It also called on government to get its priorities right and assume political responsibility for the dire state of the country’s finances.

AD’s spokesman on finance, the economy and tourism Edward Fenech, who presented AD’s recommendations for the next budget, insisted that the reduction of the deficit should be the main fiscal priority.

“In order to guarantee the future of our economy and the welfare state, the fiscal priority over the coming three years should be that of reducing the structural deficit below three per cent in order to qualify for adoption of the Euro. The target date for adopting the Euro should be 2008 and not 2006, as suggested by the government. With such a tight deadline, the government will end up suffocating economic initiative in Malta and Gozo.

“As a responsible party, we are refraining from the political opportunism of calling for a wide tax reduction. On the other hand, tax revenue should grow at marginally less than the forecast nominal rate of economic growth. Otherwise the government would be suffocating the economy. The government should commit itself not to introduce any new taxes on income and economic initiative.

“Recurrent revenue (wages, welfare payments, health care, education) must grow in line with inflation in order not to have a negative impact on state-dependent citizens. At worst, purchasing power is maintained. On the other hand, abuse in welfare should be combated and definitive and cross-party agreed measures should be introduced to combat the black economy”, Mr Fenech continued.

With regard to capital expenditure, AD is recommending that in order to streamline and optimise government’s capital expenditure, a detailed medium term capital expenditure budget should be compiled at MCESD level, together with the involvement of local council representatives.

“Our country needs a comprehensive plan. This will encourage a national effort to make Malta more competitive. In the light of the present dire situation, the government should exclude any extravagant and unjustified expenditure like the proposal to build a new parliament on the opera house site. There is no money for such fancies. The opera house site should be converted in to public garden. In this way, nothing will stop any government in the future finding the money to rebuild a cultural/arts centre on this site.

“The costs involved in the construction and eventual operation of the Mater Dei hospital should be seriously studied. The government should seriously consider extending the time for completion if this lowers the capital outlay during this five year period. In the next budget we expect the government not only to state how much the hospital is going to cost to complete but also how much will it cost to operate, over and above what the country is spending now.”

AD reiterated its recommendations on promoting alternative energy. It is also proposing the setting up of an energy auditing unit which would offer advice to businesses and households on the best way to reduce energy consumption and costs. Referring to any proposal to increase water and electricity bills, Mr Fenech recommended that WSC/Enemalta should make an effort to issue bills on time. AD also repeated its proposal that any revision in water and electricity rates should penalise those who waste energy but should not adversely affect those who use energy in a responsible way.

“The government should also commit itself to restructuring the Water Services Corporation and Enemalta. While AD does not agree with the privatisation of these utilities, we support management restructuring in order to remove/reduce inefficiencies and waste in these companies”.

Referring to the self-employed and SME sector as a power-house for economic growth and job creation, Edward Fenech called for fiscal incentives aimed at giving a boost to this sector. AD, he said, is calling on government to consider a small company tax rate which is customary in other EU countries. The government can make up for this fall in tax revenue by increasing tax evasion measures on blatant abusers.

“The government should invest some of the proceeds from the sale of Bank of Valletta into a venture capital fund targeting innovative and creative entrepreneurs who have no access to finance. This fund could also encourage environmentally-friendly and sustainable projects. Local banks and fund-management companies should be encouraged through tax incentives to invest in this venture capital fund together with government. It would give a breath of fresh air to entrepreneurship”.

A major priority in the next budget should be the promoting of fiscal morality and combating tax evasion.

“Government must make a concerted effort to collect tax arrears that reportedly amount to Lm400 million. It should set up a unit within the Inland Revenue that will be responsible for communicating with taxpayers and arrange a repayment programme over five years – in order to mitigate the cash flow effect of this measure on taxpayers. The government should consider mitigating any penalties and fines on arrears. If government is successful in recovering a big chunk of this amount, then it can apply this revenue to reducing the deficit even further without resorting to new taxation.

“The Government should have the political courage to tackle rampant tax evasion among those self-employed who are declaring very low income and possibly also collecting social security benefits to which they are not entitled. AD will be fully supportive of any legal measures that government takes to tackle this problem. The MLP should do the same. While promoting fiscal morality, the government should reduce unnecessary bureaucracy stifling the self-employed sector and SMEs”.

Turning his attention to tourism, AD’s spokesman insisted that tourism is the backbone of our economy, contributing to job creation and foreign currency earnings for the country.

“Funds directed to the MTA should be channelled into product development rather than marketing. The state of our unique archaeological monuments like Ggantija in Gozo leaves a lot to be desired. By investing in our historical and archaeological heritage we would be boosting Malta’s potential as a world historical attraction. The fact that Malta has the oldest standing buildings in the world offers us a unique opportunity to attract tourists even in the low season but we cannot do this if we neglect our archaeological assets.”

Mr Fenech also called on government to address one of the major sources of competitiveness in Malta and Gozo, ie the very steep increase in the price of property.

“The prices demanded for property have increased so much and this impacts on the demand on wages. Since wages have grown at a much slower pace than the increase in real estate, property owners (especially those still paying off mortgages) have been left with less disposable income and as a result consumption has fallen, as many high-street retailers will witness. This is ludicrous in a country with over 30,000 vacant properties. Due to our outdated rent laws, the supply of property is artificially restricted while the countryside is sacrificed on the altar of unsustainable development. A reform in our rent laws will reduce the burden on property prices by creating a rental market. This will bring more real estate into the market and will have a stabilising effect on property prices. Fiscal measures encouraging owners to rent vacant properties should also be considered”.

Edward Fenech concluded by calling on government to get its priorities right. “In times of economic uncertainty, it is wise to stick to the basics. This dictates that government considers shifting investment into three areas that AD believes hold the key to future economic prosperity, namely SMEs, Education and Tourism.

“Investment in education, which is of particular importance, should be aimed at narrowing the skills gap existing in the country which is clearly identified in the document called Benchmarking Malta in Europe recently published by the DOI. Our drop in competitiveness is directly linked to our education and training. We risk falling way behind the other nine entrants even further – this will have a negative impact on foreign investment”.

Dr Harry Vassallo called on the Nationalist Party to assume political responsibility for the state of government finances.

“If our finances were in order, then government could have pumped more money into the economy to stimulate economic growth. Their ‘fiscal immorality’ is the cause of the fragility in our economy. The economic recovery the government dreams of has not yet arrived. The Prime Minister is still telling us that the economy is going well because people have saved another Lm100 million. The fact that people are saving rather than spending damages the economy, as it means that less money is circulating in the economy. Our country needs a fresh start. Malta and Gozo are yearning for change; a change for the better for all Maltese and Gozitan citizens”, Dr Vassallo concluded.