20 April 2005

The Web

Gonzi’s measures: unpopular yes, but also ineffective

Karl Schembri
While the Prime Minister seeks consolation in the three consecutive electoral defeats by saying he is willing to sacrifice his popularity for the good of the country, economists warn that unpopularity is no measure of success. Indeed, they say, Gonzi’s measures are far from effective.
In his highly charged political address at the end of the Nationalist Party’s General Conference last Sunday, the prime minister offered himself as the sacrificial lamb in the midst of the country’s turmoil.
“I am willing to sacrifice popularity as long as I know that what I am doing is the right thing for the country,” he said, joining the chorus of PN and government officials blaming the defeats on “the necessary measures” that had to be taken to face the national ailments, the deficit first and foremost.
That was the running theme throughout last weekend’s general conference, from the Secretary General’s introductory speech to Gonzi’s concluding encomium on his own decisions and principles which he pledged to defend at the cost of losing the election.

To back his arguments, the prime minister quoted a 3.7 per cent deficit figure which is unprecedented but still has to be substantiated.
“We have carried out reforms and restructuring that have saved us, and will continue to save us, millions. We will continue to control expenses but we have invested in areas that matter: in education, in roads, in health and in many other sectors,” he said.
“When a politician quotes statistics, it’s like the devil quoting the scriptures,” economist Karm Farrugia said. “Eurostat for example accepts the capital side of government’s accounts, so that may mean that the 3.7 per cent figure is true, but in reality it may be down because of one-off revenues from sale of government property.”
As to the restructuring and reforms, the “hard decisions” are yet to be taken, economists say.
“Some restructuring has already been successfully carried out at enterprise level, both public and private,” Prof. Edward Scicluna said. “At the macro level much more needs to be done. One can just mention the pension, tertiary education and health financing reforms. They are crucial to the Maltese economy getting back on an even keel.”
Farrugia said the public holidays measure is inconsequential on its own.
“The measures taken by the government are as unpopular as they can be but they won’t be enough,” Farrugia said. “By reducing public holidays, Gonzi just got the unions against him. He needs to cut public squandering drastically – the drivers, the consultants, the ministry cars – and start realising that every expense matters. If he wanted everyone to sacrifice part of his income, he should have ensured a social package that tackled everyone. He is right in saying these were vote-losing measures but Malta needs much more than that to heal the wound.”
Case in point is banks, Farrugia said.
“The profits they are making at a time when the Maltese economy is in such a mess is immoral,” he said. “Banks are the arteries of capitalist economy, but government is afraid of touching banks.”
Farrugia said that last year’s growth by 1.4 per cent is too low to reflect an improvement in standard of living.
Prof. Scicluna said that with regards to short-term economic management, “government is on a steep uphill climb, with both monetary and fiscal policy pushing it the wrong way.”
Lack of price competitiveness also weighs in, he said.
“The only miracle is a significant turnaround in the EU’s own economic performance. At the moment this is nowhere to be seen,” Prof. Scicluna said.
On the political front, Labour Deputy Leader Charles Mangion lambasted Gonzi for “playing with figures” when saying that he reached the 2004 deficit targets.
“He is including the one-off revenue generated from privatisation of lotto and from the Lm4 million property purchase by the Central Bank from government for its own offices,” Mangion said. “With all this manoeuvering, government is boasting that it has reached its targets even though they go against European Union norms.”
The MLP deputy leader also asked the prime minister to explain how foreign reserves decreased by Lm108 million between September and March, “with the consequence that the Central Bank had to raise interest rates”.

Tightening our belts Gonzi’s measures

• Less public holidays

• Eco-tax

• Higher air departure tax

• Excise tax on mobile telephony

• 17% Water and electricity surcharge

• Closed two embassies in a rationalisation exercise

• Spent Lm9 million to open one embassy in Brussels

• Agreement on Mater Dei construction, to cost Lm139m


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