‘Pre-election budget?’ Absolutely not | Clyde Caruana

Most newspaper headlines described Budget 2022 as a ‘social budget’; but one which appears to pave the way to the next election. It has, in fact, been criticised as a ‘pre-electoral budget’. How do you respond to that criticism?

I went through all the newspaper editorials this morning; and The Malta Independent, for instance, declared that this was not, in fact, a pre-electoral budget. I don’t think it’s a pre-electoral budget, either. If you look at the measures it introduced, you will see that we paid particular attention to pensioners: because we needed to be certain that they could withstand the impact of inflation.

As for the measures regarding the employment sector, these were introduced with care, and intended to build on what we already have; to incentivize workers to work more hours, and ultimately increase their income.

So if you look at how this budget was prepared, and what its narrative really is; you will see that it is absolutely not a pre-electoral budget. It is a calculated budget, with measures that are intended to address the challenges facing the country.

Let’s look at the individual measures: starting with the €1.75 increase in COLA. Many people have criticized this for being insufficient, given the extent of inflation affecting essential goods – especially foodstuffs. Don’t they have a point? Is €1.75 a week really enough, to cope with today’s prices?

I am aware of this concern; because I, too, do my weekly shopping like everyone else. But the COLA mechanism we have at present, give us precisely that sum. So regardless of whether the government is Labour, or Nationalist: that is the sum that the COLA mechanism would have dictated anyway.

And precisely because I believe that this sum is not enough, for those who are struggling the most: immediately after announcing this measure, I also added that I will be kick-starting a public consultation process, with all involved parties, to come up with a new mechanism. So that when we do have situations like today, when the cost of living is higher than normal, this new mechanism will allow us to give additional benefits to those who need them the most: over and above the existing COLA increase.

How will this mechanism work, exactly? And to what income bracket will it be applied?

Let me clear that a mechanism of this nature will not be applied to all income brackets across the board. It is a measure that will be aimed mostly at pensioners, and the most vulnerable categories of society; and which Government will also have to find the means to finance.

As for how it will work, I have my own ideas about that; but rather than impose them from above, I want to discuss with all the relevant bodies, so that we bang heads together and eventually arrive at a formula which would be acceptable to everyone.

Surely, however, some will argue that the cost of living is increasing for everybody; so why shouldn’t everybody benefit from this new mechanism?

Because there are brackets within society that can withstand more than others. They can absorb some of the effects of inflation, and their salaries tend to increase by more than E1.75 a week; because their skills, and productivity, translate into substantial wage increases.

But then, there are other brackets whose wage-increases depend solely on what the government gives them; or else, whose wage-increases are so low – because their productivity is low – that they can’t cope with the cost of living.

So the government – which is socially and morally obliged to take care of the most vulnerable in society – has to ensure that this income bracket is adequately protected.

Another point you raised is the price of fuel. Is it true that government did not enter into a hedging agreement; and that, for this reason, we are now at the mercy of volatile international market prices?

There is a hedging agreement in place, which is due to expire next year. But the price of fuel has undeniably gone up; and now – when the prices are so high - is certainly not an opportune time to be entering into any new hedging agreements.

There are different ways to approach this: some countries, for instance, are simply passing the cost-increases onto the consumer. But from our end - as I said yesterday – the Government is ready to absorb this impact. So much so, that in my budget speech I specified that this impact may amount to 1.8% of the Gross Domestic Product.

It makes no sense, in the present circumstances, to pass this expense onto the consumer. It could deal a blow that might undermine – or even kill – the country’s current economic rhythm; not to mention the Recovery Plan. Economically, then, it makes much more sense for the Government to absorb these costs itself, for the foreseeable future.

Will you guarantee that utility bills, and fuel costs, will not increase at the beginning of next year?

Yes.

Pensions. At the beginning of your budget speech, you turned towards the Opposition and said: ‘We will not increase pensions by €5 [a week]; or by €10; but by more.’ Yet the actual increase that all pensioners will benefit from, amounts to €5. Can you explain where those other €10 come in, exactly?

Over and above the €5 increase for all pensioners, there is also the supplementary allowance, and widows’ pensions.

Let’s start with the widows. There will be some who – adding up the general €5 increase, the supplementary allowance, and the revision of their pension - will benefit from no less than a €15 weekly increase: in other words, €780 a year.

When it comes to the supplementary allowance: in the case of married couples, it goes up to no less than €6.5 a week. So those who receive a pension of not more than around €7,800 a year, will get a weekly increase of €6.50. Added to the €5, it works out at €11.50.

As for singles who are also in the €7,800 pension bracket: they will benefit from a supplementary allowance of €5, on top of the general €5 increase. In other words: €10 a week.

So across the board, it works out as either over €10; or exactly €10...

How long will pensions remain sustainable, though? Will today’s children receive a pension in future? And can government continue to increase pensions indefinitely, to keep apace of a constantly rising cost of living? 

The issue of pensions, in this country, requires a discussion that goes far beyond the budget. Ours is the only country in the EU to have a pension system based only on the so-called First Pillar: ‘Pay As You Go’, which means that today’s workers pay National Insurance to finance the pensions of those who are retiring… today.

In all other EU member states, however, there is also a ‘savings’ mechanism, whereby people pay a higher amount in National Insurance; and the additional money is invested in a fund, specifically so that those workers can benefit from an additional pension when they retire.

This, however, means that there has to be a discussion, with all the social partners, to determine the best way forward.

As for the sustainability of pensions: with the model we have at present, that depends entirely on the job market. The more wealth is created by the job market, the more tax revenue for government; and the more revenue for government, the more money is available to sustain pensions.

But if we’re going to talk about the adequacy of pensions – whether they are enough for pensioners to actually cope – that’s a whole different question. This, too, is why we need to discuss the introduction of additional pillars in future.

You also announced ‘free transport for all Maltese and Gozitans, from October next year’. First of all: why October next year? Why not in January 2022? And did you consult with MPT; the Spanish company [Autobuses de Leon] responsible for public transport, which will lose a huge part of its revenue as a result of this measure?

The company’s revenue will come directly from government, which will be compensating for all losses arising from ticket-sales. But yes, I did talk to them. And we’re starting from October 2022, to give the company enough time, and breathing space, to plan for the expected influx of more people using public transport.

It made no sense to start from January, as there would be a risk of mismanagement, or over-crowding, that would give rise to justifiable complaints from the public. We felt we needed more time, to plan for the transition properly.

How much will this measure cost government?

For next year, we are looking at a cost of €4 million by the last quarter. By the end of 2023 – taking all costs and expenses into consideration - this is expected to increase to around E16milion…

As Finance Minister you have repeatedly stated that you do not believe in austerity measures. But aren’t you going too far in the opposite direction? Government will now be making good for that private company’s losses… on top of a host of other generous benefits. Where is all this money going to come from? And will this budget be followed up by another next year, which imposes taxes to compensate for all this expenditure?

No. I have no intention of raising taxes; and nor do I want to drive the country’s finances into a brick wall… as certain other people did, and ended up facing Excessive Deficit Procedures.

Let me explain why. To start with, the most important thing is diligence [għaqal]. I think that we gave a clear signal yesterday, that we will be collecting all the taxes that need to be collected. And I am already informed that – on the very next day – a number of people who owe unpaid taxes, turned up at the [Revenue Department] to begin signing repayment agreements. That, in itself, will give a boost to government finances.

Apart from that, there are two other factors that will help us keep the deficit under control. Primarily, economic growth: and for next year, we are looking at a projected 6.5% increase. This will translate into higher government revenue.

But we also have to look at government spending, and ensure that it is carried out with prudence. Putting all those things into the same basket: yes, it was precisely because of this that we are able to aim for a deficit reduction from the 11.1% we will register this year, to 5.6% next year.

But with the proviso that: if the impact of fuel or energy prices is too high, we will compensate for it ourselves; and therefore, the deficit may also grow by 1.4%.

According to our latest survey, the state of the environment is now the third highest concern for the Maltese public. It is also an area where the government’s approval ratings are particularly low. Can you mention three measures, introduced by this budget, that might reassure all those people who are genuinely concerned by the environmental degradation of this country, under your government?

The first I would mention is the measure to address the issue of neglected properties in Urban Conservation Areas. To be surrounded by renovated buildings, in the traditional Maltese style we are used to, is also an environmental concern. This measure will help to beautify the visual impact of our village cores.

Secondly, we will soon be starting the process to create the so-called ‘Buskett of the south of Malta’: which will transform the coastal area known as ‘Imnadar’ – an enormous stretch of land, from Xgħajra to Żonqor Point – into a marvellous public park.

Apart from that, we are seeing to it that there will be new public gardens, and green spaces, in several different localities: as I mentioned in [Monday’s] budget speech.

So I think that this budget is the first sign – although we haven’t got there yet; and we are still far away from reaching out target – but it was the first of many signals, that this administration knows what it has to do: so that, just as we have absolute credibility when it comes to employment, the economy, and managing the country’s finances…now, we will have a fourth credibility pillar: that of the environment.