Irrespective of one’s political orientation, local politicians seem to share a common ground on at least one issue as the budget debate rumbles on in Parliament: they agree that Malta’s structural deficit and mounting debt call for sustained corrective action.

What such corrective action should be may be a matter of opinion. What is certain is that this topic is not the exclusive concern of politicians. Whether it should involve additional taxation, a reduction in public expenditure or other initiatives, all of this touches the electorate in the raw at many levels.

There is therefore a case for greater comprehension of the relationship between the nation’s hardware – the market economy – and its software, a pluralist society. It was the latter that enabled the former to function with creditable results in the best part of the 1980s.

The harmonious relationship between economic progress, largely based on market forces rather than State control and manipulation, and clean open administration, the rule of law, a free press and respect for civil liberties makes it possible for nations to survive in a world of cut-throat competition, This formula is based on the consent of the governed.

Bearing all this in mind, the corrective action proposed in last week’s budget speech has been questioned on a number of counts in some quarters.

Discarded options

Shouldn’t there have been less emphasis on raising the tax take, and more on the reduction of public expenditure?

Couldn’t the government have given top priority to round up evasive big earners before deciding to keep in place the crushing surcharge on water and electricity bills?

It is good to retrench wherever possible, but would it not be even more profitable to devote more attention to measures calculated to stimulate growth and increase Malta’s foreign earnings?

For reasons of the highest politics as well as of economics, it would be disastrous if the Maltese economic bloom were to wither.

If we were to look carefully at the statistics, we would see what is at stake. The average Maltese worker now lives longer than in the past. Literacy rates have risen and the route from primary school to university is now open to all. People are better housed. Thousands of working people, lifted out of pre-war poverty, now live in relative comfort as a result of upward mobility.

Obstinate imperative

This is what economic growth means. To sustain, and possibly enhance, these standards we must generate the necessary resources, mainly in the form of foreign earnings.

When Malta became independent and switched from a fortress to a market economy, we had to roll up our sleeves, strengthen our economic infrastructure, build the first hotels and attract new industries.

The economy was lifted from its agrarian knees and fortress status. Gradually, we started a process of transition from low-technology manufacture of cheap goods to a higher-value-added economy.

There is no going back now. There can be no stopping for a pause. The process of globalisation has, if anything, stoked the furnace of competition. Survival may bring with it glittering awards. Failure means depression and disaster. Growth has become an obstinate imperative.

The challenge

How best to meet the challenge? Trimming public expenditure and exercising frugality, and the imposition of tax levels, sufficient to keep up with the obligations of the State, have to do with housekeeping. And good housekeeping is the hallmark of any efficient State bureaucracy. Sound political administration is another sine qua non.

But the fundamental problem facing Malta is one of sustained growth. It began with the process of restructuring of the economy and has to proceed with the attraction of new export-oriented investment. It has to do with the provision of competitive incentives that would encourage investment to operate as profitably in Malta as elsewhere.

There has to be more emphasis on export promotion and on openness to world markets to ensure that Malta-based enterprises are fast on their feet, and able to find an available supply of labour capable of handling sophisticated technology.

Our living standards depend to a great extent on how productively we employ our resources and on what we are able to sell to the world, in terms of goods and services. In order to hold the ground we have gained, and to advance, we have to pass the test of competition.

The bottom line

It takes all the social partners working together to pass that test. They have to get round problems raised by restrictive practices, protectionism, State monopoly, hidden subsidies and vested interests.

The bottom line highlights the overriding fundamental concern that should be the focus of government policy: a coordinated priority programme to sustain economic growth.

This policy has to be so articulated as to reward private enterprise, incentivise investment, and tap new foreign earning opportunities. This would be a non-starter if the forward movement is suffocated by taxation.

Instead of concentrating first and foremost on a heavy programme of sustained taxation, the government would have been better advised to change economic and industrial gears.

As things stand, thousands of middle and lower-income earners have been set back to a significant degree by taxation. On the one hand, the heavy tax burden has undermined their ability to compete. On the other, it has eroded their spending power as consumers. Growth is of the essence if they are to survive and look to the future with hope.

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