26 November 2003

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The Budget at first hit

Economic commentator Karmenu Farrugia gives his initial reaction to Budget 2004. Speaking about what he says is an unpopular budget, Mr Farrugia gives his views while wearing each of his three hats: that of an accountant, an economist and finally as a social creature

Certainly, not a popular budget. Wasn’t meant to be either, not the first of a new legislature. Nobody expected sweeties, but did we need so much medicine? Wouldn’t a dieting on government’s part be more acceptable, especially on recurrent expenditure which camouflages so much waste of resources and unnecessaries?
As an accountant, I instinctively welcome caution in projections for 2004 regarding economic growth (1.3 per cent) and deficit reduction (Lm 13m to Lm 95m, followed by Lm 20m for each of the following 2 years to reach an acceptable level). But I do feel dismayed at a 9 per cent increase in government’s recurrent expenditure when I was expecting no more than it has been this year. The stew pot Consolidated Fund has never attracted me: hence I am all for the creation of sub-accounts thereto. But why leave out the most important one - state pensions? Possibly because the Minister awaits the actuarial exercise early next year, something which should have been done years ago when first the subject became the talking point for everyone.
And what about the calculation of Lm 39 as fair compensation for the 1.9 per cent increase in cost-of-living resulting from the additional three percentage points’ increase in VAT? My workings give an annual VATable expenditure of Lm 2,052 which, added by Lm 1188 (i.e. 1.1 per cent remaining non-VATable) totals Lm 3,240. Add back the 10 per cent SS contribution and the two per cent family savings rate mentioned recently by the Governor of the Central Bank, and we have average salary earnings of Lm 70 per week. Realistic? As an economist I heave a sigh of relief that this year’s revenue has at least managed to cover recurrent expenditure. I feared it would not. The addition to the National Debt has all been due to borrowings for capital projects in an economy which could only grow at less than one per cent and probably due only to excessive spending by the private and the public sectors alike. Whereas I agree that the former needed to be deprived of some of its disposable income, why couldn’t also the latter in its recurrent account? And why indirect taxes only? Wouldn’t a temporary surtax on high incomes for only three years have provided some consolation to the grumbling masses? The Minister’s concluding emphasis on improvement in national competitiveness will, I hope, be more than rhetoric.
As a social creature, I welcome any eco-contribution and the war on tax-avoidance loopholes on property transfers, but I dislike the introduction of a means test on medicines for chronic diseases. It is humiliating to be subjected to such a test for a misfortune in life. Ask any European

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