10 – 18 January 2001

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2001 think first, think business

GRTU Director General Vince Farrugia expounds on the Irish example of Public Expenditure while advising to think business first this year

By Vince Farrugia

In 1986 Ireland had the same level of Public Expenditure as we have in Malta in year 2001. 48.3 per cent of Ireland's GDP was being absorbed by Public Expenditure. The rest of the story was very similar to Malta's. The Public Sector was notorious for its non-productive, inefficient use of resources. Economic growth was jeopardised as too much of the country's resources were uneconomically captive in the public sector.

Since the ratio of general government total outlays as a percentage to GDP to fall. The Irish economy performed extremely well. The Irish authorities therefore ensured that the process goes on. Today Ireland's ration of GDP government outlays to GDP is only 27%. This is a result of a smaller public sector, bigger private sector and steadily growing GDP. Two things were happening: while government continued and managed better the resources available to the public sector, the release of resources from the public to the private sector generated further growth and as economic growth accelerated the ratio of Public Expenditure to GDP dropped even further.

The participation of Ireland's economy within the single market of the European Union ushered further growth. The Irish economy and the Irish people would not have benefited from the EU were it not for the determination of all social partners to cause the Irish economy to move on the only path that works, liberalisation. The trade unions dropped their tradition resistance to public sector reform and to privatisation and to the liberalisation of resources. The availability of resources and the supportive schemes for restructuring caused investors to have faith. Faith was translated into further investment, new, jobs, greater wealth and overall growth and improved quality of life.

The Irish made the Irish economy work. Then EU membership made sense. Not the other way round. What we are trying to do in Malta is the opposite. We are here changing all the rules and regulations and accept all that is thrown at us from Brussels in order to adopt the Acquis Communautaire as a formula. But we are failing to understand that the acquis is not primarily about economics. It's about laws and structures that should lead to a better economy. It's not laws that make business. It's entrepreneurs that make the business that make the system work and not the other way round. The strategy of the Maltese authorities however seems to be: lets get in first whatever the price, then once there we'll make the best of it. This is a dangerous strategy. We speak now because it is hurting entrepreneurs and it is going to cause us all more pain in the future.

Logic would say that if Malta is to join than it is better done earlier than later. The chances are that those who would join later would find conditions harder and the economic hurdles more difficult to surmount. Government assessment seems to be that the risks and consequences of delay are more economically damaging than a quick run for it. This is a hard decision to make but it must be taken.
The point that GRTU made in its detailed submissions to Government prior to Budget 2001 and in all the submission made by GRTU at MCED and at MUESAC meetings is straight forward and simple. Our arguments are as follows:

The Maltese economy cannot go on further with such a heavy Public Sector to carry. The release of resources caught in the Public Sector to the private sector will give private entrepreneurs greater scope for investment as resources are made increasingly available.

The private entrepreneurs need support to be able to meet the restructuring challenge. This support can best be given by allowing entrepreneurs to retain more of their profits and be incentivised to utilise retained profits to create new value added economic activity.

For government to be able to support restructuring and investment growth the fiscal policies need to change. Lesser taxation and not higher taxation lead to growth. The fiscal deficit needs to be attacked from the Public Expenditure side.

Reducing subsidies; speeding up privatisation, encouraging more private public partnership where public sector employees and resources are made available to the private sector; hiving off more of the public sector to the private will reverse the persistent growth of public expenditure.

A smaller government needs less revenue. Lesser public revenue requirements allow for more retained profits by entrepreneurs and more money available to households. Lesser complaints costs and taxation produce a leaner economy. The leaner economy competes best in the single market. Globalisation would make real sense. As we stand our main industries tourism and manufacturing will find it harder and harder to compete.

More competitive costs structures make Malta more competitive. A more competitive Malta can benefit greatly from the single European market and can make sense out of the acquis communautaire.

Government needs, however, to address and manage the economy much better. It's not political rhetoric the kind of which was so heavily downloaded on us during the budget speech and budget debates that entrepreneurs want to hear.

Entrepreneurs do not want mere economic talk. They want better economic management. Entrepreneurs think business, talk business and want to make business in Malta grow. Entrepreneurs want government to think business too.

Think first, think business. This is their message for the New Year.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt