ANALYSIS: A right prelude to another positive budget

The pre-budget document issued by Government is a right prelude to what promises to be another positive budget from the Labour administration. This is the first budgetary exercise of the new Minister for Finance, and one cannot but notice a much more pronounced orientation towards the future.

To quote from the report, COVID-19 provided an opportunity for the Maltese society “to evaluate and recalibrate where necessary its priorities”. The document recognises that after pushing for growth, Labour then started to increase investment in infrastructure, health, and education, enabling Malta to reach a good European standard. It also emphasises that economic growth remains crucial as a way to have the finances required to continue improving pensions and social benefits. However, we are now at a stage where our focus of attention has turned on improving our quality of life and create a new prosperity.

The environment as a source of economic growth

Of particular note is that the document does not push environmental protection as a sort of counterbalance to growth. It rather sees the environment as a new source of economic growth – an economic growth which delivers prosperity, high quality jobs and also a better environment. Similarly, the document pushes digitalisation, not as the creation of new sectors but as a way how new technology can improve the quality of our lives, including by helping us address challenges like climate change.

The pre-budget document goes into a lot of detail about how Government’s economic response to the crisis saved livelihoods. Over a period of two years Government provided direct support of over €1.5 billion. At 7.1% of GDP, the Maltese Government’s economic response was nearly twice as large as that in the rest of the EU. This explains why Malta’s unemployment rate will have reached record lows this year, and employment continued to grow even during the pandemic. Yet, the Opposition argues that this fiscal response was money badly spent.

Government in its pre-budget report gives short shrift to this criticism. Instead, the focus is on charting a path to bringing public finances back to their pre-pandemic state but without jeopardising the recovery.

More investment in public services

Another thing that is clear from the pre-budget is that Government will remain investment-friendly. Gone are the days when the Minister for Finance would try to balance the books by cutting capital expenditure, jeopardising growth and the quality of public services.

The report, for instance, reminds citizens of the waiting times previously associated with procedures in public health care. In 2012 it took an average 543 days for an MRI to be done. Despite the pandemic this waiting time is down to 153 days. For an ultrasound we are down from a waiting time of 568 days to 91 days in 2021. Outpatient appointments now have a mean waiting time of 161 days, down from 281 days in 2012. No one in their right mind wants to go back to 2012.

However, to continue to improve public services we have to rebuild our fiscal buffers. This is why Government remains committed to cut the deficit by half in 2022. This is not as difficult as it may sound. If the economy continues to bounce back at the pace seen up to now, the Government will be able to roll back the stimulus measures, which account for most of the expenditure rise in recent years.

The pre-budget report also points towards another important source of fiscal consolidation, namely the tackling of tax arrears. Sadly, a number of business operators continue to fail in their obligations. The most notorious practices are firms holding on to VAT that they have already charged their customers, while claiming refunds on VAT they paid on supplies; and possibly worse than that, firms that hold on to income taxes and social security contributions that they collect from their employees but then fail to pass to Government. The pre-budget makes clear that these practices can no longer be entertained.

Besides helping to restore public finances, tackling tax evasion is an essential step to tackle the action plan agreed with the FATF. The pre-budget sets out details of Government’s efforts in this area. It notes how already there have been legal amendments to the Criminal Code and to other legislation to address the better use of financial information, including the strengthening of the sharing of information. Another example is the MoU signed between the Malta Business Registry and the Financial Intelligence Analysis Unit for the two entities to share information and collaborate on investigations on the ultimate beneficial ownership of financial structures.

The pre-budget also looks in detail on education, employment policy, social services, health, environmental protection, and innovation, going well beyond previous focus on economic and financial issues. To quote again the report, it aims to be “an opportunity to discuss the challenges people face in their everyday lives and the solutions to those issues in objective and rational terms.” Truly a great prelude for what promises to be a great budget.

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