Government living a lie - Sant

Labour MP Alfred Sant yesterday accused the government of living a lie in trying to continuously instil a 'feel-good factor' without consulting with the economic operators to understand how the economy was really performing. He warned the Maltese economy had reached a structural crisis, where past strategies were becoming less and less effective. Malta needed a new strategy which was more courageous.

Speaking during the debate on the Bill implementing the measures announced in the budget, Dr Sant said the government was adopting a 'business as usual' attitude, hoping that problems would resolve themselves in due time. Many people were inclined to follow the government thinking and anyone who challenged the government was branded as a messenger of bad tidings.

The economic studies presented with the pre-budget document showed the government was playing with numbers.

The private sector lacked leadership. The government did not have any long-term plan.

The economic growth rate had been increasing at a slower pace for the last 15 years. The economy had been stagnant for years, leading to an inferior quality of life.

It was in the national interest to analyse this negative economic performance and seek what factors contributed to this situation.

No analysis on the social impact in terms of employment, conditions of work, and property prices, among others was made.

The economic situation was not worse thanks to the good performance of online betting and financial services which contributed to about 10 per cent and four per cent of the gross domestic product (GDP) respectively.

The economic survey gave scant information on these two sectors while the pre-budget document did not give information on the dynamics of these sectors especially in terms of employment and net added value.

The financial services and online betting were not providing enough jobs to compen- sate for the losses in the other sectors.

For the past 10 years, manufacturing and tourism had been undermined. Companies which closed down were not replaced. These sectors were made less competitive because of increased expenses in production and services.

Gozo had even lost a substantial part of its hotel infrastructure. Main local companies consolidated their position in the market only through a revaluation of their immobile assets.

Property prices had risen and remained so despite the recession. This was also affecting the quality of life.

Dr Sant accused the government of using the international recession to give a false impression of the real economic situation. Contrary to what happened in the other eurozone countries, inflation and the cost of living were higher in Malta even during the time of the recession. The price index and foodstuff prices were higher than in other EU countries. This was a symptom that the economy was not performing efficiently.

No one had made any analysis on the effect that economic liberalisation and privatisation had brought about.

Dr Sant said he agreed with certain radical changes but he was also convinced that the way that economic restructuring was done did not lead to the desired results. He asked whether these factors contributed to making the Maltese economy less efficient.

The economy was less open than 20 years ago. Maltese companies focussed on the local market and not on exports. Privatisation did away with the state monopoly but gave rise to monopolies or duopolies in the private sector. There was no real competition in the banking sector.

Turning to the banking sector Dr Sant said the rate of profit made by this sector in Malta overtook the rate of development. One could not speak of any significant improvement in government administration as evidenced by Auditor General reports.

Systems of deregulation and the imposition of direct and indirect taxes have brought about a bigger burden on industry. Dr Sant said that Mepa was riddled with inefficiency and, despite a promised reform, was still facing the same, if not worse, problems.

The electricity-producing plant was among the least efficient as there had been lack of investment in new plants. This directly increased the costs of the production which the government was passing onto the consumer.

Dr Sant said the government had proceeded blindly in undertaking obligations to satisfy EU criteria. This was leading to an expense in research as to the use of wind turbines, when the government ought to be aware that this would not work.

This approach was increasing the national debt and the capital expenditure. Mater Dei Hospital had siphoned off more funds than projected. Furthermore there was a substantial increase in the current expenditure.

The increase in expenditure had brought about a situation where the government, to fulfil its obligations, was increasing taxes to raise income. This is reflected in the imposition of the bed tax, Mepa tariffs and the increase in energy tariffs.

Dr Sant said that Malta's position within the eurozone would continue to increase its difficulties to regain competitiveness. The budget for 2010 would lead Malta into a dead end. The government had no other option but to increase taxes.

He criticised the government for having shied away from facing and solving those economic difficulties identified between 1996 and 1998, and chose to focus on joining the EU and on modernising the economy in the wrong manner. In this way, Malta has had to face burdens brought about by the EU acquis, such as the imposition of a tax on plastic bags.

As could have been foreseen, the funds which were thought to be forthcoming from Brussels did not materialise within the envisaged timeframe and this led the government to make one of three choices: either postpone projects, impose further taxes or increase its debt by paying for these projects from its own funds. The government had opted to postpone projects which were of benefit to Malta.

Concluding, Dr Sant said Malta's economy was reaching a structural crisis, where past strategies were becoming less and less effective. The negative consequences of the recession would hit the middle class and the low income families harder than the elite class.

Although the EU might be able to help in designing a strategy to combat the effects of recession, he believed the best strategy was to come from within.

To do this, agreement must be reached on what constituted the current position and one must also understand its causes. Instead, the government depended on the 'feel good' factor, with the government's strategy making Malta less competitive.

Other speakers were Labour MPs José Herrera and Gino Cauchi and Nationalist MPs Joe Falzon, Francis Zammit Dimech, Frederick Azzopardi and Stephen Spiteri. Their contributions will be reported later.