The drastic increase in the surcharge on water and electricity and the 3c excise duty on fuel announced by the government on Monday is not easy to digest. Faced with an estimated fuel bill of Lm64 million next year, the government had no option but to somehow finance the massive hole in Enemalta Corporation’s accounts.

Two weeks ago, Industry, Investments and IT Minister Austin Gatt had made it clear that the rising price of oil had created a situation that was not of the government’s making. The country’s fuel bill had to be paid - the only problem that needed to be sorted out was how to divide the burden equitably.

The solution presented by the government on Monday comes in the form of a 55 per cent surcharge on water and electricity and a 3c hike in excise duty on unleaded petrol and lead replacement petrol. The surcharge will however go up by 1.1 per cent every month for two years, bringing the total surcharge to 84 per cent.

Speaking in parliament on Monday night, Dr Gatt said the government had chosen a solution that represented an equitable distribution of the problem between the various sectors of society, including the government. In fact, the government, through Enemalta, will cover Lm31.2 million of the fuel costs for next year without resorting to any form of new taxation or new government loans.

The remaining Lm33 million will be collected from consumers in the form of the 55 per cent surcharge and new excise duties on petrol. The surcharge will be revised every two months, while the price of petrol will be revised every month.

This makes sense but, to be critical of the government, this system should have been introduced way back in January this year. If the government had revised the surcharge on a monthly basis, as it does with motor fuels, the increases announced on Monday would have been certainly more palatable because the consumer would have received minor shocks over a longer period of time.

The government seems to have taken note of what the social partners suggested during the Malta Council for Economic and Social Development meetings and it has tried to achieve a fair balance between the needs of the country’s competitiveness and the obligation for social solidarity.

The stark reality is that everyone in this country now has to dig deep and tighten the belt. There is no doubt that the consumers’ purchasing power will be reduced considerably. Taxpayers and economic operators will now be assessing the impact the increases will have on their pockets.

The government said on Monday that the cost of living increasing given in January 2006 will compensate for the projected impact of the increases on the people next year. Although this is good news for the consumer, employers and industry will be keen to assess the effect this measure will have on competitiveness and on overall expenditure. Larger industries in Malta can expect to pay more for their energy consumption next year because the cap introduced last year in favour of heavy consumers in industry and tourism has been increased by Lm16,000 to Lm21,000.

As the Federation of Industry said on Monday, the real impact of this measure will only be seen after the budget. To make up for what will inevitably mean higher costs all round for industry, the government will be providing fuel in the form of Gasoil at the same price as diesel but with a 6c3 rebate per litre. Enemalta has also decided to reduce its profits on diesel by 66 per cent. Both these measures should help to mitigate the impact on industry.

The increases also have to be seen in the context of what Prime Minister Lawrence Gonzi will announce in his budget speech on Monday. Even though there are indications that the economy is showing signs of revival, it remains to be seen what impact the surcharge and increase in the price of petrol are going to have on the economy in general, and the consumer and industry, in particular.