Call for 'substantial' reform package

The governor of the Central Bank last night called on all the social partners to adopt a long-term perspective and sign up to a substantial reform package that would lay the foundations for renewed growth and sustainable development.

"A thriving economy is the best social policy," Michael Bonello told the annual dinner of the Institute of Financial Services - Malta.

Returning the economy to a sustainable growth path closer to its potential rate must be a priority objective, he said, warning that in today's highly competitive global economy there are no quick fixes or painless options. "We must simply work harder and longer and give more value for money."

The governor noted that fiscal deficits have become a permanent feature of the Maltese economic landscape, which suggests that they do not reflect temporary slippages or cyclical downturns, but rather fundamental policy choices and inefficiencies. The persistence of the fiscal deficit has resulted in a rapid accumulation of government debt and this has led to an increasingly heavy debt-servicing burden.

While recognising that fiscal consolidation and structural reform have in recent years become key features of the government's drive to enhance the productive potential of the economy, Mr Bonello proposed policy orientations aimed at returning Malta's public finances to a sustainable basis.

In order to achieve the required savings, the governor stressed that talks for the renewal of collective agreements in the public sector should recognise the need to cut spending. Any wage increases must be matched by measurable productivity improvements.

He also said it is time for a radical welfare reform that reconciles the objectives of social cohesion and intergenerational equity with financial sustainability.

Mr Bonello wondered whether enough resources are being allocated to priority areas such as tourism, IT and the development of industrial areas. He proposed that the taxation system should be further refined to enhance the degree of compliance and to shift the tax burden away from productive activities.