Over the past weeks we have been through an idyllically bountiful electoral campaign where the two main political parties are competing on what they are going to gift the electorate. This with a special emphasis on direct or indirect cash benefits to the individual. Despite the fact that on an individual level this seems attractive, if these measures are truly implemented they will cost the electorate a lot, especially on a long-term basis.
State of the economy
We have been hearing continuously from both parties that the economy is at its best ever performance. In terms of national income (GDP) it is true that the economy has registered the largest ever national income in the past year. However, GDP is only one indicator of economic performance. Employment, Inflation and the national debt are other indicators which tend to be ignored.
As regards employment, it is true the economy is performing at full employment: i.e. there is practically no unemployment. However, what about the quality of the jobs being performed? What about the value added that is being created? A quick analysis would result that the increase in employment, which is enlarging the GDP, is coming from low-skilled tasks: hospitality, food delivery, taxis, construction and other menial low-skilled jobs. We all know the way quality of service has decreased everywhere. In other words the inputs being made to increase the GDP are numerous with each of them leaving a trickle in the national income pot. It would obviously be more desirable to have fewer jobs with each individually contributing more to our national income.
Inflation, alternatively described as "cost of living", has nearly never been mentioned during this electoral campaign. It has been spiking up considerably over the past few years. 2021: 1.5%; 2022: 6.15%, 2023: 5.09%; 2024: 1.65% and 2025: 2.4%. This tallies to a whopping 17% over the last 5 years. It seems both political parties are happy with this since, not only they are not taking action to correct it, but are further augmenting it through tax cuts, direct payments to citizens and other injections by means of government spending. In lay man's terms one may look at inflation as a patient suffering from diabetes whose blood sugar is on the rise. The government, instead of giving medication and restricting the consumption of sweets and cakes is telling the patient: "Don't take your medication and each as much pastries as you wish." The patient obviously likes this advice but deep down he also knows that in the long term such attitude will kill him very soon.
The national debt is another issue which is being ignored completely by the political parties in their election proposals. They have both embarked on a bonanza competition to reduce taxes. This will obviously lead to the government collecting less income. On the other hand they are promising the granting of cash grants which cost millions, large-scale multi-million investment projects such as a floating offshore fuel station, a metro, roads, and other massive infrastructural projects. These are all nice initiatives when seen independently, assuming money is not a problem. When one sees the bigger picture, it should be obvious to everyone that in order to spend more, one needs to earn more, unless there is the intention to borrow the excess money needed. If such money is borrowed as an investment in our infrastructure, though still a burden it could be beneficial. However, to borrow money simply to give cash grants or reduce taxes to win the next election is definitely a suicidal no-go.
Lack of vision and direction
The electoral manifestos of the two main political parties each contain hundreds of proposals. However, one question comes to mind: how are all these individual measures contributing to the bigger national objective. Could it be the case where one measure is pulling left and another measure by the same political party pulling right?: meaning we are going nowhere?
Despite all these measures, most of which when analysed deeply are electoral promises, both political parties have failed to concretely answer one simple question: Where do we want Malta to be in five years, 10 years and 20 years' time? Once the prospective governments answer that question, them they could develop their electoral proposals in the light of that long-term plan. Unfortunately however, things were done differently: we started driving before setting our destination and the result will be walking around in circles
What does the economy really need?
Despite the fact the government is constantly boasting of the best-every economy, as was explained earlier, it is only one aspect which is being quoted. Ironically, our economy is an ailing and overheating economy. A car engine can tolerate a few brief instances working at full speed. The car cannot be constantly driven at full speed however as its engine will overheat and fail. It is evident everywhere one looks, that the economy is working tirelessly: all sites that could be built are being constructed, all restaurants are full up and all services one dreams booking for there is a waiting list. Due to this excess desire to spend and the lack of capacity of the service providers, the services rendered are mediocre and unprofessional. Whilst some look at this spike in demand positively, this is in essence leaving demands unaddressed and hence pressure is placed on prices. Since a restaurant is always full up, it will put its prices up knowing it can still be fully booked and earn more. This is causing inflation. The government intervenes to give us the COLA adjustment, and business again pass on this increase to customers leading to a spiralling cost-push inflation. It is evident the economy right now needs to calm down: and this will be positive.
In these times of severe global uncertainty where all the world is in recession one wonders why Malta, such a tiny economy is blooming so much. Our economy is like a warm tomato greenhouse in Alaska. Tomatoes grow artificially due to the artificial heat and light. In our case, the government is directly sustaining the economy to perform through employment, grants, schemes, etc. However, these aids are coming from the taxpayers themselves, so we are simply playing around the same money the same as the greenhouse effect in the tomato greenhouse. We only need one small tear in the fragile plastic protecting us and we will have to face the harsh winters that surround us. Our economy has been brought up lazily in this greenhouse and without our government protecting us and vouching that "no matter what happens we will be there to take all the burden" we will fail miserably. Ironically the government is protecting us using our own money so for politicians it is an easy statement to make.
The bitter medicine
What the economy really needs is discipline and restraint at this moment in time. We need a government that increases taxes in order for us to start controlling the national debt. The government also needs to cut its spending and lay-off the excessive workers that were engaged needlessly in its departments and agencies during the past years. Their contribution to the national income is practically zero, and such resources can be employed more profitably in the private sector contributing directly to the proper economy, not an artificially-created job.
Such trimmings in government expenditure in the economy will help the economy to slow down. The population will have to feel the cringe of this personally; the rich will feel it the most. As people's income becomes less they will spend less. Businesses will sell less. The excessive foreign workers we have in the economy will start leaving as there is no more work for them. The properties they are renting will become vacant and unrentable. This will mean even less easy money in the hands of the population and will result in even lower prices. This will hopefully move people to start thinking creatively on business sectors they can delve into in order to earn money, rather than passively and lazily renting out a property to third country nationals at artificially exorbitant prices. This will slowly result in a vibrant creative economy where it creates goods and services worth the price they are being sold at; an economy which can compete internationally on its own without any government protecting it. The role of government would be, as it should, to keep law, order and ensure fairness; something which recent government have forgot in the frenzy to get involved in the commercial. Like everything beautiful and successful this requires sacrifices and patience: something our society has somewhat forgotten.
Conclusion
It is obvious that the course I am suggesting will not be adopted by any of the prospective governments. In fact, the party adopting it will definitely be the one to lose the next election. However, I truly believe that this is what our country really needs at this point. Some action on these lines will definitely need to be taken in the future, at least mildly. We might expect the next government to inform us that the proposals made were over-ambitious and impossible to put into practice in the light of new international developments. Should our government be unwilling to do so, and will stubbornly follow its unrealistic idyllic dream, we will have to face the harsh global impacts weighing down on us directly. No government will be able to intervene or act as a buffer against such harsh international forces then.
Stephen Camilleri is a Certified Public Accountant and Auditor and holds a Masters in Public Policy. He presently occupies the role of CFO in a large local company. He also holds a teachers' warrant. Stephen is interested in financial and economic issues, especially on the local scenario. He is also passionate about art, history and music.