The general election is probably around the corner. Prospective candidates are behaving in a manner that usually signals they will be facing the electorate soon, even in a matter of weeks.
While the government will wait until the last moment to confirm the date, and tries to take full advantage of the intervening period of uncertainty, the next budget, which will precede the election, must be driven by the people’s need for certainty. It must address head-on the deteriorating fiscal situation brought about by COVID-19 and lay out clearly what the government plans to do to put its finances on a sounder footing.
The pandemic has had a devastating effect on every country’s fiscal position. Governments have helped pandemic-hit businesses by footing part of their wage bill, postponing tax payments, distributing vouchers to boost private spending and issuing guarantees to make bank borrowing easier.
A half-year report by the Ministry of Finance has confirmed that in 2021, the fiscal deficit is expected to reach €1.6 billion, or 12 per cent of GDP. These indicators are worse than predicted initially, making the relative cost of addressing the effects of the pandemic the highest in the EU.
Many have rightly argued that the public money spent by all EU member states to fight the pandemic was money well spent. But it is crucial that the government now starts to inform the public how this astronomical outlay is going to start being recouped. This generation must avoid passing an unbearable burden of debt to the next one.
Both the prime minster and finance minister have given assurances that the next budget will contain no new taxation. It would be irresponsible, however, to treat the next budget as an election platform by giving the impression that fiscal policy will remain unchanged in the coming year and beyond.
As for the present economic model, it is built on attracting investment through low taxation, sale of passports, importation of cheap labour, and the encouragement of high-risk economic activities. The government tries to give the impression this is the gold standard of sound economic planning. It is not. The public needs to know what the government intends to do when the reality of the economic challenges we face as a nation catch up with us, as is already happening with Malta’s greylisting by the FATF.
Pre-election budgets tend to curry favour with the electorate. The needed reality checks are done only when the election is over. This tactic is morally dishonest as it treats citizens like fools who can be hoodwinked into thinking there is no need for belt-tightening after the government’s finances have deteriorated substantially.
What the country needs is a budget that lists the priorities for the next five years to put public finances back in a position of strength. We also need a plan to fix the strategic weaknesses in Malta’s economic model.
Some business lobbies, such as the Malta Employers Association and the Malta Chamber, have started a meaningful public debate on these issues by publishing their views on a socio-economic plan for the next decade.
Irrespective of when the next election is held, voters deserve to be treated like mature adults and be given information on what the government plans to do to secure a better future for them and their children. They need a warts-and-all assessment of the state of the economy and how it will affect them.
Regrettably, the government has not been forthcoming with this analysis so far, preferring to adopt a condescending attitude and hoping to bribe voters with populist measures.
Post-COVID, this budget cannot be business as usual.
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