Plucking the goose’s deficit



 Author: George Mangion
Published on Malta Today, 19 November 2014

budget

Another peccadillo is the non-establishment of the promised Fiscal Council which as the main supervisory body of this Act, is an important tool to define expenditure and prepare the country to reach a balanced budget. My brief comments on the 2015 budget reflect how the Minister of Finance, Prof. Edward Scicluna, presented his budget speech. The comments pick on the items promised last year but which for some reason have not been executed so far. To start with, the noble aim of last year’s presentation included six targets:

1) Fiscal probity calls for expenditure to match revenue being generated
2) The reduction of energy costs –¬ this has been achieved as promised even though little or no work has yet started on the commissioning of the new gas operated electricity project.
3) Making Work Pay to improve economic efficiency and effectiveness – this was an ambitious task which has rendered good results so far, given the improvement in the employment sector.
4) Reduction in bureaucracy and waste of resources – A full time Commissioner for Simplification but so far very little tangible measures have been manifested in the level of improved levels of competition, also noting a gradual decrease in exports.
5) Diversification in the industries and target countries with which Malta undertakes economic activity – certainly the prime minister’ s personal efforts to attend overseas trade missions will slowly bear fruit.
6) Social services to be based on the concept of sustainability while ensuring that these are strengthened and improved. The budget 2015 is full of bright ideas how this ambitious task can be handled.

Background
During the second quarter of 2013, the Maltese economy expanded by 3.6 per cent, having increased by 1.6 per cent in the first quarter. This growth is commendable, given that Germany and France only managed half a percentage growth in the third quarter. Consequently employment increased at the rate of three per cent during the second quarter of 2013, with the headline Eurostat unemployment indicator standing at 6.4 per cent. This compares favourably with the rate achieved in Britain and one hopes that more progress is registered next year. One remembers that after the general election a fiscal deficit of 3.3 per cent of GDP was revealed for end of year in 2012, thus breaking the rule embedded in the Treaty.

Against this background, on June 21, 2013, Malta was put under an excessive deficit procedure (EDP). In this regard, the Council recommended that Malta takes action to reduce the excessive deficit by 2014. The learned professor is now aiming to reach a deficit target of 2.1 per cent of GDP for this year, and to continue on this path of fiscal consolidation and further reduce the deficit to 1.7 per cent of GDP in 2015. Do not hold your breath but what happens if our strong hand at the cash till retires or relaxes its grip? A fly in the ointment is the increase in government recruitment, for which the principal secretary tries to placate us by arguing that this is just to strengthen and improve productivity. Unashamedly, payroll expenditure is projected to rise by 6.0 per cent in 2014, reflecting increases in compensation of employees and intermediate consumption.

Another peccadillo is the non-establishment of the promised Fiscal Council which as the main supervisory body of this Act, is an important tool to define expenditure and prepare the country to reach a balanced budget. But then why did the administration find it so hard to speed up the free childcare centres to encourage Maltese women to join the labour market or continue working while their children are being taken care of free of charge. The participation of women at work is the lowest in Europe. This means a wasted intellectual capital, considering that so many graduates are not utilizing their studies in productive employment.

More criticism follows in the abandonment of the promise to implement Green Public Procurement, even though the ministry concerned issued an expression of interest months ago, but nothing happened since then. Another white elephant perhaps inherited from the previous administration is the massive Life Sciences Park. Last year the budget proposed to attract scientists to conduct their research while providing companies specialising in biotechnology and medical science. The Park was expected to start operating from October, 2014 but really and truly it is just another construction site.

Promises to help alleviate SMEs’ access to finance has again been just that… promises. The mimicking of a large bank about the offer of the Jeremie Scheme which is subsidized by the EU, but which in its years of operation has only reached less than 1.5% of total loans issued by the particular bank. Studies show that the rates of interest and charges to SMEs are higher than recommended by the European Central bank, and both the MFSA and the MCCAA as regulators are somewhat powerless to act. It is sad to recall how the noble aim to introduce a Managed Seed Capital Fund via European Social Funds for the period 2014-2020 has not materialized. Another year passed since the solemn promise to set up the Malta Oil and Gas Corporation, an agency to handle the State’s oil exploration efforts: following the abandonment of drilling the first well, Hagar Qim, there has been no announcement by the minister responsible for this important matter to answer why the second well previously contracted by the owner of the concession was not drilled this year.

Perhaps the proposal in the 2015 budget to kick start a Seed Investment Programme assisted by income tax concessions for start-ups to a maximum of €250,000 per year will take ground. To conclude one must congratulate the learned professor for the bright idea to encourage participation of the private sector in many useful and sustainable projects.

One can never forget the success of the ELC project which over the years has managed the embellishment of roundabouts and public areas in a consistent and tidy manner. The list of PPP’s is long but one can mention a few which with the proper attitude from mandarins at the bureaucracy can develop into fruitful projects and definitely improve the environment while earning extra revenue for its partners. These include:
•        PPP for Enlarging Sandy Beaches
•        PPP for Construction of a Breakwater between Valletta and Sliema
•        PPP for a Hotel at Bighi
•        PPP for a Health Centre in Cospicua
•        PPP in the Health Sector
•        PPP for Work on the old St Luke’s Hospital
•        PPP to Direct Underground and Sea Transport in Valletta
•        PPP to Construct Parking Facilities in the Vittoriosa and Cospicua Areas

Finally this budget comes with so many juicy comments and good wishes that it is tempting not to be enamoured with its drive to improve the standard of living of our tiny island. However one must not forget to appreciate the super five ideas which I have left for last, namely:

Idea no 1
Studying the feasibility of alternative forms of transport including sea transport and underground tunnels which will help to solve part of the existing traffic problem.

Idea no 2
Expression of Interest for a Motorsport Racetrack. An expression of interest will be issued to identify private investors interested in developing and managing a motorsport racetrack.

Idea no 3
Implementation of a Shooting Range. The Government will be working with the private sector and with associations in this sector to develop a shooting range

Idea no 4
Assessment of the spatial distribution of water demand by the agricultural sector

Idea no 5
Setting up Aviation Malta. Aviation Malta within the Ministry for Tourism will serve as the catalyst for the government in serving the industry holistically, economically and efficiently while engaging in a National Aviation Plan


Author: George Mangion
Published on Malta Today, 19 November 2014
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