A national budget is much more than a financial exercise. It is an economic document which steers the country’s economic direction through a myriad of measures and incentives towards a vision.
Yesterday’s budget was precisely that, a courageous budget that sets the tone and direction for tomorrow’s Malta.
Any budget is nested within an economic reality and this year’s budget needs to be assessed against a fragile global economic recovery and a local recovery that is gaining momentum but where global dependencies and uncertainties still exist. The budget for 2022 needed to, therefore, find the right balance between stability and investment; environmental sustainability and growth; social protection and income growth.
The current economic times demanded courage, ambition and vision. This budget delivers on all three.
From a thematic perspective this budget is holistic.
There is no doubt that one of the challenges which Malta faced is social equality and income distribution.
The economic growth that the island witnessed did not reach all of society and this budget targets vulnerable groups, especially pensioners.
The increase in pensions will support the standard of living of this cohort. However, Malta needs to now focus on the continued reform of its pension system.
The need for a proper system with a robust second and third pillar has to be implemented to ensure its long-term sustainability and support the affordability of tomorrow’s pensioners.
These measures, together with those supporting housing as well as compensation for inflation through a specific index and assistance, will ensure that the most vulnerable will be supported.
From an economic perspective, the budget steers the economy towards productivity, competitiveness and sustainability. Building on the National Employment Policy launched earlier this month, the government is starting to implement measures which support workers’ productivity and skill development.
The tax measures focusing on overtime and pensioners who continue to work will support Malta’s workforce together with measures to launch apprenticeship schemes, night-shift childcare and a national training fund.
An interesting measure is the reduced tax on undistributed profits which will be reinvested.
Although more details are needed, the logic behind this measure is targeted towards supporting corporate level investment and will support the economic recovery and help companies further reinvest.
In the light of global tax developments, we believe that it is time for Malta to start debating a reform in its corporate tax and we believe that the budget could have focused on this.
A more ambitious focus on research and innovation would have been welcome. However, the announced National Seed Fund is a step in the right direction together with increased access to capital through the Malta Development Bank.
The concept of a start-up residence permit is also welcome but more work needs to be done to ensure that the start-up ecosystem is well-functioning: a specific start-up vision and policy need to be launched.
If the budget had to be defined by a colour, this year it would be green
From an education perspective, the budget focuses on supporting students through increased stipends and renewed investment in educational infrastructure, particularly STEM related.
Although these measures are welcome, more emphasis needs to be placed on educational outcomes especially relating to STEM disciplines and early school leavers.
A discussion needs to be held on the educational system, its reform and the need to have a more future-proof and industry-ready school curriculum. This should be on the government’s agenda if we really want to build a resilient and attractive economy.
On health, one would have hoped to find a bigger emphasis on healthcare and prevention. This is an area which requires more investment.
If the budget had to be defined by a colour, this year it would be green. In a welcome and needed approach, the government is steering the economy and society towards a greener tomorrow.
The incentives aimed at supporting renovation and reuse of vacant buildings are welcome and should support the regeneration efforts of local villages and communities.
Electrification of cars is also a high priority and, apart from the significant incentives aimed at supporting the purchase of such cars, the investment in charging infrastructure is also critical to support the transition.
The bold move to provide free public transport is also welcome even though its sustainability and total cost has to be analysed further.
One also waits to see the details of the new electricity rates and the computational system; however, the underlying principles are positive.
The budget outlines the direction the government wants to take the economy and society in the years to come. Implementation is going to be key and here one would have hoped to see a stronger commitment towards institutional reform, governance transformation and digitalisation, especially aimed at improving service delivery.
All in all, the budget is needed and welcome.
Focus now needs to turn on its implementation but also on its sustainability. Perhaps, the expected recovery should provide the right economic climate.
This is the right budget at the right time.
There is still need for a fleshed-out long-term vision for Malta but the direction this budget sets is clear: a more equal society, a resilient workforce, a dynamic and supported private sector and a greener economy.
JP Fabri and Nicky Gouder are the founder partners of Seed.
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