Balancing revenue and expenditure

The current economic turmoil in the Eurozone has changed the dynamics of local politics once and for all.

Parties can no longer promise all gain no pain nor can they cling on to power by unsustainable pre election tax cuts. The problem is that nobody seems to have noticed.

The unthinkable is happening. There is a greater realisation that eurozone member states will have to forego some of their national budgetary sovereignty if Europe's single currency is to survive in the long run. This conviction is driving European Commission proposals for prior surveillance and peer review of national budget plans.  With Italy and Spain on the brink of bankruptcy, this step seems unavoidable.

If this happens, political parties aspiring to win power will be expected to present balance sheets clearly outlining their plans on spending and expenditure. Parties promising cuts in taxes and greater social spending will be exposed as charlatans who would fail EU scrutiny on their first budget. Neither will it be possible for parties to cling on to power by cutting taxes in pre-electoral budgets.

The distinctions between left, right and centre will have to be shown by the workings on the balance sheet they present to voters. Parties prioritising social spending or infrastructural projects will have to explain how they plan to increase revenue to make up for the extra expense.

Parties prioritising tax cuts or subsidies for utilities will have to explain what cuts they intend making in social expenditure to make up for lost revenue. Centrist parties will also have to show how they intend to juggle their way towards fiscal targets. Surely this leaves room for flexibility. Costs can be cut through greater transparency and accountability while taxes on labour can be reduced, while others on speculation increased.

But people will expect more detail rather than declarations of principle. There is also room for shifts in expenditure or in taxation but avoiding hard choices will be more and more difficult. Sticking up for sectoral interests (be it greedy bankers, speculators or privileged sectors of the public sector) will become more of a liability in a climate where any hint of any sector being privileged will create resentment.

One unfortunate consequence of this climate could be an attack on vulnerable categories whose dependence on welfare will be depicted as privilege by right-wing groups. But there could also be more room for ideological flexibility as it will be increasingly difficult for centre-right governments not to tackle speculative wealth and for left-wing governments to defend inequalities between different categories of workers.

These are interesting times. The populist illusion based on the all gain no pain formula has been burst and thank God for that.

Another lesson of the current crisis is that cuts in social spending can undermine cohesion and social stability. Although it is banal to blame riots in London on recent cuts in spending, it is equally stupid to ignore the consequences of spending cuts on the social fabric. There is a limit to how much one can cut without hurting the most vulnerable or impoverishing parts of the middle class. Ironically calls for cuts in spending contrast with widening social inequality in vital sectors like health and the need for greater investment in education to encourage social mobility and reduce dependence on welfare.

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The incontrovertible truth is that we have all been living beyond our means and in financial matters the day of reckoning when loans have to be repaid does come. Many middle class families are realising how overstretched they are on their credit cards, how they contracted on credit for expensive cars and houses beyond their means if not also pools and boots allured by easy credit and a compulsion to emulate the well to do. We all wrongly thought that our standard of living would keep improving for ever. Our young people expect cars and multiple foreign holidays as soon as they come of age whilst our young married couples expect to have everything including a luxury house and fairytale wedding from day one rather than first save for objects one would like to own and then spacing out purchases as means permit. Even if our standard of living had to go down by 50 percent we would still be better off then our parent's and grandparents generation and therefore a little bit of belt tightening is not a disaster for most. Unfortunately it is now the time for belt tightening and a degree of austerity. In such situations every sector of the country is trying to protect its own turf. The Employers speak against a second pension pillar, the tourist industry expects fewer levies and taxes, banks continue to make windfall profits,government pays it members the most generous increases, unions oppose a rise in retirement age and the general population strongly opposes increases in utility and fuel bills. The reality is that all sectors will have to carry out a share of the burden if Malta is to survive without becoming a lame duck and consequently a slave of financial impositions by the European Central Bank and puppets on a string of the financial gnomes in Frankfurt . Let us preempt the necessary financial adjustments which need to be made and move quickly to a balanced budget. Let us also ensure that the burden for doing so is borne principally by those segments of the population who are financially most equipped to bear it. In times of austerity one has to ensure that the the economic gap between the haves and have nots is narrowing rather than widening as seems to be currently the case.
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Jon Sciberras
The reason for the recent riots has no justifiable reason, but most of it stems from the incredible hardship many of the working classes face including taxes and expenses in the UK (and for that matter Malta) whilst the richer (as you say in your article) simply laugh at the cost considering they earn millions in their top managerial position like Banks and larger companies. Therefore if we're not careful we may see (though I doubt it most Maltese are like sheep) we might see riots because the situation is very fine for some and very hard for most.