When recently the NSO issued the fiscal position for the first seven months of 2009, the PL had expressed its concern that the fiscal targets were significantly off the mark. This did not concern solely the fact that the fiscal deficit had ballooned to almost e370m in the first seven months of 2009, or 30 per cent higher than the comparable period of 2008 – almost four times far off the fiscal deficit target of less than e100m aimed for in the last Budget – but concern was also expressed specifically in respect of developments in capital expenditure.

Indeed the government had planned an increase of almost e75m or 52 per cent in capital expenditure in the last budget for this year. But in the first seven months capital outlays grew by only e6.5m – which includes the e5m subsidies to wages of companies operating on a four-day week basis, which the government rightly provided to industries in difficulty. This slow rate of increase in capital expenditure, which is a far cry from that planned in the Budget, is inextricably linked to the government’s failure to utilise EU structural funds to finance capital projects.

Indeed, while in the last Budget the government had projected an increase of e55m in revenues emanating from EU funds, in fact there was only a miserly increase e0.2m.

Moreover the moribund Gonzi administration absorbed only e13.5m EU funds in the first seven months, which was far outweighed by Malta’s contribution amounting to about e35m, thus continuing to be a net contributor rather than beneficiary.

To be fair these funds are not lost. However the timing when capital projects are undertaken is extremely critical. At a time when the economy is contracting by more than three per cent fiscal support is extremely necessary to partially cushion the severe economic downturn. Increasing government capital expenditure, provided that such expenditure represents good value for money, without excessive overruns arising from inefficiencies, incompetence, or worse still corrupt practices; and is made on projects that are truly beneficial and yield a return to the economy; is always commendable, and highly so when the economy is experiencing a severe downturn, as was the case in the past nine months.

The EU Commission had commended the government for its stimulus plans precisely because these supposedly hinged on a significant increase in capital expenditure, which in theory should have a more favourable impact on economic growth than other kinds of expenditure-based stimulus.

However, the Nationalist government has once again shown its inability to deliver the goods, and failed completely in implementing the promised rise in capital expenditure which this year plummeted by 26 per cent, and to levels seen in 1994 – some 15 years ago. One cannot escape the fact that the international recession has had and still has a negative impact on investment Europewide. But in the Euro Area investment has only retreated to 2005/2006 levels.

This severe decline in investment clearly has negative implications for Malta’s growth potential. The Prime Minister and his finance minister failed to at least partially compensate by giving the much needed boost they said they would a year ago in the budget. Such results are hardly a testimony for the minister of finance claim, in his concluding remarks during last year’s Budget speech, that the Budget for 2009 was consonant with the government’s strategic direction of sustainable development. This is the absolute triumph of form over substance.

DR GAVIN GULIA LL.D., M.P.

(Dr Gulia is the Opposition’s Main Spokesman on the Economy and the Self-Employed)