finance capital projects.

The first six months of the year resulted in negative growth while deficit figures more than doubled. Mr Vella added that the vast percentage of such debt was created under a government led by Prime Minister Lawrence Gonzi. We had debts that amounted to €3 billion in 2004, he said, now we have €5 billion.

He asked whether the government has a plan to pay off such debts, especially because of the way they play with figures and work to get income from future revenues and postpone payments by using future payment systems, (whereby the government invests in a power station, for instance, and starts paying for it in the future).

Discussing inflation, PL spokesperson for Economic Development Charles Mangion said wealth is measured according to what families and businesses can afford. In reality, consumption dropped by 3.2 per cent in the last quarter.

The inflation rate in Malta is one of the highest in the EU and well above the average, while the consumption rate in the first six months this year was the lowest in the EU.

The increase in prices is affecting the most essential items including food products, health services and fuel. Meanwhile, investment from the private sector fell by €12 million.

Between 2008 and last year, investment fell by €300 million to 13 per cent of GDP, again a figure well below the EU average.

Meanwhile, he noted that export figures went up thanks to financial services, which is a very important sector and re-exports of fuels and oils. The latter makes up a considerable part of the increase.

Referring to the PL seminar for businesses held on Friday, Dr Mangion said the private sector needs to be given space. Bureaucracy must be cut, energy bills reduced, the skills mismatch addressed and research needs to be incentivised.

Economist and MEP Edward Scicluna noted that the euro crisis is based on high debts and deficits governments cannot handle.

As a result, one of the reports he is compiling suggests that the heads of offices in charge of compiling national statistics in member states should be answerable to Parliament. A Code of Conduct with regard to finances is also being drawn up.

To date, Malta is the only EU country that still uses the cash flow system rather than one based on accruals because this is convenient for the government. However, the present system of hiding the reality is not acceptable.

While the government is euphorically saying Malta is out of the recession, one finds that inflation is much higher than what the government says it is because Price Deflators have not been published. He therefore urged the NSO to declare what type of deflators it is using.

Figures published also show that we have a twin economy – the private and public sectors respectively. While the public sector is spending a lot, the private sector is in recession. Consequently, a situation of Stagflation prevails as inflation continued during the recession.

Thanks to the electoral cycle with which the government operates, it first failed to use EU structural funds and is now spending everything at once. Such expenditure however creates inflation leading to lower levels of competitiveness.

The identified problems are not solved by injecting money into them because inflation and debts go up. The solution is to have projects carried out on budget and on time – something that never happens, he said.

Among the necessary solutions are serious leadership and a change in government, he said.

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