Labour invited to sit on MCESD

Finance Minister John Dalli yesterday invited the Labour Party to participate in the Malta Council for Economic and Social Development, even though there is a question mark over whether political parties can in fact contribute to the forum.

Though Labour deputy leader Charles Mangion remained non-committal, he believed his party had a lot to contribute in the forum.

The two came face-to-face during a business breakfast focusing on the budget organised by The Business Times at the Radisson SAS Baypoint.

As expected, the two spokesmen took opposing views on the budget, while economist Edward Scicluna spoke about the need to put money back into taxpayers' pockets.

Mr Dalli shrugged off criticism that expenditure this year would be nine per cent higher than last year. This was a superficial analysis since it overlooked Malta's entry in the EU.

Defending the increase in VAT, Mr Dalli said there was "no free ride" and the contribution has to be commensurate with the demands on society.

Dr Mangion expressed different views and described the budget as the "most uninspiring ever", with no ideas on how to bring about the reforms needed to face the challenges.

All economic indicators clearly pointed to an under-performing economy tilting towards a recession, unless fundamental issues were addressed.

A slow European economic recovery and the war in Iraq coupled with terrorism may have had an impact on economic performance, yet they cannot solely explain the economy's bad shape.

Suffice to say that Asian economies continued to grow steadily while the US economy boomed at seven per cent, he said.

Dr Mangion said that if one assumed a growth rate of 0.8 per cent in real terms in 2003 for the economy, this still fell well below that of the other EU accession countries.

Prof. Scicluna appealed to the political parties and the social partners to stop quibbling and find ways to control the rate of expenditure. The government, the opposition and the social partners were generally admitting this problem but in the same breath they implied that "sacred cows" were untouchable.

"Who would dare even think taking back student allowances, for example? Reducing the labour force in a government institution, impossible...," he said.

It was worth pointing out, he said, that if the 2004 budget were to repeat itself for 10 years against a continuing, though highly improbable, weak economic environment, the government would be collecting one full lira for every lira earned by 2014.

A more probable scenario was that the economy would grow by a slightly higher average rate of five per cent per annum in nominal terms, while expenditure would be allowed to grow by some eight per cent, because of continued resistance.

Under this scenario in 2014 we would find 65 per cent of every GDP lira being taken by the government, he explained.

The ideal scenario was to work together and restructure the whole expenditure package in such a way that expenditure grew some two or three percentage points below the GDP nominal growth.

In that case taxpayers, including businesses, would see the tax ratio dipping to reasonable levels, say 34 per cent in a decade's time.

The citizen just cannot give away his hard-earned lira without the full confidence that it would be employed in the most clever and prudent manner, he said.

"On second thoughts, in fact, we should work hard to put back as many liras as we can where they belong - the taxpayer's pocket. I am hopeful that this would one day take place," Prof. Scicluna said.