FOI reactions to state of government
Speaking to the Malta Financial and Business Times yesterday,
Federation of Industry Director-General Edwin Calleja expressed concern
over the state of government finances, saying the figures could not
be termed to be in good shape and a concerted effort had to be made
to get the situation under control without further delay.
"Public Debt stood at Lm925 million at the end of 2000 and now
reads Lm1.077 billion at the end of 2002, excluding the guarantees and
letters of comfort provided by Government to a number of corporations,
that stood at Lm 374 million in December 2002.
"Most corporations do not generate enough funds to repay any part
of their loans and therefore a substantial part of this amount will
never be repaid and Government is de facto the real creditor.
"This means that the national debt to GDP ratio stood at 63.9 per
cent in 2002, exceeding by almost four per cent the target that Government
planned to achieve. If the guarantees to Corporations are added to the
National Debt the ratio to GDP goes up to 86 per cent."
Calleja said the excess of recurrent revenue over recurrent expenditure
had been a positive turn, but said Government also had to concentrate
on reducing wasteful public expenditure.
"We have viewed as positive the declarations by the Minister of
Finance that an urgent solution needs to be found for the Social Welfare
Gap which is not just a long-term goal but a real short-term worry as
evidenced by the high-expenditure ratio on social transfers.
"The structural deficit went down considerably to 4.6 per cent
of GDP last year and it is estimated to go down further to 4.1 per cent
this year. However, it will be extremely difficult for Government to
achieve this if the increases in welfare and other spending witnessed
in recent years continues at the present rate."
Calleja said FOI would like to see the recurrent expenditure creep restricted
to the inflation rate, currently in the region of 1.46 per cent as a
"This is not happening. Expenditure in 2002 stood at Lm646 million,
an increase of five per cent over 2001. This year recurrent expenditure
is estimated to be pegged at Lm 677.4 million, an increase of 4.9 per
cent. In this respect, there are no healthy prospects ahead of us in
the short term unless some drastic measures are taken.
"Two years ago the FOI insisted on a benchmarking exercise to be
conducted on public expenditure. The FOI would like to see Government
and Unions negotiating public sector wages within the parameters of
a national productivity index which so far is non-existent.
"Government stated that the MCESD would be monitoring progress
in this respect, but the FOI has not witnessed any serious attempts
by Government to benchmark major items of Government Expenditure or
bring about any reduction."
Calleja said debt-servicing was still at a high rate and that only a
reduction of public debt could solve the burden of the payments, but
this could not be expected to happen before the budget is either in
surplus or at least level.
"It is a pity that privatisation proceeds at this stage cannot
be devoted to bringing down the level of public indebtedness. All revenue
of a one-off nature representing the proceeds of privatisation have
so far only gone towards slowing down the rate of public borrowing.
Government is still far from coming to grips with the core of the problem."
On taxation, Calleja said FOI believes that the best taxation system
should be based on a low direct tax regime and a reasonably high rate
of indirect taxation on consumption of non-essential items.
"Taxation levels stood at 34.7 per cent of GDP in 2000. In September
2002 this figure read 39.26 per cent. This level of taxation is considered
to be on the high side and can only be reduced either if there is a
tremendous jump forward in economic expansion, which does not seem likely
in the short term, or if government curbs its expenditure."