The budget: no two-year miracle

Malta’s 2016 budget speech has come and gone. To the people who are only interested in counting the euro on the plus side and comparing them with the euro on the minus side, there were no great shocks. In fact many, I dare say, were pleased. The time when the budget speech revealed next year’s price of a tuna can are over, never to reappear again... albeit the move to tax chewing gum was almost a reminder of those scary days.

Those who hoped that the budget speech will include a panacea for all the traffic problems and daily gridlocks that the country is facing were disappointed. The traffic problem has been long in coming and there is no overnight solution. Even so, there is some urgency about it as the traffic problem in practice means millions of euros going down the drain, to say nothing of everybody getting glum every morning after a hefty daily dose of road rage. 

The budget also attempted to ease the problems of the more deprived sectors of the population – an exercise in social justice more than in socialism. Of course, there will always be those that that insist that the budget was not generous enough on this front.

Otherwise it signalled the need to keep going down the road that everybody now agrees is the best one for Malta. After so many years of political bickering about important issues, today there are practically no differences between the PN and Labour on Malta’s status as a valid EU member, on foreign policy, on the importance of the private sector in creating productive jobs in a social liberal economy and on the big part that our education system plays in this economic goal. This is, of course, a victory for what the PN fought and stood for since the early eighties.

Last Monday’s speech offered the opportunity for one to take a longer view of this government’s economic performance. The fears fuelled by the PN in the run-up to the 2013 election have turned out to be ridiculous scaremongering. 

Remember the ‘prophecies’ warning us that a Muscat government would unravel the PN’s economic success and drive us straight into the wall (gas down għal ġol-ħajt) and that Malta would need a bail-out after two or three years of Muscat government?

All this has turned out to be nonsense because Muscat (and Finance Minister Edward Scicluna) opted to stick to the previous administration’s successful economic policy and tweaking it in small doses where required. Muscat opted for economic policies that are a very different ball game from the ideology that inspired the Mintoffian regime when managing the Maltese economy. 

This government’s economic success is not a two-year miracle. It is the result of Muscat’s conscious decision not to push the country back to an economy based on socialist ideology, but keep on pushing the pragmatic line. Muscat – who likes to think he is a Maltese version of Tony Blair – is no Jeremy Corbyn. And Malta is enjoying the fruits of the wise decision to keep on moving in the same economic direction as previously, albeit under a new Labour administration.

The only flaw in what has been going on is the increase in employees employed with the state or state entities – a weakness to satisfy diehard labour supporters that Muscat could not resist. Luckily the number of state employees as a percentage of the total labour force has not increased simply because the number of employees in the private sector has boomed, albeit mostly with EU nationals working in Malta.

The wheels of economics grind slowly but surely. Countries reap the results of their good or bad decisions years after these decisions are taken. An economic crisis Greek-style takes a long time to mature and only becomes urgent if ignored for many years. The same goes for a sustained good economic performance German style – it takes long years to mature.

This is the context within which the budget presented last Monday must be judged. Definitely the economy is doing well, perhaps too well to sustain the current trends in the long run. Nevertheless, the main indicators are really impressive: full employment, highest growth rate in the EU, a constantly decreasing budget deficit which will break even in three years and, as a result, a lower national debt burden.

These are not just the fruits of Labour’s labour. No doubt finance minister Edward Scicluna fine-tuned the positive economic performance inherited from the Gonzi administration, particularly when the government re-engineered the energy sector and induced family-friendly measures to rope our under-utilized females into the labour force.

But all this could never have happened if the PN did not push down the throat of Labour – Muscat included – Malta’s membership in the EU. I dare speculate that if this did not happen we would be still subsidizing the dockyard and protecting an inefficient agricultural sector; not to mention the enforced fiscal discipline, pension reform, smaller financial and gaming sectors, and our entry into the euro which saved the day for Malta when all hell broke loose in the financial markets.

Our budget priorities are therefore no longer, as was very often in the past, to wipe out unemployment. After more than ten years, our entry into the EU family has evidently been a resounding success. But we are now faced with a new set of issues some of which are the result of our own success. These can be an overheating construction sector with strongly rising property prices, the impact of expanding economic activity on the environment, the social absorption of a massive inflow of foreign workers attracted by a strong labour demand, and the constant need to shore up those sectors of our society which just are not able to keep up with a breath-taking rate of change because they are elderly or badly educated.

It is not unhappy to be in this position, but definitely no less challenging than in the past. A new set of issues also means managing a learning curve. One outstanding issue is no doubt curbing the greed of Labour’s own avid supporters, some of whom seem to believe that they are untouchable in their desire to exploit – in any way – this current bonanza.