This now famous phrase coined by James Carville for Bill Clinton’s 1992 presidential campaign has become the exasperated utterance addressed to politicians when they get caught up in their own world forgetting the fundamentals that finance all their policies. Another of the slogans for that same campaign, that had successfully elected Bill Clinton to President of the United States of America, was “Change vs more of the same”.

The slogans that were so relevant to America in 1992 are immensely relevant to Malta today. We are the citizens of this country and we are the electorate and we are being short changed.

What we are getting is largely lip service to “change” but in practice “more of the same”. 

I read with interest the myriad articles being written on the economy and more recently the budget. I think that we have all been having a more or less civilised debate, leaving aside the partisan newspapers and media. The parties are also pulling their punches making much ado about micro management and not so much ado about the economy and where it is going. We are all trying very hard to get on, which is laudable.

Unfortunately it is not getting us anywhere very fast. The benign billboard theatrics are now irritatingly irrelevant (although the one of the PL leader in the guise of Fred Astaire was particularly amusing). The appeal of politicians, competing at who is the true champion of the sick, the underprivileged, the poor, the underdog, the meek and the humble, has lost its charm. Let us not be afraid to say that this grouping does also include, hopefully, a low percentage of undeserving causes and system abusers.

We all believe and support the principle that the government should be there for persons in need and that is a sine qua non. Having established this point we can now move on to state the obvious, which is that whatever policies and projects are being proposed, these need to be financed. In order to achieve this, projected government revenue needs to be credible and achievable. Revenue comes from taxes, duties and licences. Leaving aside the minority who live off their investments, this revenue is totally and exclusively paid for or financed by employers and the self-employed.

The latter, sometimes maligned, category of people pay income tax, Vat, duties and licences directly and also pay the wages and salaries to other persons who then pay income tax, Vat, duties and licences. This private business sector pays for everything and would be poorly defined as the backbone of the economy because this sector is the economy.

There is a European and worldwide recession, a eurozone debt crisis that governments have first created and then exacerbated by their ineffectual management of it, rising EU unemployment and contracting economies and we still think that all this will not affect our economy and our lives. The private sector, the economy, is waiting for a competent and sensible economic policy for the future and so far we have only heard more of the same. These are extraordinary times and what is needed is a different approach to the entire issue.

We have a budget that projects, on average, a 4.5% increase in GDP. As a consequence of the latter we then conveniently have a decrease in the “debt to GDP” ratio although debt is planned to increase in the next three years by €600m from €4.6b to €5.2bn. The annual interest cost to the country is then necessarily to increase by €44m from €212m to €256m. Tax revenues are projected also using the estimated GDP numbers and as a direct result tax revenues are also estimated to increase year after year.

We can begin to understand that the entire budget is extremely GDP sensitive. This means that should the country have a lower GDP than anticipated this would immediately, dramatically and negatively affect government finances. Government would be forced to either increase debt or taxes.

The critical question therefore is... on what basis is the GDP projected to increase year after year?

What is there in the budget to justify this optimism when one considers the current European and worldwide economic environment?

We should not be too complacent about the future. The debt crises, unemployment and contracting economies are the nemesis of European spendthrift governments. Malta need not end up like Greece, Cyprus, Ireland, Portugal, Spain and Italy. However this will also be Malta’s destiny unless we have a concrete plan to avoid it.

David Marinelli is CEO of Portman International – the Financial Services Group