In an ideal world, most people would want the government to reduce taxation to a minimum while providing the best public services to the community. This is a utopia that no finance minister can promise. Balancing the books is a competence that all households and governments must hone to ensure long-term prosperity.
With the budget a few weeks away, Finance Minister Clyde Caruana made a partial reality check on the country’s public finances. Unsurprisingly, he focused on the positive indicators, not saying much about other indicators that make a difference in ordinary people’s lives.
Many will surely appreciate the headline-grabbing comment that the government collected €500 million more in taxes last year than it did in the previous year. It also expects to collect a further €200 million in 2024. This has helped to cushion the extra €200 million spent on capital and recurrent expenditure between 2022 and 2023. Tax cheats have deprived the community of the investment needed to upgrade services for too long. It is commendable that this social injustice is being tackled with more determination.
Understandably, Caruana shot down the Malta Development Association’s recommendation to reduce corporate tax for local enterprises to 15 per cent. He diplomatically argues that while the EU tax harmonisation is ongoing, it would not be prudent “to shock the economy”.
Caruana confirmed that the government will again ignore the IMF and EU recommendations to restructure the energy scheme to reflect market realities.
The longer it takes to ensure that energy prices reflect market realities, the more difficult it will be to make inevitable and realistic adjustments when public finances come under pressure.
Caruana’s pre-budget comments showed some noticeable streaks of hubris. He commented that the Maltese economy is “the strongest in the EU”.
He reiterated the prime minister’s promise to make “the biggest (income) tax cut in the country’s history”. What Caruana failed to mention is as crucial as his comments on the tactics to keep the economy ticking and taxpayers happy in the short term as the election begins to appear on the political radar.
It is time for the government to start defining its plans for putting public services on a more sustainable level. The overpopulation problem is creating immense pressure on our public health system, especially as hundreds of millions of taxpayers’ euros have been squandered in the last few years without any improvement in medical services.
The ageing population phenomenon also puts pressure on the public care services of the elderly. The healthcare system needs massive public investment to meet the current and foreseeable requirements of the community.
The education system is another area that needs better quality investment to meet the objective of preparing young people for the realities of today’s economy. The government has not said much about reforming the education system to ensure that the country attracts high-added value and capital-intensive investment to reduce the dependence on abundant, low-cost imported labour.
The short-term fiscal indicators Caruana focused on are essential. However, focusing on the costs of measures that will address the country’s longer-term socio-economic viability is just as important.
Too often, business lobbies and households focus on the fiscal goodies they expect the finance minister to deliver on budget day. Admittedly, some social partners take the long-term view when making pre-budget recommendations.
The budget is a short-term fiscal plan defined in the context of a long-term economic strategy.
Hopefully, the coming budget speech will make a more comprehensive and less partisan reality check on the country’s longer-term socio-economic prospects.