So the cat is finally out of the bag. The pain to be suffered by all Maltese firms, families, pensioners and all is but a medicine we need to take to avoid a worse economic outcome such as the one in Greece. The link with oil prices has grown so thin that the main Cabinet protagonists are now explicitly linking the tariffs to the prevention of another Greece in Malta. But why pick on Greece out of the 16 members of the eurozone? What do we have in common? Is a similarity being hinted at, perhaps even subconsciously? Say, as PIG is to Little Piggy? Perhaps.
It was September 2008 when the two main protagonists, known for their down-to-earth common sense, started behaving very oddly. Significantly, they refused in the most absolute manner to consult effectively with the social partners in the Malta Council for Economic and Social Development. The alternatives being offered as solutions were similar to a condemned person's choice of dying by hanging or by a firing squad.
They camouflaged their arguments with complicated arithmetic, a plethora of graphs and stretched economic and accounting principles. This raised eyebrows, of course, but few realised then that these Cabinet protagonists were themselves in a state of shock. They must have had just seen a lot of red ink pouring profusely from our public finances, a couple of months after the general election.
The emergency lever had to be pulled on October 1, 2008 and nothing and nobody could reverse this measure caused by a force majeure. It even had to be backdated.
Under the semblance of business as usual and token selective assistance given to big firms in apparent trouble, the fiscal consolidation during one of the biggest international recessions since the 1930s had to continue. The "hidden tax" model was repeatedly applied to tariffs of electricity, water, gas and, recently, drainage services.
Indeed, Malta has many things in common with Greece apart from the Mediterranean Sea. For the past 20 years Malta managed to gross up its debt from a mere 12 per cent in 1986 to more than 70 per cent some 20 years later. To accomplish such a feat, our government had to increase current expenditure each year by a higher rate of growth than the country's nominal GDP. Even the two-digit economic growth rate of the late 1980s and early 1990s were superseded by an expenditure outburst that knew no bounds. The mentality that money was "no problem" was ingrained and accepted by many. Millions of euros were wasted on ineffective programmes and initiatives, misguided subsidies, rent seeking public authorities and agencies lacking transparency and accountability. All this exuberant public expenditure was swept out of sight under the public debt carpet.
Ok, the past is the past. So what about the future? Is there, then, anything inherently wrong with the current economic measures? Yes, absolutely. They are misguided.
Just observe the fiscal consolidation carried out by the government in part fulfilment of European membership and subsequently eurozone entry. It was mainly carried out against the best advice through significant increases in the tax burden that depressed our economy between 2001 and 2006 causing a two-year recession and accompanying sluggish growth pre- and post-recession years. The year 2007 being a euro changeover year contributed to a stoking of an existing property bubble and a consumption-led frenzy, which tricked the government into believing that the economy had then turned a corner and jumped on a sustainable growth path.
It is foolish for the government now to repeat the process once again through a concealed fiscal consolidation based on increasing the tax burden and cuts in capital expenditure. Both the International Monetary Fund and, recently, the National Bureau of Economic Research in the US are advising countries against this easy but unsustainable consolidation path. The inflationary effect of the tariff charges will further contribute to Malta's already eroded export price competitiveness while the reduction in public investment will condemn the economy to sluggish growth for many years to come. We just cannot afford to go along this path again, this time with our eyes wide shut.
Prof. Scicluna is a Labour member of the European Parliament.
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