The spectre of a Greek tragedy

The Nationalist Party’s media makes full use of images of social strife and angry demonstrators in other European countries like Greece and the UK to remind us that our fate could be much worse, but it ignores fundamental differences which helped us avert a similar crisis and fundamental similarities which make us equally vulnerable.

In reality one main reason why Malta was spared from a Greek crisis is that its governments have mostly relied on loans from the public, rather than on loans from foreign predatory banks. And like their Italian counterparts, Maltese banks have refrained from investing heavily in risky ventures abroad.

On the other hand the Greek tragedy was caused by reckless fiscal indiscipline, which led the government to become indebted to predatory banks. In return for bailing out Greece, the EU has imposed a package of cuts which make austerity a way of life, without expecting the banks to pay for their short-sighted greed.

This is not to say that the fiscal prudence demonstrated by Malta’s government in the last couple of budgets has not helped. Honouring the pre-electoral tax cut pledge would have been suicidal for the country’s finances, and this is likely to remain so in the next two years. Malta has also averted mass layoffs even if the job market is becoming more precarious as government itself subcontracts labour to the lowest bidders. Malta has also raised the retirement age to 65 without experiencing the same social upheaval as has happened in countries like France a few months ago (even if the PN government is still postponing the most controversial aspect of the reform, the introduction of a mandatory second pillar.)

Although the country remains afloat in some ways lower-middle class Maltese families have suffered from a mini-version of the Greek tragedy as austerity become a way of life for them. This is reflected in a drop in purchasing power which further cripples prospects for growth.

The long-term solution to this problem is surely not that of throwing fiscal discipline down the drain. Labour’s pledge to decrease water and electricity might temporarily offer temporary respite to hard-pressed families. But in the absence of alternative revenue streams, this would simply mean less revenue for government to generate the energy itself.

Unfortunately we have grown used to the perception of government raking money from people as if it were some sort of latter-day Genghis Khan, a perception aggravated by a widespread lack of transparency. But revenue is vital not just to ring-fence social expenditure, but also to invest in social mobility and female participation in the job market. These are in my opinion the only long-term and sustainable ways to boost family incomes.

In this sense investing in free childcare for pre-school children and extended school hours in public schools makes more sense to me than subsidising resources whose price is determined by the international market. That said, tariffs should never make up for the inefficiencies of government-owned corporations whose lack of transparency is notorious.

Let's not forget that lack of transparency and widespread corruption also contributed a fair share to the Greek tragedy. We should not forget that in order to ring-fence social expenditure on health and education, taxation is a necessary part of the equation. One can still think of ways to shift taxation from labour towards environmental taxes.

Without revealing any details, Labour has endorsed this shift originally advocated by the Greens. But we should be wary of projecting eco-taxation as an alternative revenue stream. Lets not forget that the whole aim of eco-taxation is to change people’s behaviour from actions harming the environment, to actions which are either neutral or positive. And in this sense successful eco-taxes leave very little in terms of revenue. Otherwise we would simply be trying to reap fiscal revenue from environmentally harmful activities. This also applies to the government justification of higher water and electricity bills as an environmental measure. This claim would have been more realistic if incentives for photovoltiacs or solar water heaters were more substantial.

All in all Malta is still in a much better position than Greece. But the risks for Malta still exist. The government’s lack of transparency in the way it runs corporations like Enemalta does not bode well. The temptation to become reckless on the eve of the next election could also aggravate matters. So does the Opposition flirting with the kind of “no pain, all gain” populism, which could fuel expectations which can never be satisfied.

Ultimately Malta needs to get its act in order, establish which part of government expenditure should be ring-fenced and find ways to maximise revenue to enable government to invest in social mobility. And the government’s self-inflicted blow of increasing MPs' honoraria and Cabinet salaries while promoting austerity have not helped in making people more disposed to accept much needed reforms.

PN apologists often complain that the media is not talking enough about jobs. The reality is that people are still talking about divorce and the honoraria because the government has failed in bringing closure to these issues and keeps offering distractions instead of focusing on the real matters that count.