Public spending is economically and socially vital. It is not an economic liability, as some nowadays claim.  Rising public spending has been part of economic growth for over 100 years and has increased substantially in past decades.  It boosts aggregate demand, creates jobs, improves productivity via infrastructure and public services, is an income redistribution tool, and delivers healthcare and public goods.

Since the 1960s, general government spending as a share of GDP has doubled in advanced and emerging market economies, reaching 42 and 32 percent of GDP in 2023, respectively.  In the EU, it was 40 percent in 2023, some five percentage points down from 2021, but the fall was largely attributable to a more rapid increase in GDP relative to the growth in procurement spending. 

In Malta, government spending grew by some 229 percent to €8.65 trillion between 2008 and 2024, compared to an increase of 89 percent in the EU.  However, those absolute figures hide an important statistic.  While public spending as a share of GDP in the EU has risen by 2.2 percentage points, that in Malta has fallen by 4.6 p.p. as GDP growth has outstripped higher government spending.

This trend is consistent with Wagner's law, which postulates that the public sector will grow faster than the private sector as an economy industrialises and a society become wealthier, requiring more public services, education, and regulation. I always shake my head when some business organisation or political party complains that government spending is too high, while both are also busy demanding more services, better regulation, and enforcement which in most cases can only be provided through further expenditure.

Of course, this does not mean that spending must grow irrespective of other economic realities.  If an economy is growing at a healthy rate, the case for increased public spending as a tool for economic growth becomes dubious.  In fact, it could even become counter-productive since the government would be appropriating scarce resources for itself and crowding out the private sector.  Arguably, we are currently in that situation.

On the other hand, austerity for the sake of reining in government spending is equally bad.  All too often, economic crises have been laid at the door of government deficits, when in fact such deficits were the result of the crises, not the cause.  Austerity policies many be appropriate when the fiscal situation is critical, like it was in Greece's debt crisis in 2009, but they damage the prospects for economic growth, rather than improving them.  This is because, in a recession, public spending has a consistent positive effect   ̶   increasing the spending power of poorer consumers, protecting employment, and providing direct support for industry.

Having said that, there is a case for reviewing public spending from time to time.  No one wants to see their tax euros wasted. The problem is that, in contrast to the private sector, many of the functions of government are not optional. They are required to serve the public and maintain vital services already approved by Parliament.  

So, cutting government is a tricky business for two reasons. The first is that a considerable proportion of the government's work nowadays is not conducted by civil servants paid by the government, but by local councils and contractors who spend tax euros.  Any honest look at efficiency would have to take a look at both as well as the civil service. The second is that if the cuts made are too deep, the disruption would be intolerable to many Maltese regardless of party.

People like to say they want less government spending but hate it when their favourite programme is cut.  Businessmen want support and incentives spending to be maintained or even increased. Senior citizens don't want anyone to touch Social Security or benefits. Most want law enforcement and health programmes to promote their well-being. Everyone wants clean water and reliable power grids.

The biggest portion of government spending is mandatory spending   ̶   money that goes directly back to the citizen.  This includes Social Security and healthcare.  Over the five years to 2023, health spending has risen by 57 percent to €1.0 trillion while social protection by 45.3 percent to almost €2 trillion. Can you imagine any government reversing this 49 percent increase?  Actually, one might well argue that we could afford more, because both as a share of total government spending and as a percentage of GDP, these two services have seen reductions   ̶   of 2.8 percentage points and 0.8 percentage points, respectively.

Another problem is that who gets these benefits and how much they get them is set in law. The health and social ministries cannot simply chalk up a lot of savings by cutting Social Security benefits or healthcare.  In the short term definitely not, because any unilateral spending reductions would have to be approved by Parliament.  Over the medium and long term, they have some leeway in not voting larger resources.  

Assuming that you can't cut mandatory spending (which is the 49 percent I mentioned), the savings could come from what is known as discretionary spending. One could tackle general public services, recreation, and culture, for example.  These cost €1.3tr a year, but even a 15% saving would yield just €197m   ̶   a mere 2.6 percent of total expenditure.  There isn't enough money in the discretionary pot unless one slashes education or other sacred cows. 

Cuts would have to be very deep to make an impact.  Say, we could cut the government workforce by half to 16,500, saving €635m over six years in the process. These are the people who send you your pensions and benefits, teach your children, fight crime, care for you in hospital, and provide a thousand other services.  A large proportion of them are educated and highly skilled.  DOGE tried it in the USA and failed miserably.  Artificial intelligence could someday replace some of these people but right now that seems unlikely.

I suppose we could fire Professor Charmaine Gauci and leading virologist Chris Barbara, whom most people consider as heroes from the Covid days.  It would certainly satisfy those who have succumbed to anti-vaccine conspiracy theories. Or we could dispense with Ms Anna Calleja   ̶   after all, all she does is bring sports to people with disabilities!  I am sure there would be a huge uproar.

So how do you cut government? With a scalpel, not an axe.  Rather than dispense with people as if they were objects, why not "reinvent" government?  There is no doubt that a thorough review department by department would reveal waste, duplication, and hundreds of superfluous regulations. For example, why does the Police Conduct Office need to post my Good Conduct Certificate even if I order it online?  Why can't I simply download it?

The latter example is a minor one.  But it pales in comparison with the huge maladministration of public funds.  Consider that the National Audit office reported in its latest audit that the government is owed €5.9bn in arrears deemed as not collectable - that's €1.7bn more than five years ago and would have wiped out 60 percent of the public debt had they been collected.  Other examples include a €750,000 publicity campaign by the Department of Fisheries and Aquaculture and over €500,000 for Planning Authority giveaways, flagged by the NAO as unnecessarily high.  Does the PA really need to give developers Christmas give-aways considering what they get away with in the ordinary course of business?

The Government regularly overpays people in wages and benefits, sometimes without those concerned being aware of it.  It even sends out cheques to the dead, though it has to be said in its defence that it doesn't send them to their Addolorata Cemetery address.  Why does this happen in this day and age, when e-verification systems are available?     

Estonians have been living with a digital ID system that is a model for the world for over two decades.  Their IDs are connected to a network of 600 public services and a commercial sector of 2,400 businesses. According to a government report, the ID system is saving the country an annual amount equal to 2 percent of the country's GDP.  We have e-IDs in Malta too, but many people do not have a digital ID and rely on manual or in-person interaction with the various government services.

If we really want to effectively and significantly reduce bloat and wasteful spending, we need to adopt a zero-based budget.  The current system of incremental budgeting ignores economies of scale, is unnecessarily inflationary, and misses opportunities to reduce spending. On the other hand, zero-based budgeting enables ministries to align with strategic goals, control costs better, achieve greater accountability, enhance collaboration with other ministries, and justify expenditures based on project or programme drivers.

A good number of people shrug off the idea of cost-cutting, arguing that finding waste in discretionary government spending is like bailing water out of a sinking ship with a teacup. They're missing the point.  The truth is that politicians spend large sums, much of them borrowed, on things that most of us wouldn't support if they knew what was happening.

Imagine telling a family burdened by debt that it shouldn't bother cancelling unnecessary expenditure such as having their food from the store next door by Bolt, or not playing the Super 5 lottery because "the real problem is the bank loan." It's as bad an argument when applied to household budgets as it is for the government budget.

Every grant, redundant committee or commission, and special-interest handout is either a current or future tax hike. This applies to both obvious waste and debatable investments.  At the end of the day, every million spent by government is a million taken from the pockets of today's taxpayers or added to our debt.