“Social to the core” is how JP Fabri, an economist and founding partner at Seed – an international advisory firm with expertise in applied economics, regulatory processes, tax, and corporate structuring – describes the Budget for 2024, presented by Finance Minister Clyde Caruana on Monday.
In an interview with The Journal, JP Fabri identifies three main characteristics in the Government’s financial statement for next year.
Protecting the purchasing power of the most vulnerable
The Budget is a social one at heart, with a raft of measures that are aimed at protecting the most vulnerable cohorts of society, including pensioners, people on social benefits, and people-at-risk-of-poverty. Through measures such as the investment to maintain a freeze on energy and fuel prices, the additional COLA increases, the increase in minimum wage, an increase in pensions, and an increase in the tax-free income of pensioners who continue to work – coupled with additional measures that support the social fabric of the islands – this Budget took a conscious decision to support the purchasing power of such groups.
The Budget highlighted a couple of key economic sectors that are transforming themselves. These include the financial services, with the roll-out of the sectoral strategy; the aviation and maritime sectors, in which several initiatives are being launched, both from a policy point of view and investment; and the ever-important semi-conductor industry. Diversification and transformation are key to Malta’s continued economic performance and resilience. Apart from the importance of attractive new economic sectors, the low-hanging fruit of transforming current sectors is even more important to not only protect these industries but future-proof them and build on our past and current successes.
The continued green transition
The Government has continued to support this transition through the extension of existing schemes as well as additional initiatives to stimulate domestic and commercial transition towards greener and renewable sources of energy. In addition, a number of infrastructural projects, including battery storage projects and electrical vehicle charging units, have been announced. The energy market remains volatile as the conflict in the Middle East might further escalate. In view of this and of our environmental obligations, supporting such a transition gives a clear direction to where Malta needs to head and how we will further secure and diversify our energy supply.
All in all, JP Fabri sees this Budget as one that has provided a continuity exercise with the extension of numerous schemes and incentives. It continues to aim for the stabilisation of economic activity and the support of domestic demand. The main challenge is how to address the longer-term vision of enhancing productivity and ensuring a competitive Malta.
In this regard, he maintains that evidence points to a decreasing performance in terms of productivity. Productivity is key to supporting high quality and rewarding jobs as well as funding public services, and unlocking Malta’s productivity potential will help build a stronger more resilient economy that delivers inclusive and sustainable growth. To this end, he expressed his hope that the numerous schemes and incentives that were mentioned would be focused on enhancing productivity and that a strategy focusing solely on productivity is launched. Be that as it may, he notes that while the National Productivity Board does an excellent job in assessing Malta’s productivity standing, we now need to move away from assessing the issues to addressing them.
From an education perspective, then, the Budget focuses on supporting students through increased stipends and renewed investment in educational infrastructure, particularly related to the areas of science, technology, engineering, and mathematics (STEM). JP Fabri believes that, in the coming years, these need to be supported with measures that emphasise on educational outcomes, especially relating to STEM disciplines and early school leavers. “Moreover, a discussion on the educational system, its reform, and the need to have a more future-proof and industry-ready school curriculum, is needed and should be on Government’s agenda if we really want to build a resilient and attractive economy,” he opines.
On health, he observes that the investments are broad and infrastructural-based. In line with what other advanced economies are implementing, he believes that now Malta also needs to focus more on prevention efforts which can contribute to general well-being. Here, the mindset needs to shift away from care to prevention, with a focus on our children, youths, and on the need for people to lead healthier lifestyles.
Supporting elements of the budgetary process
Although several incentives and measures were announced, it is now of utmost importance that these are rolled out and implemented swiftly and efficiently, JP Fabri asserts. “Resources need to be redeployed accordingly to ensure that such measures truly stimulate the economy and see the light of day, as otherwise they will not have their intended effect,” he says. “Implementation is going to be key and here one would have hoped to see a stronger commitment towards institutional reform, governance transformation, and digitalisation, especially aimed at improving service delivery.”
Another area that he believes the budgetary process needs to embrace more fully is the concept of impact assessments and performance-based budgeting. By linking funding to programme performance, performance-based budgeting aims to improve the effectiveness and efficiency of public function implementation by allocating more funds to programmes that work and less funds to those that do not. This approach also delivers a higher quality of public services, a reduction of general government expenditure and staff costs, and more flexible and less bureaucratic management of the government sector. This will support the discussion on public expenditure, its efficiency, and effectiveness.
The need to remain proactive
“Notwithstanding a very fragile external environment, Malta has performed very well over the past few years, particularly in terms of economic growth,” JP Fabri remarks. “In fact, Malta has come second only to Ireland in a classification on European economic performance compiled and published by The Economist. Despite these successes, however, Malta needs to remain proactive to guarantee its long-term competitiveness and attractiveness.”
That’s why, in the Budget 2024, JP Fabri would have liked to see a bigger emphasis on the longer-term potential of Malta’s economy. Having said that, he believes that ideally this is done through an articulated long-term vision for the island which looks ahead to the year 2040. Successive budgets will then look at its implementation.