9 - 15 December 1999

Economic priorities

The overall reaction to the budget has not been particularly surprising. Everyone has given their views: trade unions, the private sector, the opposition and a wide range of Maltese society. The general feeling is that this has been an austerity budget and that the government's primary aim is to reduce the country's structural deficit. The unions are saying that some of the measures taken were anti-social and that the low income earner is to be much worse off as a result of the budget. The private sector is saying that there were little incentives for investment and economic growth and no emphasis on reducing the government's very high expenditure, but has welcomed the importance given to the reduction of the deficit and to privatisation. The opposition Labour Party, on the other hand, has attacked the government for introducing anti-social measures and for having lied to the electorate about the country's financial situation prior to the last election. Furthermore, Labour is rejecting the government's claim that the deficit has begun to decrease, and is insisting that it has got worse.

Finance Minister John Dalli, in an interview with The Malta Independent on Sunday, has made it clear that the budget is not negotiable and that the austerity measures will remain in place, as planned. Should this be government's attitude considering the criticism it has been subjected to? For better or for worse, a government has to do what it believes to be in the country's best interests. It cannot introduce a budget and then start negotiating amendments with all the different sectors of society. This would be a waste of time and would create uncertainty in the country. Consultations should have been held before the budget was presented; if no such consultations were held, then this is to be condemned, but it does not mean that the country should now be held hostage to everyone's individual preferences.

Are the unions' claims justified? All governments since 1996 have understood the need to address the country's budget deficit. One can argue over the fairness of certain measures and whether the right sectors have been targeted, but the fact remains that the deficit has to be tackled. The unions are bound to complain over some of the austerity measures introduced in the budget as these affect everyone across the board. However, certain decisions were inevitable, such as the removal on the subsidy on bread, and others were a bit too harsh, such as the 15 per cent VAT on petrol. This latter tax would have been acceptable had the public had a decent alternative in the form of public transport, but no such alternative exists. The only form of public transport in Malta are the public buses, and that service is shoddy and inefficient. One can argue whether introducing VAT on telephone bills is justified or not but at least such a service has an element of control by the individual consumer.

The private sector's claim that this budget did nothing to reduce government expenditure should not be dismissed outright as it was recently by an official of the General Workers' Union on a discussion programme on NET television. The private sector is right to point out this very serious problem and it is doubtful whether the deficit can be substantially decreased by raising taxes alone; eventually some sort of cuts will have to remain. What the unions must understand is that they cannot have their cake and eat it. If they are completely adamant about not accepting any government cuts and they continue to insist on huge wage increases such as in the case of the Malta Drydocks, then they must understand that government revenue must increase and this means more taxes.

The Labour Party has attacked this budget as being anti-social but such a reaction is to be expected. After all, the then opposition Nationalist Party had attacked the Labour government's budgets, especially the 1998 budget, as lacking a social conscience. The simple fact is that when all the rhetoric is removed both parties raised taxes in order to reduce the deficit. We can argue until we are blue in the face over which taxes are more socially acceptable, but inevitably the money has to come from somewhere. We can also argue that the Labour government's revised utility rates were unacceptably high and that this government's decision to raise income tax was politically dishonest, considering previous pledges to the contrary.

A crucial difference, however, between the two governments is that this government seems more successful in reducing the deficit than its predecessor, partly because of the re-introduction of VAT. If the Labour Party believes this to be untrue, it must publish the necessary figures to prove its point.

Let us put aside the rhetoric and get down to business. There is plenty of work to be done.