09 August 2006

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Business Today

Pre-budget consultation

The questions raised by this leader last week about government’s catch-22 situation in trying to deliver a meaningful tax cut while maintaining its road to fiscal consolidation ahead of joining the Euro, have not been answered satisfactorily by the pre-budget document.
Although the Prime Minister has quantified the cost of any tax cut and other new social benefits to the tune of Lm8 million, which he says can be sustained within the current economic scenario, it is questionable whether an Lm8 million relief package will have a meaningful impact on people.
And if Gonzi does go for a higher loss of revenue, the pre-budget document has not identified alternative tax measures or expenditure cuts to make up for the additional losses.
In some aspects the pre-budget document has simply regurgitated ideas and suggestions that have already been floated about in numerous other government-commissioned documents and reports.
The section on tourism offers nothing new. The sector is facing serious challenges and unless government comes out pro-actively with an aggressive short-term incentive package to enable the industry to stabilise over the next six months, things can turn very ugly.
The focus on Gozo is welcome but still falls short of addressing the major problem that hounds the sister island; a haemorrhage of jobs. Given government’s strategy to turn Gozo into a back office operation centre for the services industry it would have been opportune for government to apply pressure on HSBC to open its international call centre in Gozo.
But it is obvious that the major thrust of the discussion from now until the budget will concern the proposals related to tax and social benefits, which are intended to inject more money in people’s pockets.
This leader augurs that the consultation exercise to be undertaken in the weeks to come will be a fruitful one in terms of new proposals and fine tuning of ideas presented in the pre-budget document. People will obviously stray from the core arguments listed in the pre-budget. But this is to be expected, especially given the detachment of most ministers from their constituents. It’s not every day that ordinary citizens get a chance to sit down and speak to the Prime Minister.
Hopefully, the whole exercise will instil a sense of humility in government ministers who have become too big for their shoes.
The pre-budget document has in many ways removed the traditional speculation and mystery surrounding the budget even if November is still a long way off. It also gives the constituted bodies a basis for discussion so that proposals can be focussed.
Lawrence Gonzi told the press on Saturday that government has factored in a safe measure of higher oil prices in its workings, suggesting that this year he won’t be derailed by either Enemalta or Austin Gatt.
Even so, oil remains a major cause for concern given our total dependence on the imported black gold. And as things stand the situation will not get any prettier any time soon. What is still lacking is a concerted effort to try and reduce consumption of electricity through a massive educational campaign. The procrastination in reforming public transport will also make it impossible for more people to shift from using petrol-guzzling private cars to buses.
A higher oil bill is the prime contributor to higher inflation, which also risks threatening Malta’s progression towards adopting the Euro on 1 January 2008.
As for inflation, government will shortly be announcing measures to address the situation of rising medicine costs, something which Gonzi promised on Saturday. This is an area where people expect government to take an active role in the market since it seriously jeopardises the well-being and lifestyle of certain individuals who are dependent on key medicines.
As for Gonzi’s statement that this is not a pre-election pre-budget document, the Prime Minister could spare us all the rhetoric. Nobody will believe him. All pointers suggest that an election will be held in September or October 2007 unless Gonzi wants to run the risk of going to an election soon after the introduction of the Euro in 2008. Any budget decision will be evaluated against such a backdrop.
The most important thing is delivering a sustainable budget that would really benefit future generations. The temptation is to adopt a short-term mentality leading up to the general election. We’ve already seen this happening in the past and there is nothing to suggest that politicians have suddenly become immune to the short-termism disease.
Maybe the Prime Minister could prove us wrong. We sincerely hope so.

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