The expected increase in Minister Austin Gatt’s utilities tariffs is what the Opposition Leader had rightly referred to as the “Budget Number Two” in his reply to the Budget speech by the Finance Minister in late November 2009.

I had already written in this column, shortly after minister Tonio Fenech read his “stimulus package” in his official budget, that the initial chorus of approval by an identified majority of the constituted bodies would eventually die out as soon as the utility tariffs became known to all. True to form, the Nationalist leaning media singled out the PL as being too negative about the Budget and that this attitude isolated it from the rest of the world. But the mascara always wears off after an initial while of visual seduction.

Indeed, my friends at the GRTU, the most representative of the constituted bodies that assist that sector of business that falls directly under my political remit, had expressed themselves too quickly and too optimistically on budget number one.

“We are pleased Government gave utmost consideration to most of the proposals and strategies recommended by GRTU in GRTU’s pre-Budget proposals package. This Budget is also different because it has voted money in the areas our economy needed most, such as creativity and innovation, education and training, alternative energy and promotion of new technologies, among others.”

To be fair – only towards the end of its longish press statement – the GRTU expressed some concern about the expected hike and limited itself to recommend “that before they (the tariffs) are imposed a more reasonable structure is introduced and new support schemes and initiatives are implemented.” But the general thrust of the PR was that “Budget 2010 represents an important turning point.”

Dr Joseph Muscat was proved right. Just like the rest of the constituted bodies, the GRTU rushed to issue another PR shortly after the new revision of the utility tariffs was launched at Christmas time. Look at what it had to say now – “the revised water and electricity rates make Malta’s tariffs the highest in Europe and will result in a 49 per cent increase for businesses” – adding that such high tariffs, announced a week ago, would force many businesses to raise prices, lay off workers or even shut down, and that “the GRTU would support any action at the level of the Malta Council for Economic and Social Development that demonstrated solid objections to these tariffs.” (Times of Malta, 22 December).

So much for the micro-credit scheme and the e2.5 million support scheme announced in Tonio Fenech’s budget number one. It seems that now they are of little added value compared to the lethal effect of budget number two that, in the words of the GRTU chief, will shut down businesses and lay off workers. Also the tariffs will be implemented long before the credit schemes, which were the GRTU’s wish, will ever see the light of day, if ever they see any light at all considering past experience. ‘Prosit’ Joseph Muscat for your vision.

Of course the writing is now clearly on the wall. Previously no one could really fathom the effect of budget number one without factoring in the increase in the utility tariffs of budget number two. I think this is exactly what Joseph Muscat said in his Budget reply and what is exactly happening as I write. Again, ‘prosit’ Joseph Muscat for your vision.

The burden of the revision will be largely borne by private businesses. This will not only affect those sectors, namely manufacturing and tourism, which benefited from the capping mechanism, but also small businesses. Private businesses will see their outlays rising by e51.7m over the April 09 tariffs and by e34.3m over the October 08 tariffs. This increase will dent profitability and adversely affect competitiveness, especially in the tourism industry, but also in manufacturing and other sectors, as utility rates for industry will become the highest among EU countries by an increasingly significant wide margin, to almost double the EU average for the first half of 2009.

Apart from the negative impact on competitiveness, and hence on economic activity, the rise in utility rates will affect inflation. Given that the latest increase will mostly affect business, although directly also households and hence the Retail Price Index, other indirect effects on inflation are likely to emerge given that business will be significantly impacted.

But all this is not enough. Many small businesses will see their MEPA fees increase this year and hotels will have to absorb the new bed tax if they are to remain competitive, when their competitiveness is already severely undermined.

With budget number two the chickens have now come home to roost.

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