A few weeks ago, we commented editorially that balancing the budget will be the biggest problem for the government. Tonight, we will know whether the government has found a solution to the country’s financial problems and, at the same time, be in a position to announce measures and incentives that ease the burden on the taxpayer, increase the consumers’ purchasing power, stimulate consumption and, in consequence, lead to economic growth. But this is only one side of the coin. We will have to see whether local industry and businesses, struggling as they are to remain competitive and increase productivity, will be given the much-needed boost they deserve.

Looking at the situation as it is, striking the right balance is not going to be easy. The government can decide to ignore the plight of the taxpayer and industry and focus its efforts on plugging all the financial holes. That is not so difficult to do. An across-the-board increase in taxation or in value-added tax will easily bring in enough revenue to balance the deficit.

This solution is not, however, likely to make it into the Prime Minister’s budget speech tonight. At the other extreme, it is also highly unlikely that government is in a position to hand out tax deductions and mete out financial goodies without breaking the proverbial back of the nation’s coffers and reneging on its promise to Brussels to reduce expenditure, cut down on borrowing and reduce the structural deficit. Something has to give… but what?

What can we really expect in the budget?

The starting point for any analysis, TMID believes, is the increase in the water and electricity surcharge and the rising cost of petrol. Whatever the government announces today will be a reflection of the impact the international price of oil has had on the government’s finances. Dr Gonzi, who will be wearing the finance minister’s hat this evening, will have taken into consideration the burden imposed by the new surcharge and rise in petrol prices. Both industry and the public are going to be negatively affected by last week’s announcement, so it will be up to the government to somehow ease the burden in the measures it introduces next year.

The social partners have made it clear that the taxpayer must receive compensation for the anticipated rise in the cost of living. We agree with the social partners – the unions mainly – but we have to be conscious of the importance of industry in the overall equation. A hefty increase in the cost of living adjustment will only put more pressure on employers and industry and, inevitably, more costs. The increases given in January have to be balanced by incentives to encourage investment in industry and, if possible, reduce some of their costs. The economy will not grow if industry and businesses are brought to their knees because of the cost of living adjustment. The unions and employers never see eye-to-eye on this issue but, for the good of the country, they have to understand that the economy comprises many elements that have to work in tandem and not independently of each other.

What we expect to see in tonight’s budget is a balancing act between the government’s financial obligations and its duty to encourage growth and social solidarity. It must continue to cut down on wastage in the public sector, unnecessary expenditure across all departments and ministries, and greater accountability in its operations. From a fiscal perspective, there must be improved efforts to tackle VAT and tax evasion. Those who are abusing the system must be made to pay. This is not rocket science but basic economic and financial housekeeping. The working and middle classes are paying enough. The government must focus on the reforms – in pensions and health, for example – necessary to boost the economy without having to increase the revenue generated through more taxes.

Tonight we will see whether the government has a solution. Time is running out for the Gonzi administration. We hope that Dr Gonzi and parliamentary secretary Tonio Fenech had a stroke of genius when they wrote the budget speech.