Editorial: Budgetary push for the economy

There was never any doubt that the 2021 Budget would be all about tackling the substantial impact that COVID-19 has had on the economy.

A coronavirus-weary nation expects the government to introduce measures that would help it to regain economic momentum after almost a year of depressing slowdown.

Economically, Malta has been one of the worst-hit countries in the eurozone as a result of the pandemic.

The European Commission’s statistics indicate that the country’s budget deficit, calculated at 9.4 per cent of GDP in 2020, represents the seventh-worst fall among the 19 eurozone member states. Malta’s GDP also dropped by 7.4 per cent, the sixth-biggest decline among eurozone countries.

In announcing the Budget measures for 2021, the Minister of Finance, Edward Scicluna, seeks to apply a balm to the economic and social injuries caused by the pandemic. Even in a best-case scenario of a resolved medical emergency, the wounds would be deep. The crisis is arguably worse than could have been imagined back in March.

As has become customary in recent budgets, the government introduced a multitude of micro measures aimed at promoting more social equity.

With no regulatory fiscal constraints for at least the coming year, the improvement in social benefits is broader than it has been for the past decade.

Families with low income, young children and pensioners are understandably targeted for enhanced social benefits. 

The allocation of yet another €9 million to “compensate for past injustices” is arguably the most controversial “social” benefit announced in this budget. It may indicate that the next general election could be nearer than the statutory due date.

Job preservation, especially in the hospitality and catering industries, is the underlying theme that underpins the 2021 Budget. The extension of the wage supplement until March, and possibly beyond, was an inevitable tactic to help restart economic momentum.

Any measures to promote the green economy are always welcome. Only time will tell whether those that have been announced will indeed change the mindset of the country and promote the value of ecological and environmental sustainability.

Public consumption and investment will be the primary driver of the economy in 2021. With €450 million allocated for investment in industrial estates, this should promote substantial local value-added.

The public health sector will also be getting a much-needed injection of €120 million to cater for the increased expenditure made necessary by the medical crisis.

The bedrock of the 2021 Budget is the intensification of fiscal and monetary support to prevent a deterioration in job losses as large sectors of the economy struggle to recover.

Fiscal rectitude has been shelved to ensure that the economic wounds caused by the pandemic have time to heal. The long-term scars will continue to be visible for at least the next decade.

The government will be more than justified in borrowing more money to ensure that the recovery will not be delayed through hesitation in the decision-making process.

The projected Budget expenditure of €6 billion is extraordinarily high. But the country is dealing with an extraordinary crisis that threatens the future of many families.

The immediate risk that the country faces is that of uncertainty on how the medical crisis will evolve. But the need for a re-evaluation of Malta’s economic model predates COVID-19 even if it gets no prominence in this year’s Budget.

Pre- and post-COVID-19 challenges to the country’s economic model will present the ultimate test of the government’s ability to lead the country back to normality.