Finance Minister shoots himself in the foot

The Minister of Finance is apparently going through the same motions of last year when he presented the constituted bodies with a pre-Budget consultation document on the state of the Maltese economy.

Readers will no doubt recall the Opposition's disclosure this time last year that what had been presented as a consultation document to the constituted bodies had already been filed with the European Commission as a formal Pre-Accession Economic Programme.

This official document soon found its way on the EU Commission Website with the Commission's formal reaction to the document.

One trusts that more prudence will be shown this year and that the constituted bodies will be told clearly whether the document in question is going to be identical or not to the new Pre-Accession Economic Programme which has apparently already been drawn up and finalised.

Comparing and contrasting the two documents - that for Budget 2002 and that for the forthcoming budget - shows that this time the minister has limited himself to shorter term projections.

In his introduction to the document he made it clear that "only short-term projections are being provided as the outcome of negotiations with the EU Commission, as part of the accession process, is not yet fully known...."

In order to pave the way for certain projections which can easily go haywire, the Minister went on to tell the constituted bodies that: "This is a snapshot of the current situation and a review of short to medium term projections of macroeconomic and fiscal developments that Government perceives, as of today, to emerge. This is, therefore, not a static one-off exercise by any means but only provides a framework wherein elements and compounds combine and change as a result of interactions."

Stripped of its rhetoric this statement shows that Government knows very well that it can only plan for the short-term in view of the uncertainty created as a result of the shape that its budgetary discussions with the EU have been taking in Brussels.

What preoccupied me most about this year's consultation document is that were one to compare and contrast growth rates as laid down in the document with those carried in the Central Bank Quarterly Review for Quarter 1 - 2002 one will find wide-ranging discrepancies.

To cite a few examples (in percentage terms) :

Such wide discrepancies on recent 'actual' performance shed strong doubts on the reliability of the document; more so on its projections.

Discrepancies become even more glaring were one to contrast such figures with those laid down in the Consolidated Account Structure 2000-2004 which Minister Dalli had published in 1999.

The Pre-Budget 2003 Consultation Document not only throws the 2000-2004 projections overboard, but it shows discrepancies not only regarding the extent of certain figures, but also concerning the trends and direction of these projections.

If the 2000-2004 projections have been subject to such wide variations before having even reached the mid-way mark of their lifecycle, what is the real value of any projections now being provided by this government, almost literally on the eve of general elections, based on the assumption of no new taxes, a wage freeze at best in the public sector, no changes in social benefits, constant interest rates and a scenario which in the ministry's own words "does not reflect any quantitative assessment of the implications of EU accession"?

This approach makes the whole projection exercise suspect and certainly unreliable, if not also misleading.

Bearing in mind how privatisation proceeds have been presented as ordinary revenue by government, how certain statistics have been manipulated, as well as how certain parastatal organisations, corporations, authorities, foundations and regulatory bodies have been run financially, there is very little solace to be picked up from the announcement that government intends to adopt a new Public Finance Management Act, which will replace the outdated Financial Administration and Audit Act of 1962.

We have nothing against updating accounting and legislative tools so long as these actually lead - in real and practical terms - to better management and control of public finances "with more transparency and accountability as emerging factors".

What I found intriguing in the consultation document is that while certain labour and inflation projections tend to continue to look over-optimistic as they did in the past, Government found it well nigh impossible to camouflage certain emerging trends.

Primarily, that

¤ output is expected to decline slightly in 2003;

¤ investment growth is only expected to pick up in the medium-term;

¤ there will be a temporary widening in the trade gap this year;

¤ initially a slight increase is expected in unemployment;

¤ tourism recorded a major setback during last year;

¤ the general government budget balance is only envisaged to decline over the medium term

¤ in 2003 GDP growth is expected to slow down slightly;

It is evident from these projections that the minister is only expecting things to get better once the elections are out of the way.

This is a rather unsubtle way of telling the people who matter: vote us in again, and you will start seeing an improvement immediately... but only then.

I very much doubt how much this document can provide a serious basis for discussion.

Bearing in mind the unreliability of the figures provided, the 2003 Budget becomes irrelevant before it even sees the light of day.

These antics go on to prove that the minister is doing nothing but continuing to shoot himself in the foot, only to reload fast.

Mr Brincat is main Opposition spokesperson on the economy and finance