Editorial

It was inevitable that the resignation of Foreign Minister John Dalli would be the main topic of Prime Minister Lawrence Gonzi's monthly meeting with journalists at the Auberge de Castille last Thursday.

Dr Gonzi insisted that his decision to accept the resignation was political in nature, although he did imply - when he said his task was to see that ministers abide by the code of ethics - that that code had been breached when travel arrangements for the Foreign Ministry were made by an agency in which members of the minister's family had an interest.

But at the press conference Mr Dalli also figured, albeit in the background, as the author of the 2004 Budget Speech which he delivered as Finance Minister in the House of Representatives last November.

Dr Gonzi in fact insisted that the convergence plan for Malta approved by Ecofin, the council of finance ministers of the European Union, was no secret at all, but based on the targets spelled out in the Budget Speech. Those targets had, in turn, been fashioned after unprecedentedly close consultation with the social partners by the then Finance Minister, culminating in the Gozo "retreat".

Dr Gonzi said however that he had agreed to a request by the Malta Council for Economic and Social Development to meet to discuss the convergence plan. The meeting was later fixed for this coming Wednesday.

The convergence plan aims to reduce the budget deficit from 5.2 per cent of the Gross Domestic Product this year to 1.4 per cent by 2007, well within the three per cent maximum laid down by the Maastricht criteria.

In his Budget Speech Mr Dalli had announced the creation of sub-accounts in the Consolidated Fund in order to streamline better the administration of receipts and costs as well as decision-making when expenditure exceeds income.

The first four sub-accounts deal with tourism and culture; roads, construction and road maintenance; health, and environment and embellishment. Mr Dalli had announced an increase in the VAT rate from 15 to 18 per cent, with revenue from the extra three per cent - which he forecast at Lm21 million for this year - to be credited to the health account.

At his press conference on Thursday, the Prime Minister indicated that the new fiscal rigour is already paying off, and said that the structural imbalance had dropped by 18 per cent in the first five months of this year compared to the same period last year, and that revenue up to May was on track.

But obviously there can be no let-up in Government's efforts to cut expenditure and enhance revenue to reach its deficit reduction targets. One way to do this is the benchmarking exercise which Dr Gonzi has directed the Auditor-General to put in motion, as it happens on a suggestion by Mr Dalli, to ensure that ministries, departments and agencies obtain the best deals in conformity with financial regulations - beginning with the purchase of air tickets.

Dr Gonzi, who also holds the Finance portfolio, will be meeting ministers individually to review revenue and expenditure targets. On Thursday he insisted that the 1.4 per cent of GDP target for the budget deficit is feasible.

That is indeed so, but conditional, unfortunately, on how the rest of the economy performs. Cost-cutting measures alone will not work. The economy has to grow robustly, and productivity increase, if Government revenue is to rise and expenditure on such items as unemployment benefits is to decline.

One area which has to be watched in particular is health, of course, and specifically the expenditure on the new hospital. Dr Gonzi said that meetings will be held with Skanska, the main contractors, to hold down expenditure and to ensure that the hospital opens according to schedule.

The size of government is another area to be controlled. Dr Gonzi pointed to a drop of several hundred employees in the public sector, which is still too large. Worse, many public sector employees - secure in the knowledge that they virtually cannot be laid off - are still not sufficiently motivated to give a full day's work. It is obvious - and Dr Gonzi has hinted at this - that senior management of departments must be held accountable for delivering what is expected of them.

Perhaps the hottest potato is that of pensions and welfare reform. Judging by what Dr Gonzi has been saying, we should see some decisions taken this year. The problem - no matter what the Opposition Leader thinks - can no longer be postponed. The latest demographic statistics, released on Friday, point to the urgency of tackling the future of pensions head on and without further delay.

Clearly, the co-operation of all concerned, devoid of any jockeying for political advantage, is essential if this country is to ride out its problems. How the social partners tackle the pensions problem would be an important test.