The most recent independent data on the Maltese economy and its environment has produced sombre news.

The economic and monetary directorate of the European Commission has just issued its latest two-yearly report and forecast that Malta’s GDP is expected to grow by a measly 0.7 and l. l. per cent in 2006 and 2007 – and this on the premise that private consumption is expected to grow modestly.

(The anticipated 0.7 per cent growth in 2006 amounts to a drastic reduction from the estimated 1.1 per cent growth forecast a few days earlier by Dr Lawrence Gonzi in his budget speech)

Within days, a Commonwealth Business Council survey, carried out in private sector businesses of all Commonwealth countries, ahead of the recent Commonwealth Business Forum, yielded similarly disappointing results. It emerged that Malta’s ratings indicated a decline from the 2003 survey. Most respondents viewed Malta’s future prospects “with concern”. It was pointed out that “companies consider that substantial foreign direct investment is needed to keep GDP growth, but there is uncertainty about the government’s ability to produce results. The government has issued adequate regulations, but implementation is perceived to be slow and/or ineffective”.

The sharpest declines were, in the respondents’ views, on efficient administration, effective government and infrastructure and corporate governance.

Independent assessment

It bears emphasising that all the above emanated from independent sources, far removed from the Maltese political hotbed.

The message they convey is that the Maltese economic engine is not working and the source of the trouble is in the sparking plug, which is the bureaucracy.

None of this is new for Malta. If anything, it confirms the fears and premonitions

in print from various quarters.

I recall a joint statement by Malta’s main business institutions, as far back as 200l, sounding the alarm bells after deliberating on the local financial situation. They did so following the release by the National Statistics Office in the middle of that year.

The Federation of Industries, the Chamber of Commerce, the Employers Association, the Hotels and Restaurants Association and the GRTU declared that “social benefits, public debt servicing and wages and salaries of public employees remain the main problem”. They observed that “it was to be expected, after the higher wages and salaries in the public sector implemented some months earlier (January) that expenditure would increase”.

Cause for concern

They added, “The situation is worrying because the government’s requirements could only maintain their present momentum through taxation Industry and business in general, and even the workers, are already being taxed at high rates. If these increase further, they will only serve as a disincentive for investment by employers, and can only be expected to reduce the will to work on the part of the workforce.”

This situation was leading the country to a lower level of competitiveness on the international market.

The five business institutions said they would have expected the government to start a programme eliminating waste, generally reducing inefficiency and trimming down, rather than increasing, employment in the public sector.

Perhaps, rather belatedly at that stage, they all affirmed that the country simply cannot afford to carry on ignoring the problem of spending beyond its means, and expecting the taxpayer to solve the problem through more taxation. This, they asserted, was “unacceptable”. This is how they stood on their collective battlements and unfurled their flags.

Government profligacy

“Fiscal deficit reduction would best be achieved through expenditure reform, rather than through further increases in the tax burden,” they insisted.

In making their stand, the business institutions took the narrow view and focused on the survival of their respective membership (by way of averting increased burdens), rather than on the survival of the economy.

They limited themselves to calling for a concerted effort “to put a halt to any unjustified wastage of funds on public projects and to any improvements in wages and conditions of employment, which could not be justified by increases in productivity levels, particularly in the public sector and State-owned enterprises”.

This appeal had a self-serving ring about it. Nevertheless, the need to reduce the cost of government was paramount on objective grounds.

Other voices had long been preaching in the wilderness, ahead of the business institutions, on this imperative. The corrosive “money no problem” philosophy, which had gained ground, was not conducive to frugality and, even less, to good government.

Crucial though it was, the stand taken by the business institutions represented the “narrow view” of the economic situation then prevailing. It concentrated on the invocation of tax relief. The “broad” view ought to focus on the creation of wealth. It is this source that has the potential to produce the lifeblood of enterprise and the sustenance of the business community.

Role of private sector

The “broad” view revolves round the fact that ever since Malta became independent, it was committed to earning its own keep by its own efforts. It could only improve and sustain its own standards by earning the foreign currency necessary to meet its needs.

In this context, the private sector provides the brawn. It has to create enough wealth to keep the economy going and to meet the requirements of the public sector in the process.

The public sector is the lung that pumps the air that invigorates the private sector. It does so by attracting investment, facilitating trade and regulating economic activity. Properly managed, the public sector should call on the minimum of the available resources, so that the rest could be employed on the production of wealth.

For a long time now, the government’s vision has paid scant regard to all this. It has concentrated on its own requirements, often at the expense of the private sector. It has commandeered excess resources for its own use (and aggrandisement), and did so by resorting to increased taxation and uninhibited borrowing.

A situation has now been reached where the private sector has been taxed practically to the absolute limit, while the government continues to spend in excess of revenue and plunges deeper into debt,

Obviously, the kissing has to stop. The spending spree

has, somehow to be arrested. The International Mone-

tary Fund proposed “expenditure reform” long ago.

The European Union has demanded a Convergence Programme.

Once the boil has to be lanced, shouldn’t all concerned, the government and the business community included, chip in to carry part of the burden in proportion to their potential?

In my view, Malta’s basic problem cannot be solved merely by “expenditure reform” and by trying to milk a cow, so emaciated that it has difficulty standing on its feet. A substantial part of the solution lies in finding ways and means to create new wealth.

There is nothing better than an initial blood transfusion for a patient who has been bleeding so profusely.

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