Greater spending on public salaries driving GDP growth – De Marco

The Nationalist Party has flagged increased government spending as the main driver of Malta’s economic growth.

Referring to the Central Bank’s latest quarterly review, the PN said the growth in gross domestic product had been driver by increased spending on public sector salaries.

Government consumption rose by 8.3% on a year earlier, reflecting additional spending on both intermediate consumption and compensation to employees, notably in public administration, health and education sectors, contributing a further 1.6 percentage points to growth.

“Sustainable economic growth should be driven by the private sector,” shadow finance minister and deputy leader for parliamentary affairs Mario de Marco said.

De Marco said that while tourism and financial services had contributed positively to economic growth, manufacturing and construction were either contracting or stagnant, while industrial production registered drops in the four quarters of 2014 – a reflection of a drop in exports.

“As a result, the quarterly review reports that in the fourth quarter of 2014, exports contributed negatively to GDP growth,” De Marco said.

“While certain elements of the private sector are contracting, the public sector’s role in the economy is growing. Public administration education, health and related activities contributed 1.2 percentage points to nominal GDP growth in the fourth quarter.”

Comparative figures for 2008 show a 0.6pp contribution. “Government’s contribution is at par with what it was at the height of the economic and financial crisis in 2009,” de Marco said. “In 2009, government had to intervene to stimulate private sector growth due to the international economic crisis which led to a sharp drop in private sector economic activities. The international economic situation today is far more favourable and therefore there is no economic justification for increased government role in the economy.”

De Marco said the increased spending was not resulting in improved services and were not helping our country’s competitiveness, citing a public sector wage bill that had been inflated by €127 million over 24 months, largely due to the increases in the public sector workforce.

“These include hundreds of people employed in positions of trust and others who were recruited simply because of their links to people close to government. Public expenditure also increased due to increased public transport subsidies which trebled without delivering an improved public transport and due to handouts paid in dubious deals,” he added.

“Government’s economic policy to date was based on driving growth through increased public expenditure. This policy is not sustainable and there are already signs that the rate of growth is starting to decrease. Government should focus its energies on stimulating private sector growth not least by helping those sectors, including manufacturing that are currently underperforming,” de Marco said.