Increasing taxes alone will not
curb deficit, experts warn
By Kurt Sansone
Minister John Dalli has everybody on his side when he insists that the
fiscal deficit needs to be addressed. It is the method adopted to tackle
the problem that gives rise to critical opinions on the subject.
Raising taxes, although not a popular measure, is probably less politically
sensitive than cutting expenditure in social services and public sector
employment, and thus may suit the minister more. But accountants and
economists are warning that reducing the deficit by simply increasing
revenue may have its problems.
For economist and university lecturer Gordon Cordina it is imperative
that in the future, priority be given to the expenditure-control aspect
of deficit reduction.
Limiting his contribution because of other commitments
with the Malta Council for Economic and Social Development, Prof. Cordina
told The Malta Financial and Business Times that government must aim
to curb expenditure and cut taxes in the future.
The Malta Financial and Business Times also spoke to accountant Steve
McCarthy, whose assessment was similar to that of Prof. Cordina. Mr
McCarthy described the budget as a big disappointment because government
chose to tackle the deficit by raising taxes rather than stimulating
Mr McCarthy said that government opted for the negative way of reducing
the deficit by increasing the VAT rate.
"This will result in less consumption, less investment and less
jobs created. It would have been better had government tackled the deficit
by attracting investment, instituting measures to stimulate an increase
in exports, ensure an efficient public sector and invest in infrastructure.
This would automatically contribute to an increase in government revenue
without the need to raise taxes," Mr McCarthy said.
He insisted that Government was tackling the deficit problem the wrong
way and expressed his fear that the measures taken could instigate the
economy to go into a recession.
Mr McCarthy added: "A growth rate of less than two per cent is
unacceptable. We should be aiming for a growth rate of five per cent
by encouraging investment in research and development, attracting foreign
direct investment and ensuring an efficient public service. Furthermore,
it is government's job to create an economic climate suitable to attract
On the subject of welfare reform, Mr McCarthy considered it wise that
welfare reform was postponed for another six months.
"The delay is good because we need to have the studies in hand
to identify where the problem truly is because when we match up national
security contributions solely with retirement pensions we actually have
a surplus not shortfall. Furthermore, we have to obtain a national consensus
for the reforms to be a success."