The continuing uncertainty about the economy makes the 2021 budget a high-risk exercise.
The European Union has invoked an escape clause in the Stability and Growth Pact to free countries from strict fiscal restrictions. This concession will allow member states to take the emergency measures needed to try and steer their economies out of the turbulence caused by COVID-19.
Still, Finance Minister Edward Scicluna yesterday gave his assurance that unlike other EU countries, which are hinting at the need to raise taxes to finance their growing debt, Malta has the leeway to sustain the financial support it is giving to its citizens.
The rituals that precede the announcement of the budget have been followed religiously. Consultations with the MCESD, trade unions and business lobbies have produced a raft of recommendations that range from wish lists to realistic proposals that would undoubtedly help to ease pressures on workers, employers and other stakeholders in the economy.
The prime minister has confirmed that the preservation of jobs will continue to be the guiding principle of the new and renewed measures aimed at mitigating the impact of the medical and economic crisis. The opposition’s pre-budget document is in agreement with this tactic.
There is always the risk that the lobby groups that can make their voices heard most loudly will have their proposals moved to the top of the list of initiatives included in the 2021 budget. The property development lobby is one such group.
There is little doubt that those seeking to buy their first home should continue to be supported to realise their dream. After all, the future of our society depends on the ability of young people to start a family. Having a decent home is one of the first steps along the way.
But encouraging speculative froth in the property market as experienced in the last few years should certainly not be a priority for the next budget.
The minister of finance should be acutely aware of the importance of using taxpayers’ money judiciously. One risk that the managers of the public purse are taking in the current crisis is that of encouraging moral hazard.
While supporting businesses that are facing liquidity problems is a necessity, using taxpayers’ money to extend the life of companies that were showing signs of insolvency pre-COVID is not only undesirable but also a waste of public financial resources.
Of course, this year’s budget planning comes in the context of challenges that predated COVID.
The ongoing reputational risk that the country faces as a result of corruption and disregard of anti-financial crime in the last few years cannot be eliminated in the short term.
One worrying element during the pre-budget stage has been the rationalisation by the government for the support of economic activities deemed to be high risk.
There seems to be no inclination for the government to prepare a plan B. ‘More of the same’ appears to be the philosophy underpinning the economic strategy for the next decade and beyond.
The government will soon publish updated statistics on how the country has been affected by COVID-19. The initial projections made at the beginning of the medical and economic crisis will probably turn out to be too optimistic. Tourism, for instance, shows no signs of recovering at the rate forecast.
While more realistic projections may be needed for the coming year, the only thing that is certain is that the uncertainty will persist. It is critically important for the country to know what plans the government is drawing up to make the economy more sustainable in the long term.
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