The electorates in developing countries want fast economic growth; nothing can get much better without growth.

Yet growth cannot be achieved by just pressing a button.

The appetite of the State, the proportion of the community’s income siphoned off in taxes for purposes of public spending, has been growing constantly and steadily.

Does this make people happy, moderate and more consensual?

We seem to have had the worst of both worlds: large and bossy governments, and disaffected citizens complaining that they are falling behind, and living up to their reputation as compulsive grumblers.

Before I switch the ignition of an argument familiar to my readers, it is best to test the point of departure, namely the size of government measured by its appetite.

Deficit policy

For the best part of the past two decades, the government has pursued a deliberate deficit policy. It did not generate enough wealth to satisfy its tax requirements. It made up the difference by persistent local borrowing until it accumulated a thoroughly unsustainable burden – running to the tune of almost a billion and a half liri, or 76 per cent of GDP!

As the cost of its borrowing rises, it will have to pay more to service its debt. In addition, globalisation reinforces the trends towards what are, in reality, “tax strikes” of avoidance and even illegality. With fewer countries controlling the movement of capital transfers via cyberspace, it is easier to move capital from high to low-tax countries. This affects corporate taxpayers. Higher tax rates now risk triggering the flight of marginal industries, and deter inward investment.

It is increasingly likely that internationalised avoidance and evasion will prejudice the tax yield in the years to come. Shifting the domicile of a company in order to avoid paying higher taxes has caught on even in the EU’s small-business sector.

Root of all evil

Seen in this light, excessive public spending has been the root of all evil. Instead of focusing all its energy and resources on earning its keep through a vibrant economy, the government squandered too much revenue in the interests of its own aggrandizement. In order to keep going, it had to borrow more and more.

Now, money is, decidedly, THE problem and it’s a problem that will not go away. The EU is breathing down the Maltese government’s neck over the issue.

Things have reached a stage where this, or any future, government will have a hard nut to crack.

It would be futile to advocate a slash-and-burn approach to public spending, but the political difficulties that lie ahead cannot be underestimated.

Reform and retrenchment of the public sector, conceived as a long term project, might stand a sporting chance of lasting success if pursued on a broad base of public and political support. In the light of past experience, it seems that priority should be given to upgrading the managerial level.

In this polarised island, it is high time that politicians and trade unionists develop a cross-party, cross-community consensus on what needs to be done. There ought to be adequate recognition that public spending and public morality go together.

Moving further down the line, the issue of how to make significant cuts in State spending is fraught with political and technical difficulties.

Prime objective

One has to avoid the pitfalls of individualism as well as ideological prejudice against the public services. The objective is to restore the authority of the State by shrinking what it does. The State has to do a lot better by doing a little less.

The objective that calls for urgent attention is not the principle of welfare spending, but its abuse and its sloppy administration.

The existence of the welfare state is justified in terms of economic efficiency as well as social solidarity. A workforce whose welfare requirements are adequately met is more likely to behave responsibly as a so-called social partner. Industrial harmony is preserved.

Leading by example

There are specific areas where the government could lead by example. While it should pursue an overall commitment to reduce the reach of the State, it should be guided by pragmatism, not ideology. Deng Xiaoping once argued that, after all, all cats are black in the night. What matters is that they ought to catch mice. There are a number of government entities that never catch any mice and even seem to breed them!

Moreover, the government should see its role as regulator and guarantor of basic standards of welfare, as it looks ahead – but this does not mean that it should divest itself of its responsibilities in vital areas, such as the health sector, leaving a growing number of citizens high and dry.

The business of government should, forever, NOT be exclusively business. There are other concerns, like social stability and cohesion, the buoyancy of civil society and the preservation of the rule of law

It is true that if business does not enjoy the conditions in which it can thrive and prosper, many of the things the electorate and politicians strive for become impossible.

Once again, a balance must be struck. It is not, and it has never been easy, particularly when the government of the day finds itself hemmed in by political and business cowboys.

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