Rumours and budget realities

According to a press report, Alfred Sant started out with the usual bland statements last weekend. He told his audience that his party will be listening to, and talking with all of us. The party will be giving its backing to the correct measures and proposals, but it will be very critical when things are heading the wrong way.

The party will be showing the way to the future, in line with the new realities as decided by the people. Another sign from Dr Sant that the party will respect its commitment to honour the people's will on EU membership. "Above all, the Labour Party will be defending the truth."

Trouble is that truth can be subjective. The benign parts of Dr Sant's speech should not have lulled us into thinking that the Labour Party has discarded its old strategy of spreading a constant message of doom and gloom and of imminent disaster.

Despite his promise that the truth comes first, what actually comes on every occasion is the Labour Party's milking of every propaganda opportunity that arises. In fact, according to l-orizzont's report, Labour's leader "stressed that we cannot put aside the possibility that much sooner than five years from now, our country will have to make a new choice on how it is governed and who will govern".

In what was surely a spontaneous, dispassionate and impartial reaction, Monday's l-orizzont also carried an editorial that questioned whether the government would last out its five-year term. It reported that Labour's leader had indicated the "fact" that the people "may" be called upon to choose the next government sooner than five years from now.

The editorialist then put on his thinking hat: "The first thought that comes to mind is that the Labour leader may be hasty in his judgment. But Dr Sant's statement is based on facts that are occurring around us..." L-orizzont turned Dr Sant's hint into the shadow of a fact.

What a flight of fancy! Prime Minister Alfred Sant himself turned in his resignation in 1998, and he must salivate at the prospect of Labour losing its monopoly on the science of resignation and the delicate art of calling in one's chips.

Even if Labour's rank and file is not immune from a measure of political self-delusion, very few of the party's faithful will fall for this prediction of the government's early demise. Still, l-orizzont will press on and the party machine will surely not deprive itself of each chance to feed more fantasies into its doom-and-gloom propaganda mill. Crying wolf and feeding uncertainty has long been their primary business.

The problem for Labour is that this is a government that rises to a challenge and addresses problems in a sensible way. It does not have Labour's bad habit of compounding problems and taking matters to the precipice. It will meet its targets.

Labour is trying to portray the situation as follows: devoid of a long-term vision, this government found a convenient side issue in the EU controversy and, now that that is out of the way, the real problems are surfacing, one of which is the fiscal situation.

The very opposite is actually the case. The government's long run vision revolves around the radical challenges and opportunities opened up by EU membership. Adoption of the acquis, full access to the world's largest markets and the EU's financial and technical assistance open up vast new opportunities.

Yet it is also true that the exciting times that Malta is set to embark upon have been muddied by an adverse international environment.

However, the present situation would be considerably more difficult if on top of the problems caused by the collapse of key foreign markets, the EU vote had gone the other way. Pre-election uncertainty would have been replaced with the certainty that Malta would be out of the EU for good, discouraging investment and growth.

It would have been a dreadful setting in which to confront the task of dealing with deterioration in international economic conditions. The problem of being deprived of the benefits of EU membership would long outlast the current setbacks in international markets.

There is no denying that there are fiscal issues that need to be addressed. Still, the government's finances do not warrant the cataclysmic description that the opposition is trying to pin on them.

On the contrary, the prospect of fiscal consolidation should be seen as the opportunity to cut inefficiency across the economy, to generate better value for taxpayers and for users of publicly-provided services, and to reduce fraud and abuse.

Looking at the figures for the first half of the year and comparing them with past numbers, one notices nothing catastrophic in any particular category of spending or revenue, though the totality has produced a situation where the deficit will exceed projections.

Pre-election uncertainties are now over and their impact on the government's finances will not recur. On the other hand, troubling times in the international economic environment continue to make life hard for our exporters, and that too has affected the public finances.

In the NSO's latest release on the public finances, one can look at figures for the first half of each year between 1993 and 2003. Such six-monthly figures exhibit considerable volatility, and 2003's individual numbers do not stand out as being particularly out of the ordinary, even if the totality of the fiscal picture, and the fact of a deficit that exceeds projections, have to be addressed in a coherent but realistic manner.

Take revenue from income tax. In the first half of 2003, it was up 2.4 per cent on the same period of last year. This was a smaller increase than in recent years - precisely what you would expect in an economy that is slowed down by international economic difficulties and pre-referendum and pre-election uncertainties.

In any case, as I have already mentioned, such semi-annual data tend to be quite volatile. Back in 1997 (the first full year of Sant's term in office), income tax revenue had dropped 17.3 per cent, only to rise by 23.6 per cent in 1998, falling to a 2.2 per cent growth clip in 1999, then shooting back up to a 41.2 per cent increase in 2000.

In the first half of 2003, consumption tax revenue declined by one per cent. Total recurrent revenue increased by only 0.1 per cent, the lowest percentage increase since 1997, when it actually fell by 0.1 per cent.

On the expenditure side, capital expenditure rose by 21.4 per cent. A Labour government would probably show little hesitation in cutting this down. During their two years in office, Labour did precisely that. Capital expenditure fell by 20 per cent in 1997 and by 8.7 per cent during 1998.

In the first half of 2003, recurrent expenditure rose by 8.3 per cent, a growth rate that will have to be contained.

All in all, there is a careful balancing act that has to be accomplished. The demands on government to improve the infrastructure will continue.

At the same time, the provision of public services has to become more efficient, and we have to ensure that the burden of the public debt is contained and reversed. The task ahead will be easier once the international economy recovers. And we can do without needless rumours and gross exaggerations.