The European Commission’s positive assessment of Malta’s efforts to reduce the deficit and control its expenditure is important for two reasons. First, it confirms that the government’s programme to put its finances in shape is working and, second, it means that the government can now start thinking about reducing, in a controlled manner, the burden on the taxpayer.

The austerity programme initiated by the government has not gone down well with the public, businesses and the unions. Yet, as the Prime Minister has repeatedly stated, if the country wants to move ahead, sacrifices have to be made. Fair enough, and this makes economic sense.

However, it is also a fact that in 2006 and next year, the government’s fiscal targets are expected to be reached; therefore the taxpayer deserves something in return.

The Nationalist administration is aware that it needs to ease back on its tax demands, and plans to revise the taxation system were recently made public. A team of experts will be presenting the government with their recommendations in June, in time for their inclusion in the pre-budget document.

Last year the government gave the social partners and other stakeholders a pre-budget document on which they commented and put forward their views and proposals for the budget. This year it will most likely be available in June.

Any reform of the taxation regime – both direct and indirect – is geared towards encouraging economic growth, increased savings, higher consumption, more investment and, possibly, removing barriers to female participation in the workforce. But above all these reforms should instil confidence in the taxpayer that the government is not only interested in filling its coffers. This is an important consideration. A heavier pocket also makes a happier voter.

The government, however, must be very careful before it starts giving freebies and huge tax cuts – even if a general election is not that far off, politically speaking.

The Parliamentary Secretary in the Finance Ministry, Tonio Fenech, made this very clear last week when addressing tax experts. The reforms, he said, had to be introduced keeping in mind the country’s ongoing efforts to control the deficit and keep it below three per cent of the Gross Domestic Product (GDP).

What the government has achieved over the past years cannot be jeopardised because an election is around the corner and the government has to be “seen” to be giving out goodies. If the government were to give in to the many demands that will be made by the social partners and unions, then the country will only find itself in the same position it started off … with a huge financial hole.

The government has to resist the temptation to “look good” in the eyes of the public who more often than not fails to see the full picture. Then again, you cannot really blame the public if a good chunk of the monthly salary goes to the government. Dr Gonzi has to find the right balance between easing the burden on the taxpayer and safeguarding the country’s fiscal status.

It will not be an easy task and come November, taxpayers will be expecting something tangible and that has a realistic and positive impact on their bank balance.

There are a number of areas that the government should look into that go beyond just a revision of the tax bands. For instance, the impact of taxation on the tourism industry needs to be addressed.

Is it the case that certain benefits for businesses are being cancelled out by unfair tax practices or procedures? Are women being given the financial incentives to return to work? Will these reforms be linked to reforms in pensions and the health system?

It has been a relatively good week for Dr Gonzi. The Commission’s positive assessment coupled with the proposed Lm110m investment from Dubai is excellent news for Malta.

Hopefully, the next budget will also be good news for the taxpayer and an improved financial outlook for the country’s economy.