As Britain faces an unprecedented economic slowdown that could see the country enter into a recession by year’s end, Prime Minister Gordon Brown is seriously considering meaningful tax cuts to bolster consumer spending.
In the midst of a global economic slowdown where exports and trade will only pick up in the longer term, Brown is sensing that domestic consumption is the only motor that can keep the economy revving. He has hinted that government would be ready to borrow more to fund tax cuts.
But the British PM is not only considering income tax cuts. A prospected increase in excise duty on fuel has been put off for the time being.
The argument that underpins Brown’s logic is that leaving more money in people’s pockets is a necessity far greater than balancing Government’s budget at this point in time.
The push for tax cuts in Britain is not an isolated case. Similar arguments are being made in Germany and the United States.
Within this context we fail to see why Finance Minister Tonio Fenech tried to downplay the arguments being made by the Labour Opposition and others to leave more money in people’s pockets. Fenech’s reply was that other countries are not putting cheques in people’s hands.
Other countries may very well not be putting cheques in people’s hands but they are considering all options available to keep money in the economy rather than sucking it out to balance the books.
The next 12 months won’t be easy. Industry has already felt the first shocks of an impending recession. Tourism is also struggling to get past a long cold winter. Exports will take a nose-dive as the major companies face reducing orders.
With the outward looking sectors facing major problems, it is left to domestic consumption to fuel the economy to help prevent a wider and deeper slowdown.
It is within this context that the planned utility tariff hikes are ill-timed and unnecessary. The higher prices that will be paid will simply drain money from the economy and put it in Enemalta’s coffers, which are not exactly the epitome of accountability and efficiency.
To top it all, Government is not only draining more money from the economy with the higher utility bills but has also increased the excise duty on petrol and diesel.
The budget was not used as a comprehensive tool to incentivise the economy. The tax cuts proposed by Fenech are just a token. They will hardly leave more money in circulation and will not help fuel domestic consumption.
In the face of adversity Fenech has chosen to stick to the eurozone’s diktat of lowering the deficit, when the European Commission itself has accepted to relax the rules.
Retracting the new tariffs and delivering a meaningful tax cut, coupled with more ambitious support programmes for industry, would have gone a long way to prop up the economy.
Other countries are bending over backwards to leave more money in people’s pockets. Government should stop, listen and learn. It’s never too late to make amends but it will only be more difficult as time passes by and the impact of the global slowdown deepens further.