Parliamentary Secretary Tonio Fenech was frank enough to confess the government’s concern about inflation, when he addressed a number off local journalists at a two-day seminar on the euro at Le Meridien St Julian’s last week.

He is reported to have come clean with the statement that this is the biggest obstacle to joining the euro-zone, although, in his view, the local situation is “not yet” alarming.

Even so, he disclosed that the government has appointed a core team, headed by the Prime Minister, to deal with the matter, adding that “all the options”, including price orders, are being considered.

He is reported to have said that “the government had a responsibility to ensure that the market was functioning”. Of course, if and when price orders come into play, the market ceases to function freely.

In the case of medicines, there was no talk about the need of price orders before the prospect of a registration tax was broached. Once this was proposed, there was disarray in the market. The proposal to consider price orders came next.

Scapegoats

The report on Dr Tonio Fenech’s séance at Le Meridien was given front-page treatment in another section of the local English language press. The punch line was that “the government is prepared to take decisive steps to bring down the cost of medicines in one of a series of measures to curb inflation”.

This approach seems to suggest that the importers of medicines are the scapegoats in that “they are not registering the generic medicines which open the door for importation”.

Dr Fenech alleged that, apart from rising oil prices, which nobody could control, medicines and certain food items were the biggest cause for local concern.

This approach is more deceptive than analytical.

All the data emerging from the Malta National Statistics Office and from EUROSTAT in Brussels reported, time and again, that the local increase in the rate of taxation is the highest in all the EU area.

Over and above the imposition of a stiff and unbearable surcharge on water and electricity bills, and repeated increases of diesel and petrol costs for motorists, there have been increases in Value Added Tax, taxes on travel, public transport, and a proliferation of higher fees, tariffs and charges too numerous to call.

Multiplying mechanism

Apart from having an immediate impact on earnings, many of these trigger a multiplying mechanism because increased costs are passed on to consumers. It is this that started the inflationary bonfire.

The government cannot have the cake and eat it.

Having been constrained by the EU to launch an austerity regime – which goes by the name of Convergence Programme – to make amends for the profligacy of the money no problem years, it cannot now retract without loss of face in Brussels. The squandered millions cannot be recouped except through a stiff austerity programme which is still ongoing. More taxation fuels inflation, which is the thief of earnings and may yet prove to be a barrier to entry into the euro-zone.

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No matter how much Dr Tonio Fenech can swivel to catch his tail, time lost cannot be recalled.

I reiterate the view that the seeds of Malta’s prevailing predicament were sown when the Fenech Adami administration launched a precipitate, politically-motivated, free-spending programme, designed to create a feel-good climate, in support of its EU membership bid.

Erratic past

In the course of that gamble, Malta was burdened with an enormous debt bill. Precious resources were squandered. Government finances went haywire.

Those who argued then that “tomorrow never comes”, are older and wiser today. They are coming to terms with their erratic past – but they expect the hard-pressed taxpayer to make good for their errors. They are now arguing that cruelty is crueller if we defer the pain.

They are “considering all options”, including price orders, and “decisive steps” to bring down the cost of medicine in a series of measures to curb inflation.

The most effective, initial step to solve the problem is for them to restrain their prevailing predatory mood, and to withdraw all tax measures with a built-in, multiplying potential. It is this virus that triggers the inflation fever.

Stiff and rising taxation plus inflation constitute too heavy a brew for ordered development. It stifles initiative as well as growth. Price orders are no panacea in this context. In the absence of timely remedies, inflation is a clear and present danger. On the other hand, if the market is not allowed to find its feet, the prospects of survival recede.

It is because of this dilemma, which is the offspring of past PN policy, that Dr Tonio Fenech finds himself tied in knots when clarity is of the essence.

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