Monday was Budget Day but it has been and gone, with very few solutions – particularly for solving our debt problems. Still, what can a cash-strapped minister do when faced with so many demands on the national purse, given the recession that is brewing over the horizon? The country is more fixated on the blotched national bus reform – which has monopolised our thoughts and aspirations – rather than the budget speech (which happens to have been longer this year).
The Finance Minister reminds us how fortunate Malta is to have been spared the austerity measures that are hitting other countries. Malta is so lucky to have been able to avoid cuts in public sector jobs – while the entire public sector maintains the three-month summer half-day job routine (as if the world owes it to us). Ask the man in the street about the horrors of Greek or Irish austerity measures and he/she will coolly reply that while they sympathise with the people; it is not our problem. We do not need to feel contrite for our sins of the past decade – principally the profligate way we have continually lived beyond our means (ie, borrowing to finance our deficits until the cows come home). Some blame the euro for our acquired taste of profligate living. The promise of easy living across the eurozone and the transparency of pricing that permits price bargaining was wired into our psyche so that we believed that joining the euro would lead us to the pot of gold at the end of the rainbow. That part was all fiction, although quite honestly Malta did gain generous funds from the EU which, together with our co-funding, helped us in no small way to begin caring for our environment and improving our roads infrastructure.
Back to the budget, Lino Spiteri (a highly respected economist and finance minister under the last Labour government) said: “Overall, in social terms, it’s a positive budget, in particular with regard to small businesses and measures regarding the family, which are welcome. In economic terms, there are new measures to help small businesses but in the macro (general) sense, there is not enough emphasis on direction. As regards the forecast of revenue for 2012, this seems to be overly optimistic under various headings.”
Obviously this was a general comment by Mr Spiteri, since what can be considered optimistic in these times of acute financial uncertainty is anybody’s guess. To start with, one can pontificate that if Greece and Italy overcome their fiscal problems with effective discipline – albeit achieving marginal growth levels – then our budget prediction of reaching a generous 2.3 per cent growth looks possible, considering that in 2010 we chalked up a 3.7% growth rate.
The dark side of the equation is what happens if Greece’s coalition government falters, as it is likely to do, and Italy stumbles – as is quite possible, given the political tensions and fractiousness in the Italian parliament. In the event of this, our prediction of achieving double the average eurozone growth looks like pie in the sky. It looks like pulling the proverbial rabbit from the magical hat and smacks of eyewash – knowing so well that the grey clouds are billowing across some European economies. As I write, there is an urgent meeting in Berlin between Chancellor Angela Merkel UK Prime Minister David Cameron to discuss the overtly sceptical views of the British against the euro and the control of economic and social matters by the bureaucrats in Brussels.
Ironically, our budget seems too optimistic, given the dire circumstances governing the states who receive our exports. Party apologists warn us that throwing caution to the wind may be a risky act, so it is better to be more cavalier in our projections and in turn boost the morale of the party faithful. Prudence, on the other hand, would demand a budget on the basis of conservative growth. Why not take a cue from the debt-laden countries that are already sinking into recession with important markets such as Italy and the Netherlands shrinking? Quoting the Eurostat data agency has predicted that the 17-nation currency area logged a 0.2 per cent growth between July and September – no change from the previous three months. Meanwhile, the Greek economy shrank by 5.2 per cent in the third quarter on a 12-month comparison. The extent of the contraction highlights the strain being felt throughout the Greek economy and society, as the country heads makes a new effort to reform public finances and launch a debt rescue under a new coalition government. Its new government, headed by a technocrat, may not last long and next year may face the stiff test of a vote of confidence.
Times are hard and the last bailout deal included a 50 per cent haircut for Greek banks which, on its own, could cripple any one of them, further exacerbating the social tension among the electorate. Looking at the wider perspective, we note in figures released in September that in the quarterly estimates for the 2005-2011 period, a shrinkage in the first and second quarters has been revised to 8.3 per cent and 7.4 per cent respectively, compared to 8.1 per cent and 7.3 per cent. At best, the Greek government expects the economy to shrink by 5.5 per cent this year compared to a 2.3 per cent growth in Malta.
Again, this begs the question of why Malta is not in surplus if it has bucked the trend of contraction for the past three years. Can we blame the euro for our inability to balance the budget, for continuing to end up in perennial annual deficit, notwithstanding increases in tax revenues/amnesties? Could it be that we have not trimmed the hedges and cut the overgrown weeds in our financial garden brimming with the blossom of over-run state expenditure? Now that servicing costs on accumulated debts is a fact of life, we cannot expect lower taxes or subsidised energy charges in the 2012 budget proposals when our national utility company Enemalta is saddled with millions of accumulated debt (all guaranteed by the state).
On the positive side, we read about the exemplary growth in tourism coupled with record arrivals of cruise liner passengers and a healthy increase in exports, all blessed with the lowest unemployment rate in the Mediterranean. We realise this is a surreal dream when we wake up and are officially informed that the intransigent deficit will not go away and this year, again, we have to borrow another tranche of €100m by issuing local bonds to make up the shortfall. If 2011 was such a record year, then why is our budget not a balanced one? It is little comfort that we will reach the Holy Grail by reducing our deficit slightly below the three per cent Maastricht threshold. Party apologists remind us to thank heaven for small mercies and rejoice that other Mediterranean countries are facing record unemployment, reduced exports, higher VAT rates and cuts in social security benefits.
Take the UK – a country that never wanted to join the euro as it proudly flies the bright colours of the Union Flag and basks in the shadow of its former glory. The UK is closely approaching its highest ever rate of unemployment (up to nearly 2.8m, mainly youth unemployment) and in the summer saw rioters and rebels burning houses in the streets of its main cities. Chancellor of the Exchequer George Osborne has produced a tough budget, cutting public services and armed forces jobs with a view to reaping savings in national expenditure. It takes nerves of steel for the Chancellor to press ahead with reforms to cut waste in the public sector and bail out shaky banks while all the time trying to stimulate the economy so that it does not fall prey to a home-grown recession.
But the lure of low interest rates has encouraged governments to borrow their annual shortfalls without too much concern that they are dooming a future generation to work hard to replay such largesse. Productivity has plummeted in the UK, while the euro is being blamed for Sterling’s sluggish growth. Prime Minister Cameron said: “Clearly, what is happening in the eurozone is having a bad effect on the British economy and on other economies in Europe. The greatest stimulus we can give the British economy is to show the world that we have a plan for dealing with our debts and our deficit that keeps our interest rates low, and right now Britain has the lowest interest rates it has actually had since the Second World War. In Britain, one recent poll indicated that as many as two-thirds of Conservative voters want the UK to leave the European Union.
To conclude with the Malta 2012 Budget, it looks more fact than fiction when one considers the main proposals and the added drive to help small businesses invest and generate new jobs. Congratulations are due to Malta Enterprise, which recently commissioned a survey to identify which services small businesses expect to receive from a one-stop-shop. This is part of a new law – the Small Business Act – that aims to make life easier for businesses and tries to reduce the amount red tape. It hopes to combine all the services, support and schemes offered by Malta Enterprise with the setting up of such a one-stop-shop. If the 2012 budget can secure this initiative, then it is a factual one (not fictional) as it will help foreign investors move to Malta with the establishment of a single point of contact.
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