23 - 29 November 2000

A positive step forward

Last Monday’s budget, as presented by Finance Minister John Dalli, is undoubtedly a step in the right direction. For months Mr Dalli has reiterated time and again that reducing the deficit and curbing tax evasion are the government’s main targets. True to his word, the austere measures introduced last year, have had the desired effect. The deficit, which stood at Lm124 million in 1999, has been reduced to Lm95 million, Lm14 million more than expected. This brings the deficit down to six per cent of GDP from 11 per cent last year. Mr Dalli said that by the end of 2001 the deficit will be around Lm83 million or five per cent of GDP. If this year’s figures are anything to go by, one can expect the deficit to go down even further.
Economic indicators now suggest, contrary to the doom and gloom scenario depicted by the Opposition and the General Workers’ Union, that the economy is picking up. This year the economy grew by seven per cent in nominal terms and 4.3 per cent in real terms. Taking a cursory look at the main indicators for this year, budget deficit has gone down to six per cent of GDP, inflation increased to 2.7 per cent (estimated to reach 2.5 per cent in 2001) and unemployment went down by 1.1 per cent to 4.4 per cent. For the first time in recent years, the government has managed to limit recurrent expenditure to income generated in the same year. From a projected deficit of Lm11 million this year, the government expects to end the year with a positive balance of Lm2 million.
This augurs well for the local economy. Reducing the deficit even further will not be easy but Mr Dalli has opted not to introduce new taxes this year although certain measures introduced in the budget will have an negative effect on the pockets of the middle class. Many expected some new taxes and increased costs, especially in the price of diesel. Yet Mr Dalli made it clear that new taxes were not the only solution. Curbing tax evasion and streamlining the public sector and public expenditure would be enough to keep the economy moving in the right direction, Mr Dalli believes.
This is a courageous statement and one that Mr Dalli knows will not be easy to achieve. Most of the measures that come into effect on 1 January will affect not the working class but the middle class, a section of society rarely targeted by a Nationalist government. The tax on fringe benefits is one example. Yet on the other hand, Mr Dalli has not introduced other measures that were expected. There has been no change in the VAT rate nor has it been applied to areas that are charged VAT in the EU. Neither has the rate been increased on luxury goods. So where is the revenue going to come from? Less government expenditure and more enforcement, Mr Dalli said on Monday. This is going to be the government’s greatest task – tackling two areas that until this year were not addressed effectively.
Positive though this year’s budget may be, there are issues that were not clearly explained or otherwise left out completely.
First, there is little in the budget that offers incentives to industry and the private sector to create more wealth. The government will be introducing the draft Business Promotion Act aimed at attracting more investment. How effective this bill will be remains to be seen.
Secondly, Mr Dalli failed to introduce any specific measures to curb tax evasion. While he stressed that the VAT and Inland Revenue Department would be tightening controls, what about those who blatantly declare less than half of what they declare? How is the government going to enforce tax collection on professionals? Mr Dalli did not say.
Third, the social welfare gap. This ever-growing problem appears to be have been left on the backburner. What is the government doing in this regard? Leaving all the decision-making to the Welfare Commission is, in our opinion, not wise.
On the whole, it is fair to say that the country is finally moving in the right direction. The government has managed to bring down the deficit and plans to continue doing so without adding extra burdens on the people, especially the working class. Commenting on this year’s budget, the chairman of the MDC, Lawrence Zammit, called for a serious economic discussion. We totally agree. It is time that the government and opposition sit down and discuss the positive progress made this year. Opposition just for the sake of opposing the government does not suit anyone, neither is it conducive to further growth and prosperity.