J. G. Vassallo

When the House of Representatives comes round to debate the next budget later this month, the debate will be ahead of normal schedule for the sake of convenience – namely to clear the deck, before the impending Commonwealth Prime Ministers’ Conference come November.

Observers of the local scene will assess the proceedings in the light of two special considerations:

a) This will be the first full year of Dr Gonzi’s tenure of the Finance Ministry. His performance will, therefore, be under particular scrutiny.

b) The budget will be presented practically two full months before the end of this year, and estimates on this year’s performance will be more “speculative” than accurate.

The latter consideration will weigh heavily on all Gonzi watchers because his record, since taking over from his predecessor, is that of a Prime Minister who is never in doubt but often wrong. He is the man who assured the electorate that he would introduce a new style of government and affirmed repeatedly that the economy is “on track”

His poorest record is in the management of public finance and control of public expenditure.

January-August performance

Only this month, the National Statistics Office released the latest data on government finance covering the first eight months of this year. It has transpired that the Gonzi administration is hell bent for leather and spending well beyond its means.

Briefly, recurrent revenue for the first eight months of 2005 amounted to Lm530 million – an increase of Lm6l.5 million over the same time-span of 2004. This extra bite did not satiate the government’s voracity. It spent well beyond its means. During the eights months under review, total expenditure peaked up to Lm62l million, or some Lm 40 million (6.8 per cent) more than total expenditure incurred during the comparative period of 2004.

The government flew in the face of the Convergence Plan submitted to the European Commission, with a view to reviving an exhausted economy, which has been relying heavily on public borrowing. Unmindful of its commitment, the government borrowed a further Lm59.5 million. Malta’s national debt, at the end of last August, 2005, now stood at Lm1,410.6 million!

This performance suggests that the Gonzi government has been cocking a snook at Brussels.

In its first opinion on the update of the Convergence Programme submitted by the Gonzi government, the commission made emphasis on the absolute need to focus on measures essential for Malta’s long-term financial sustainability. The objective was to reduce the general government deficit, to achieve budgetary targets and to rein in public debt, which was running out of control.

EU Commission’s estimates

On the basis of data available to it, the EU Commission declared that government debt was estimated to reach 73.2 of GDP in 2004, up from 70.4 per cent of GDP in 2003. According to this programme, the debt ratio “should fall to 72 per cent in 2005”.

The programme went haywire. The National Statistics Office has just announced that government debt, as a percentage of GDP in 2004 stood at 75.88 per cent — a sizable 2.5 per cent in excess of predictions. None of this has been highlighted in the local media – but the Malta government has had to draw up a report to Brussels on government debt and deficit levels, in terms of the Code of Best Practice adopted by the Ecofin Council of 18 February, 2003.

Unpalatable as this may have been, it does not appear to have sobered up the Gonzi Cabinet.

During the first eight months of this year, the government has exceeded last year’s comparative performance, without batting an eyelid, both in terms of total expenditure and public borrowing.

To be often wrong, but never in doubt in Malta’s political circus is one thing. To play ducks and drakes with Brussels is another. To do so when you anticipate joining ERM II in the near future, borders on the dramatic!

When Dr Gonzi presents his budget, he will be standing at the bar of international public opinion, where he will be judged on the merits of his real performance, and not on airy-fairy anticipations.

It is the EU Commission that has to be left in no doubt about the Malta government performance, not Dr Gonzi.

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