A fool's paradise on the eve of a Greek tragedy?

I might not agree with all the solutions  proposed by the Central Bank Governor Michael Bonello, but he was spot on warning against “manifestations of the ‘Malta is different’ syndrome” and “suggestions that belt-tightening and structural reforms are for others, but not for us.”

Maltese politics is infected with the insularity virus which blinkers our vision to the extent that many are willing to ignore whatever is happening around us on planet earth.  If the party is over all over the world, it is clear that we can't  afford to live in a fool's paradise. 

The conditions are simply different from the early 1990s when the Eddie Fenech Adami government was pumping money in the country's neglected infrastructure and tertiary education within a relatively stable international scenario.  For some time fiscal revenues increased despite a decrease in tax rates due to a period of sustained growth.  But by the mid 1990s the government could only plug the deficit hole with the introduction of Value Added Tax.  Ironically Alfred Sant who discovered the "hole" in 1996 ended up digging it further by removing this plug.

But the belief that we still live in an insulated world of our own is so pervasive that politicians can get away with murder.  One such case is opposition leader Joseph Muscat calling for tax cuts right amidst an unresolved global economic crisis. 

Even more serious would be the Prime Minister Lawrence Gonzi forgetting the fiscal discipline of today, and slashing taxes for electoral convenience on the eve of the election without a corresponding plan on how to shift the burden.  If he does so he would be simply cashing in on the sacrifices made by the country in the past few years.

What is absent in the confrontation between the two big parties represented in parliament is a grand debate on how to restructure public finances and the fiscal system.  Responsibility, social justice and sustainability should be the three major pillars of any reform.  But we can't afford to think that retaining the status quo and refraining from reforms is an option. The writing is already on the wall. The absence of a debate on how to reform exposes the limits of our stagnant duopoly.

For while on one hand simply calling for cutting public spending across the board could be fatal in a country which needs to invest more rather than less on public services like education, expecting the national debt to evaporate with the magic wand of good intentions could spell our disaster. 

Unfortunately unlike most other European countries Malta has still to complete its modernisation. 

Let us not forget that we still have the lowest level of female participation in the economy in Europe.  This means less income in families’ pockets, less taxes and contributions to the state and less creativity.  Public spending directed in to providing affordable child care services is anything but a bad use of money.  So is all investment which helps social mobility in the long term goal of freeing people from dependency.  In the long term this investment would help to decrease public spending.  In the short term it won’t. 

The question now is to identify our priorities and which things we agree to keep "free" (because they form an integral part of our social model and our civilization) and than to find ways to finance them either through taxes and contributions or through cuts in other areas.  For ultimately there is no such thing as a free lunch.

Probably people with a left wing conscience (like me) will be more prone to seek fiscal remedies to shield social spending while those with a more laissez faire attitude would be willing to sacrifice the social aspect to reduce the fiscal burden.  What is clear is that there can be no gain without pain as suggested by the proponents of marshmallow politics.  The big debate between left and right is whether to tax big profits, property hoarding and speculation or decrease spending on vital  public services, not on whether to have reforms or not.  

Irrespective of ideologies, nobody in his right senses would dream of  bringing back state subsidies for gas and fuel.  What was questionable was not the cost recovery principle but  the timing of the new tariffs right amidst a global recession.  But now  there is no turning back the clock. Neither can we afford to give stipends to the sons and daughters of the well off or to finance those who choose sending their children to private schools.   Some cuts are justified by  sheer common sense. 

Ignoring reality, be it the need of a second pillar to finance the pension system  or  clamping down on the theft of ground water resources by giving this resource (which also accounts for 45% of our tap water) a real price, comes at our peril.

So does ignoring the vast social deficit, the growing regional and class divide, deteriorating public services and the absence of lubricants to ease social mobility.

The lesson is clear.  If we are not careful now (and if we  lose our cool on the eve of the next election by slashing taxes to win or  by promising the moon from the opposition),  a  Greek tragedy awaits us.