30 August - 5 September 2001

Cutting down on public expenditure... again

It is quite rare that five employer organisations issue a joint statement unless the situation is really worrying. Last week, the Federation of Industry, the Chamber of Commerce, Malta Employers Association, Malta Hotels and Restaurants Association and the GRTU Association of General Retailers and Traders, released a statement expressing their concerns over the acceleration in public expenditure. They are also concerned that the only way that government can tackle this major problem is by increasing taxation. The Malta Business Weekly had commented a few weeks ago on this factor, warning the government that adding more taxes was not the solution as this would only bring about an increase in tax evasion – something Finance Minister John Dalli made it a point to tackle this year.
The main problems are undoubtedly the high amount of social benefits being paid out, public debt servicing, and the increase in salaries given to public sector employees. The latter, as the five employer bodies said in their statement, was expected to cause expenditure to increase. As regards public debt servicing, the increase in total commitments reflects government’s increased borrowing needs which stood at the rate of almost Lm10 million per month since the beginning of the year. This, in our opinion, is unacceptable. The government seriously needs to cut down on expenditure or else the figure of Lm1,000 million (Lm1 billion) will continue to balloon.
How can this be done? Certainly by not adding more taxes to an already over-taxed industry and middle class. As the five organisations said, the government’s spending requirements can only be met by further taxation. Does this mean that the social partners, who form part of the MCESD, believe that there is little hope that the government will manage to cut down on expenditure if not through added taxation? Have they given up on the government’s plans to cut down on expenditure by curbing tax evasion? Is the government acting responsibly?
The Malta Business Weekly has repeatedly called on the government to get its act in order. No matter what the statistics say, public sentiment across the whole economy must be taken into consideration. If not, the work force will remain disincentivised, the country’s competitivity on the international market will be lower and foreign investment will not easily come to our shores.
The five employer organisations stressed that “our enterprises are finding it increasingly difficult to compete with the costs they can manage for their manufactured goods and services”. Is this a situation that we, as a country, and more importantly, the government, should be proud of?
The government must act immediately to decrease its expenditure levels and cut down on funding unnecessary projects or at least put them on hold. The government must start a programme to eliminate waste, generally reduce inefficiency, and trim down, rather than increasing, employment in the public sector. As the five employer organisations said “the country simply cannot afford to carry on ignoring the problem of spending beyond its means and expecting the taxpayer to solve the problem through more taxation. This is unacceptable and will only serve to depress the economy further rather than stimulating the creation of wealth”.
The government must not be tempted, half way through office, to start giving out the goodies just because an election is not very far off. Irrespective of who is in government, both parties tend to forget the deficit and expenditure as their third year in office begins. Then it is time to collect as many votes as possible. Political survival takes precedence over the country’s problems. It would also be foolish of the government to give in to unrealistic demands from the unions or social partners, even more so if these are not linked to an effective benchmarking exercise to increase efficiency and productivity.
“In this scenario the five organisations call for a concerted effort to be made by the country’s social partners to responsibly put a halt to any unjustified wastage of funds on public projects and to any improvements in wages and/or conditions of employment which cannot be justified by increases in productivity levels particularly in the public sector and State-owned enterprises.”
If this does not occur, the government will be forced to turn to the private sector... once again... to subsidise its excessive spending needs. Earlier this week, Mr Dalli said that the deficit would shrink to Lm85 million by the next budget. This is good news. Hopefully, the minister will also give us the good news that the government will also be cutting down on expenditure. He said so last November. This year we augur he has the figures to prove it.