Uncontrolled spending

The report of the Auditor General published a few days ago gives a picture of uncontrolled spending in government departments and state entities that Malta has never experienced in its history.

This is the result of the Finance Ministry – the minister and his permanent secretary – having no real control over spending and about the attitude of many departments and entities that disregard the limits specified in the budget. This attitude seems to be prevalent in every area of government – not just some particular ministry’s predilection.

Nobody seems to be in control. Procurement rules ae being ‘habitually’ ignored according to the Auditor General. The 26 financial and compliance audits in public spending that were flagged by the Auditor General do not reflect the entire situation. Other cases of extraordinary spending without prior approval abound in state entities, the numerous authorities, boards, committees, and what have you.

Most spending by ministries and departments is being carried out by actually ignoring the financial regulations. A case in point is the practice of avoiding the issuing of tenders by using ‘negotiated procedures’ in which only a select number of firms are allowed to place a bid. Moreover, direct orders issued without being covered by the approval of the Ministry of Finance are rife.

Service providers keep on giving services much after the relative contracts have expired.

In government spending, all contracts with service providers are for a determined period; but the Auditor found several contracts where the providers kept on giving their services much after the period indicated in the original contract had expired. Obviously, this happens when the responsible department or entity ‘forgets’ to start proceedings to issue a new tender for the period that succeeds that indicated by an existing contract. This means that competing providers are not given the possibility of tendering because a contract for say two years ends up being extended for many more years without any justified reason.

The Auditor General comments that inadequate planning could be one of the reasons for this mess. Moreover, it seems that decisions to finance ideas or projects that are not covered by the budget have become common place.

The Auditor Genral also found ‘insufficient’ internal controls that lead to a situation where procurement rules were ignored. He also pointed out that in some cases it was impossible to judge whether targets were met in time.

The report draws a picture of uncontrolled spending all over government departments and entities. The idea that ‘money is no problem’ – a foolish belief that Abela inherited from the ways of the Joseph Muscat administration in the ‘pre-covid’ period – is still rampant.

Obviously, Robert Abela does not want people to compare the ‘we never had it so good’ stance during his premiership with that when Joseph Muscat ruled the roost.

Clearly the Finance Ministry is in cahoots. Spending that is not catered for in the budget is theoretically subject to the scrutiny of the Finance Ministry. But go and tell this to the marines!

I am not saying that this rule was never ignored under the different Maltese administrations over the years. But such instances were usually few and far between in the past. Now it has become a general rule, to the extent that, in practical terms, the budget has almost become a useless document.

The idea that financial regulations are just cumbersome, bureaucratic and useless has become more acceptable. The financial regulations make sense, even if everyone was honest and bribe-proof! But we all know that this is not the case.

The House of Representatives has a few days ago approved the 2024 budget. By next year, we will know whether the government that approved this budget will make its utmost to observe it; or keep on spending – budget or no budget – as if tomorrow never comes.

I suspect that this is not the whole story. From time immemorial, civil servants used to tackle overspending by hiding bills – in some drawer – that are resuscitated after a new budget is approved.

These bills are then paid from funds allocated to the subsequent year. How many bills of work and services already carried out have been hidden temporarily so as to be paid from the 2024 budget?

Will the Ministry of Finance start to act in the time-honoured parsimonious ways of its predecessors? It should. But I doubt whether Clyde Caruana and his ministry have the clout to do it.

It is said that old habits die hard; and uncontrolled spending has quickly become an ‘old’ habit for this administration.

Inflation rears its head

Generally speaking, there are two types of inflationary pressures: Cost push and demand pull. There is nothing that can be done on ‘cost push’ as in Malta this originates mainly from higher import prices.

Demand pull is created within our economy when the government goes for a strong deficit in a full employment situation - as Clyde Caruana’s 2024 budget has done.

The latest published data suggest a declining inflation monthly rate of 3.9%, but annual inflation is still a whopping 6% which is higher than the EU average.

Inflation is already a big concern for the general public. People will soon find out that the ‘generous’ rises in pay, pensions and what-not will be eroded in the first few months of 2024. News – and complaints – about price increases have become a daily routine.

Evidently, Robert Abela’s populist policies are the result of his concern with what the polls are saying, more so since the EU and local council elections are slated for June next year. But as things stand, inflation is becoming such a big monster that it could well be that by June the cost-of-living issue will be the greatest problem being faced by Maltese citizens.

Meanwhile, the government continues to pump money into a full employment economy, thus pushing inflationary pressures higher when a balanced budget would have made more economic sense.

The real explanation for this might be that money voted in the 2024 will be used to pay outstanding bills for goods and services already procured by the government in previous years, as I explained above.

But the economic argument still holds.