Finance Minister Clyde Caruana must have had sleepless nights drawing up Budget 2023. Facing unprecedented inflation in a world decimated by a pandemic and a brutal war, the government had no choice but to provide immediate, short-term remedies to help those who risk falling through the cracks. And on that front Caruana delivered.
By spending a whopping 9.3 per cent of recurrent expenditure on energy subsidies, the government has potentially rescued families and businesses from financial ruin.
By increasing pensions and helping the low-earners, we are finally seeing a Labour government living up to its socialist name. The extra payment to be made to 80,000 low-income persons is adequate even if the impact of high inflation in items not sufficiently weighed in the inflation index may be higher for many financially distressed households.
Budget 2023 projects reasonable economic growth, significant social measures and daring fiscal projections.
If the budgetary predictions are achieved by the end of next year, the country will have fared better than most other European countries struggling against stagflation.
The €600 million to be spent on energy and grain subsidies in 2023 is substantial and can only be funded sustainably if the growth projections prove correct.
The dependence of growth on significant public and private consumption comes with medium-term risks and a degree of uncertainty. A slowdown of consumer expenditure caused by high inflation will negatively affect private consumption. A lot still hinges on tourism.
The finance minister has already signalled that Malta’s economic model needs rethinking as the above-normal economic growth is dependent on various factors that are not sustainable in the long term.
But in reality, there was little to indicate how this model is likely to change.
The government’s intention is to continue with the same economic model based on consumption.
With not much room for manoeuvre, the government must remain disciplined in its spending, and try to cut down on its bloated public sector which remains rife with unproductivity.
While all businesses as well as families have had to make cuts, we cannot continue seeing government entities indulging in extravagant activities which render nothing to the economy but continue fuelling the egos of ministers and their quangos.
In their immediate reactions, businesses and employers lauded the support given to cushion the energy prices but they rightly say the budget fell short in incentivising sectors or give long-term vision. While Caruana pledged to continue with plans to invest €700 million in the environment over the next seven years, the details remain scarce. One hopes the environment will not remain on the backburner.
The projected €920 million on capital expenditure next year, partly financed by EU funds, should help to support economic growth even if turnover volume with our trading partners fails to be as healthy as projected.
The challenging economic environment in Europe poses real downside risks for Malta’s open economy.
The reduction in road expenditure is a sensible shock absorber should projections for growth and public expenditure move in unintended directions.
The mantra that no new taxes have been introduced is politically attractive to most of the public and politicians. The social focus of this budget remains its strong point.
Considering the tough storm, the budget has largely succeeded to stabilise the ship and alleviated financial hardships for the underprivileged.
As much as it has sought continuity, we can only hope the government continues focusing on other pressing issues like the creation of new sectors, reducing bureaucracy and tackling chronic problems which impact the economy, like our complex traffic problem.