Gonzi slams Sant's currency depreciation proposal

Prime Minister Lawrence Gonzi yesterday slammed Opposition leader Alfred Sant's proposal for a gradual depreciation of the Maltese lira, saying the proposal was grossly mistaken and workings showed that the consequences would be dramatic and frightening.

Replying in parliament to the comments on the budget made by Dr Sant on Wednesday, Dr Gonzi said Dr Sant should immediately admit his mistake and withdraw his proposal so as to give peace of mind to the people.

This proposal, Dr Gonzi said, had come out of the blue and did not even feature in the recently issued MLP economic policy document. Dr Sant had spoken of the lira being over-valued by 10 per cent and called for depreciation over a year or two.

Had Dr Sant been Prime Minister and announced such a measure, the outcome would have been as bad as when Labour raised the water and power tariffs, Dr Gonzi said.

Workings based on the proposal showed dramatic and frightening results with the average family losing out by Lm14.77 per week, or Lm767.87 per year.

A family with one child would lose Lm17.75 per week (Lm923 annually), that with two children, Lm17.91 (Lm931) with three children, Lm17.10 (Lm889) and with four or more children, Lm18.91 or Lm983 per year.

A married couple would lose Lm16.40 per week or Lm852 per annum, a pensioner, Lm9.95 a week or Lm517 per annum and a single person, Lm9.27 per week or Lm482 per annum. Separated persons would lose Lm11.46 per week, widows/ers Lm9.15 weekly, those whose marriage had been annulled and had remarried, Lm10.37 per week.

If one based his calculation on the middle class, one would see that those earning between Lm4,000 and Lm6,500 would lose Lm14.34 per week (Lm745 pa); those earning between Lm6,500 and Lm9,900 would be losing Lm18.66 per week or Lm970 per annum and those earning over Lm9,900 would be losing Lm23.80 per week or Lm1,237 per annum.

Mentioning such a proposal was also dangerous in itself because it could see the millionaires immediately sending their money abroad and converting it into foreign currencies, waiting until depreciation took effect and then repatriating their funds with huge profits. The rich would have got richer and the poor poorer. Was that the competitiveness which Dr Sant sought? Was that seriousness ?

How had the trade unions not raised a storm over this proposal? The people, Dr Gonzi said, needed to be assured that there would not be a depreciation. Malta's currency was strong and stable and there was no justification for what Dr Sant was proposing.

Indeed the World Economic Forum in a document issued on Friday had also said that "Currency depreciation is no substitute for sound policies. To make decisions based on just the exchange rate was short sighted and costly. Forcing currencies to depreciate to make exports more competitive in world markets was nothing but a short term solution which imposed an unfair tax on consumers. While depreciating the currency made exports more competitive, it made imports more expensive, effectively subsidising exporters through taxing citizens. And this is not a good idea."

At the opening of his speech, Dr Gonzi said this was a budget with 72 initiatives apart from over 80 other initiatives made in the national employment plan.

This was also a budget which would see the government spend Lm15.5 million more on pensions and welfare, Lm6 million more on health, Lm13 million more on education and twice as much as this year on the environment. The government would also reduce current expenditure by Lm7.5 million or 3.2 per cent.

This was no doubt a challenging budget and an opportunity for the country to renew itself on the basis of what was good. Renewal came about when one recognised and strengthened what was good while having the courage and honesty to recognise weak points and address them directly. It was a pity, however, that Dr Sant had not joined in the process and that he could not find one positive measure in the whole budget .

There was one positive aspect of Dr Sant's speech with which both sides agreed: Malta had a challenge to be competitive. But there was an ocean of difference on how they felt the problem should be solved.

Dr Sant, in his speech on Wednesday, could not find a single positive thing in what the government had proposed. But when the budget was announced, the employer organisations in a joint statement said they recognised that the government had taken various measures to address the deficit and they were encouraged by measures to deter abuses. The Malta Hotels and Restaurants Association had said this was a budget which was excellent for the tourism industry.

The unions had not criticised the budget. They agreed on the need to curb public spending and abuses while stimulating the economy, but they were critical of some of the measures. He understood the role of the unions, but ultimately, one had to understand that things had changed, and if employers did well, the workers did well too. The two were in the same boat and one should not pit one against the other. It was wrong to say that employers had won over the unions. There were no winners or losers.

Dr Sant chose to blame the government for the current financial situation. Dr Gonzi said he would accept the blame for the fact that under successive PN governments, the gainfully occupied had increased, there was good quality water in the taps, the university population had risen to 8,000 from 800, Maghtab had been closed down, Gozo Channel had new ferries, telephones worked, MCAST had been opened, the elderly at residential homes were living better than before, the police were more efficient, the country was respected internationally and Malta now participated in EU decision-making.

Dr Sant in his speech saw economic stagnation everywhere and claimed the deficit was growing. True, some indicators were good and some were bad, but one should be truthful and objective, Dr Gonzi said.

Starting from the negative, he would say that some neighbouring competing countries had managed to become more competitive, meaning that Malta was less competitive. Among them were the former communist countries which, now that the shackles of communism had been removed, had unlocked their capacities.

Malta also had new, strong competition from the Asian countries, as was the case for other nations. But should Malta continue to subsidise its industries to overcome competition? Clearly that sort of assistance was no longer viable and was only a burden on taxpayers - at the same time when the government was being urged to reduce its spending. What the government needed to do, and would do, was to focus on the sectors which were viable, and there were many of them.

The government also remained concerned over unemployment. That too required difficult decisions, which the government was prepared to take. But one needed to be objective.

According to the Labour Force Survey unemployment in Malta was 5.8 per cent while according to the ETC it was 5.2 per cent. In the EU25 unemployment was 9.1 per cent and in the Euro zone countries it was 8.9 per cent. There was a problem in Malta, but not the disaster that Dr Sant had claimed.

Unfortunately, Dr Sant chose only to believe the official figures which suited him. And he was also saying that Labour would take to the streets. That was a policy of the past which would not solve any problems. It would be better for both sides to assess the situation and tackle it.

Dr Gonzi said it was unacceptable for the government to be accused of deceiving the people.

Up to a year ago, Dr Sant used to accuse the government of deception when it said Malta would get Lm100 million from the EU. Yet in the current year the government had received Lm51 million from the EU and Italy and next year it would receive Lm75 million from the same sources, funds which were being addressed to economic development in various sectors.

Dr Sant on Wednesday had accused the government of not solving the deficit problem. But, Dr Gonzi said, one should make comparisons.

This year the deficit fell to Lm94 million, or 5.2 per cent of GDP. In contrast, for 1997 Labour had projected a deficit of Lm82.6 million but the deficit climbed to Lm121 million. So who was incompetent, this government, which had met its deficit target, or Dr Sant's administration which was off by Lm39 million?

Dr Sant claimed the deficit had been reduced because capital spending had been postponed. That was not true. Only spending of Lm5 million had been postponed. Indeed, total expenditure this year included unexpected outlays which, had they not happened, the performance would have been better.

The government had planned an additional revenue this year of Lm2 million from eco-tax which had not come about as the tax was introduced late. Revenue from customs also dropped by Lm5 million. The government also spent Lm9 million on Dar Malta, Lm4 million more than projected on medicines, and Lm1 million more on buses.

Dr Sant had also somehow claimed that the government had a recurrent deficit this year which would rise by four per cent next year. This also was not true. The government actually had a recurrent surplus of Lm15.6 million compared to 2003. And next year the surplus would be Lm14 million, excluding the foreign grants. Should those be included, the surplus would be Lm61 million.

Under Labour, Malta had a deficit of Lm53 million between recurrent revenue and expenditure.

Dr Sant had also made the argument in the media that the tax burden would rise by Lm50 million next year. But, Dr Gonzi said, that could be explained by the fact that VAT returns for this year, when VAT was raised from 15 per cent to 18 per cent, would appear in next year's revenue figures. And since Malta joined the EU on May 1, revenue from duties charged at point of entry had stopped and such revenue would only come from point of sale, which would also appear in next year's revenue figures.

It was incredible how Dr Sant had criticised the government for raising the price of kerosene to that of diesel. For in 1997 Dr Sant's Labour government had done precisely that. So who was deceiving the people?

As for water and electricity tariffs, it was worth recalling that under Labour, international oil prices were US $12 a barrel and falling. But the Labour government raised the tariffs at random, for everybody with no distinction.

This government, in contrast, had raised the rates in percentage terms and specified that once oil prices dropped, the surcharge would be eliminated. Enemalta was absorbing half the price rises and 11,000 social cases were exempt from the surcharge. The surcharge was also capped for industry and tourism so as not to dent competitiveness and harm jobs.

In contrast, the Labour price rises had impacted both consumption and meters, and they were permanent.

Dr Gonzi referred to Dr Sant's request for the government to invite the Auditor General to investigate how the surcharge was calculated. The government, Dr Gonzi said, did not have a problem with the holding of such an investigation but he would not be Dr Sant's messenger.

The problem, Dr Gonzi said, was that he feared that Dr Sant had not learnt the lessons of the past, as evidenced by his proposal for the depreciation of the Maltese currency. How could the people trust him in future?

In his other proposals on Wednesday, Dr Sant had also called for accrual accounting by the government. His reply, Dr Gonzi said, was that the government currently accounted for all pending bills which were included in the accounts of what was known as the extended government in terms of EU requirements. This system would be further refined.

Dr Sant had also proposed a reduction of government spending by three per cent, excluding social spending. Indeed, the government's target was a current expenditure cut of 3.2 per cent next year.

Dr Sant had also called for a reduction of government operations by removing entities such as Mepa. Did Dr Sant want to go back to the past, when bastions made way for roads, when permits were issued only to please certain people, and discos were held in Fort St Angelo? Many of the complaints about Mepa stemmed from people who actually did not have a right for the permits they wanted, although there also were other complaints which needed to be addressed.

Nonetheless the government would seek to avoid overlapping and as a first step the government was merging the Restoration Unit with Heritage Malta.

Dr Sant had also called for regional development projects. The government was already doing that, as evidenced by the projects at Cottonera, Valletta, Mdina, Paceville and St Thomas Bay, among others.

Dr Sant had called for an incentives package for the manufacturing sector and SMEs. This was already provided through various initiatives in the budget.

Dr Gonzi said he was sure the people would understand the need there was to reduce some days of leave in order to gain competitiveness and protect jobs. But one could hardly accuse this government of having taken a measure against the family. This was the same government which had introduced many new rights to benefit families as shown in the new employment law, the measures on maternal and paternal leave and flexi-hours.

Dr Gonzi said problems did exist in tourism, but the situation was not as black as Dr Sant painted it. Arrivals in October were up 16.7 per cent over the same month in 2003. Conference and incentive travel had yielded Lm19 million this year, up by five to seven per cent over last year, and the sector would be assisted further next year.

Dr Sant's comments on Wednesday on the need to subsidise the Gozo helicopter service had been damaging. One of the companies with which the government had negotiated had accepted to operate the service. But three days after Dr Sant called for the subsidy, the company changed its position and claimed it needed subsidies. Thus, instead of helping Gozo, the opposition had pulled the carpet from under it.

As for the health sector, last week Unesco placed Malta as having the best infant mortality rate in the world, even though Malta was proud not to have abortion.

The prime minister briefly referred to Dr Sant's criticism on government appointments. The government, he said, should always seek to appoint the best people for the jobs that needed to be done. But criticism such as that being made by Dr Sant was leading many talented and respected people to decline invitations to be of service, lest they got mired in political controversy.

Turning to the end of his speech, Dr Gonzi said Dr Sant had not been objective and conveniently ignored certain aspects of the budget.

He did not say anything on the measures to tackle tax evasion, the new measures on those who inherited property, the measures in the employment plan, the tax holiday for women returning to work and the favourable tax rate for the second spouse who opted for part time work. He never even mentioned the environment, the incentives to attract film-makers or the investment being made on Malta's heritage.

The government, Dr Gonzi said, wanted to renew this country in five years with the financial position on even keel within two years when a decision on adopting the euro would be taken. Decisions on the process to be followed for that stage would be taken in the coming weeks.

The government wanted Malta to have a modern job creating economy and a sound social sector. Malta also needed a sustainable pensions system so that those who retired in 15-20 years' time could have an adequate pension. Dr Sant said nothing needed to be done, yet the pensions problem was being felt as of now. At present those earning Lm7,000 could only receive a maximum pension of some Lm4,300.

Malta in 2004 was already vastly different from that in 1997 and it would get even better in the next five years, with the focus on value added activities and a balance being struck between job and family responsibilities.

A politician's satisfaction was not in winning elections but in making the country a better place.

The road ahead was not easy, but good sailors were tested in rough seas. Malta throughout its history, had triumphed in adversity even when it did not have anything and was a colony. Nothing would discourage it now.