Let's get real

Budget 2004 gears the country for the new times ahead of us. It sets the tone from the outset by declaring that we are entering a new phase. The Budget is the launching pad of an economic and financial programme for 2004 within a new reality for Malta as a member of the European Union, with all the benefits and obligations that are tied to it.

It is now up to us. We need to equip ourselves for the new times. This is the right time for each and every one of us to get real, to take account of what we can and cannot spend money on, to realise that whatever expenditure we point out as necessary requires a corresponding revenue stream, to understand that there are services to which we are entitled just as there are contributions to be made by us for the provision of those services, to equally keep in mind the principle of solidarity in determining who needs most support from the state as well as in establishing who can help in making that support available and to what extent.

Getting real implies taking full account of the fact that the public deficit needs to be tackled. This year will end with a deficit of Lm108 million, which is Lm33 million more than originally estimated. That deficit represents 6.3% of the Gross Domestic Product.

It is true that when we had a Labour government, the deficit had shot up to Lm150 million. Nonetheless the present deficit level is unacceptable and it needs to be brought down to 2.8% by the end of 2006. That means bringing down next year's deficit to Lm95 million (5.4% of GDP) and then reduce the deficit further by Lm20 million each year for the following two years.

The Budget provides a table of expenditure and revenue between 2003 and 2006 so that Government will have its yardstick by which to measure its own performance and targets.

This exercise is not only necessary to enable Malta to join the Eurozone at the earliest opportunity but also because it makes good economic sense for our own purposes. Over the past years there has been general consensus about the need to tackle and reduce the national deficit. Now it is a question of getting real and achieving the results that are necessary in the national interest.

After Malta joins the EU next year, it will be applying to participate in the EU's Exchange Rate Mechanism II by early 2005. Interestingly, Malta already performs satisfactorily on a number of the conditions that we have to fulfil to be able to adopt the euro. We perform well with regard to inflation, the long-term interest rate and the exchange rate criterion. In the coming years, Malta will also need to fall in line with the benchmarks established for the fiscal deficit and public debt.

The way to achieve results is by working together. Government has over the past years refined the consultative process that it embarks on to build up the Budget.

Gone are the days when budgets are deemed as government's exclusive domain and where all details are kept secret behind closed doors that are guarded by the army and where telephone lines are severed until the minister turns up at the House of Representatives with his Budget briefcase! Gone are the days when workers need to wait for the Budget speech to see whether or not Government, out of the goodness of its heart, had decided to allow some cost of living increase.

Through the Malta Council for Economic and Social Development (MCESD), Government has set up a structure through which all the stakeholders are briefed about developments and participate with their own valid suggestions, analysis and observations. This process means that the different social partners assume more responsibility by being part of the decision-making process.

Much was said about this year's 'Gozo retreat'. It was no weekend break for all the social partners who took part but it was certainly a time to go through various options about decisions that need to be made and the Budget read out last Monday reflects the valid contribution put in by the same partners.

In the coming months there will be more important decisions to make, in particular about the question of pensions. Following a presentation on this subject by the chairman of the National Commission for Welfare Reform, experts from the World Bank have been asked to submit an actuarial report on the situation as well as advise on the reforms that are needed.

That report will be presented by the end of January 2004 so that Government, through dialogue, would be in a position to make the required decisions by June.

This is another field where we need to get real. We have an obligation not so much for the immediate future as for the longer term to announce the reforms through which our pensions remain sustainable. Trying to behave like ostriches and bury our heads in the sand would only mean that one day in the future (even if that means ten or more years ahead) the whole pensions scheme would collapse and whoever is then in government would have not only to plan about what to do for the following years but also reduce benefits payable at that stage.

This is the sad experience that some governments had to go through. This is what we are committed to make sure that will not happen in our country and we are privileged enough to be in time to make the right decisions to keep the system sustainable by acting together next year.

A very interesting concept announced in next year's Budget is the creation of different accounts or 'envelopes' to provide for various areas of national activity. That includes tourism.

When I met hoteliers and restaurant owners the day following the Budget, last Tuesday, there was general satisfaction that Government had not only heeded the advice from the industry to retain the present 5% VAT rate but that it had also introduced this accounting system that will be of great benefit to tourism.

On a personal note I cannot but express my own personal satisfaction that tourism has been given its due importance in next year's Budget. Government is recognising that a quarter of our economy depends on this sector and is making the necessary investment to upgrade the Malta product. In fact Government will be providing Lm10 million over four years to start embellishment projects so that we can enhance Malta's attraction in order that more tourists may visit us.

The envelope system will then mean that recurrent and capital expenditure in tourism and culture will be managed through an ad hoc account which will be credited with VAT receipts from hotels and restaurants as well as from revenues which Heritage Malta will collect from the various sites that it manages.

As has been proposed within the MCESD the envelope system will be managed by a committee made up, among others, of the Permanent Secretary responsible for the particular activity, by an official from the Ministry of Finance and Economic Affairs, by a representative of those involved in the activity and by an MCESD representative.

This means that the tourism industry can in the future be part of the decision making process on how best to allocate funds that derive from the same industry. The purpose is to strengthen transparency and control in public finances and to secure awareness that all revenue collected is addressed to specific projects.

Getting real implies that people in the trade realise that it is in their interest to generate as much funds as possible for tourism, since funds originating from tourism are reinvested in the same sector rather than treated as part of the taxation system. That makes any tax evasion in this or any other sector that much more abhorrent since it would imply that we are trying to destroy the very foundations of what could guarantee our economic prosperity and growth for the future.

Tourism is again mentioned in the Finance Minister's concluding remarks when he includes it as one of the areas where we shall all need to give our part.

Only last week Moody's indicated sectors within the tourism industry among the niches that will determine our country's success and growth in the coming years.

The Budget sets the right parameters in this direction. It is up to each and every one of us to get real, do our part and pull in one direction - in favour of our country and our future.

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