Although we are in mid-summer, the preparations for next year’s Budget have already rolled off.

As we report in today’s issue, and as reported in the media last Friday and Saturday, Minister Edward Scicluna last Friday presented the pre-Budget document which will be discussed over the next weeks by the social partners.

Of course, besides the Maltese counterparts, this time especially, there is another very interested interlocutor – the European Commission, since Malta is under an Excessive Deficit Procedure programme.

When the Commission lifted its EDP on many Member States, and while other Member States remain under the EDP, Malta was the only one to re-enter the EDP whence it had emerged (prematurely, as it turned out) last year.

Given this is only a discussion paper, one still has to wait and see what the outcome of these wide-ranging consultations with the Maltese counterparts and the Commission will result in. Then one has to evaluate the Budget itself when it is announced.

So far, the accent seems to be on continuity and fostering growth.

In effect, this seems easy but it is not easy at all. The government finds itself between a rock and a hard place. On the one hand, there is the Commission which insists on Malta moving back to the virtuous path of a deficit under 3%. On the other hand, there is some evidence of a slowing down of the economy, possibly due to national electoral fatigue, possibly due to a perception that the deficit has grown rather than decreased.

The new administration tried to argue with the Commission that an election in Malta is like a bout of recession but the Commission was not having any of that. So the only way forward for the government is to foster growth. That is what all countries would like to see and fortunately enough the recession in Europe now seems to be ending, as we report today.

There exist areas where growth can be achieved.

This government has come up with an idea that growth can be stimulated through increasing money in people’s pockets. There is no doubt that the past years saw many families struggling to keep up with normal expenses. The government has thus committed itself to a huge 25% cut in energy rates as from next year, whatever this will do to Enemalta’s finances.

The problem with this approach, as this paper has so often remarked, is that it may well spurt a consumer expansion but this will ultimately see more money flowing outside Malta, since most of our consumer goods are imported.

Other growth can be derived from increased tourist numbers and hopefully from the new foreign residents’ scheme now that this government has revised and improved it.

The real problem still lies in government finances which has seen a huge increase in personal emoluments, mostly, as the minister himself said, as a result of last-minute collective agreements signed by the previous government on the eve of the election.

The minister, and his government, have further boxed themselves into a corner by refusing to consider any form of cut in expenditure, by refusing to consider any more privatization and by rather downplaying combating tax evasion, which is widespread. The government has also committed itself to put in practice the tax changes promised by the previous administration and is working on a pension reform plan.

The minister seems to rely on the Spending Review Unit to curb excesses in public expenditure (where fat cats on contracts have been eliminated) and on tinkering with the annual reporting time frames of the various departments under him, as well as on constant monitoring of government finances. Will this be enough?

This is an ageing population which has reached the outer limits of its growth some years back. To try and squeeze more growth out of it requires either an increase in the working population, or developing some new growth avenues. There is some lee-way which may contain growth but they all seem to come at a cost: the 70,000 unused residences can still become economically productive; more people working may mean more people coming to work in Malta or more women going out to work; more people wanting to become developers can find an easier Mepa to deal with and more land to consume.

There are, however, other and more sustainable ways and this government would be well-advised to seek them rather than smart ideas which turn out to be duds. There may be some future growth in manufacturing, for instance, but the glut of dead and empty factories in the industrial areas should warn that only those with upmarket products to make can be really worthwhile following. As a nation we have found some avenues of growth that have become highly remunerative, such as online gaming, financial services and the like. But even here, one senses the rate of future growth seems to be leveling off.

In the end, however, what should matter most is controlling expenditure and, if possible, bringing it down. The government disregards this at its peril.