Deficit: we have work to do

It seems to me this Labour government takes too much blind comfort in the fact that the national debt is below the 60% limit of the GDP; a limit set in 1992 through the Maastricht Treaty across all EU countries. The limit for the annual budget deficit had to be not larger than 3% of GDP.

Though it is good to abide by this obligation, this, in itself, is no guarantee that all else is otherwise acceptable in an economy.

Mariana Mazzucato, professor in the economics of innovation and public value at University College London writes in her book, The Value of Everything: “You might imagine that these figures of 60% and 30% are arrived at through some kind of scientific process – but, if so, you’d be wrong. These numbers are taken out of thin air, supported by neither theory nor practice.”

Finance Minister Clyde Caruana assures us he will bring the deficit in line.

So let us not build our future on short-lived solutions but, instead, try to follow our traditional Maltese values of living within our means and paying our bills on time. We cannot, as this government is doing, throw money at problems or borrow our way out of problems that resulted from the government’s own reckless squandering of public money.

But, one may ask, why is it that, despite a very strong economy (or so we are told), the record numbers of tourists, restaurants bursting at the seams with patrons, funds flowing in from the EU and, we may add, the huge sums raised through borrowing, the government cannot find the money to increase the minimum wage so that low-income earners and pensioners can have enough money for a decent living? Why cannot we afford all the necessary medicines for the sick?

The answer is simple. It boils down to gross financial maladministration.

In any case, if we carry on like this, the ‘leeway’ from the 60% of the GDP left available to us by all the previous prime ministers since independence will sooner or later be exhausted. But the finance minister is not worried. He assures us that he will bring the deficit in line. He seems to be optimistic that the GDP will grow at a faster percentage rate than the percentage rates growth of the national debt and the annual deficit so that, in this way, we will remain within the 60% and the 3% figures of the EU economic governance framework.

Let us hope that the finance minister is right in his calculations and predictions. Still, if he fails to tackle the core problem, that is the huge annual budget deficits (even if brought down within 3% of GDP), he or his successors will find, every morning on his desk, a cheque for $1 million to sign away to pay for the interest due on the national debt, even if the national debt or the deficit remain within the above-mentioned limits.

If he does not wish to bequeath such a dire situation to our children, he must urgently tackle this problem. He must not only clear the excess over the 3% by 2027 but also the deficit of 3% itself: a commitment which the minister cannot make. This requires hard work and even sacrifices. But there is no other honest option.

The minister did not get it quite right insofar as the number of immigrant workers is concerned. We cannot afford a repeat. The more we postpone to take remedial action, the more painful the medicine.

Tardare sì, scappare no.

Joe Pace Ross – Sliema