EDITORIAL | Wednesday, 30 January 2008

How and at what cost?

The keynote speech by the leader of the Opposition at last weekend’s Labour general conference calls for objective analysis on its implications on business climate in the country.
The speech inspite of its managerial approach lacked depth on how the proposals are to be realised and at what cost.
The present government can be criticised on a raft of measures however its economic record and the turnaround achieved to the economy are a feather in its cap. If one rewinds three years with the no growth situation, the economic strides and achievements have been noteworthy.
Controlling the deficit was no mean feat and came with a lot of sacrifices. Throwing all caution to the wind on the eve of a general election is the least thing this country needs.
At a time when the world economy is experiencing a lot of uncertainty, this country cannot afford a fiscal expansionary budget that may threaten the sustainability of public finances.
Within this context the Labour Party’s proposal to half the surcharge is a potential financial time bomb with the price of oil being what it is. World conflict and the demand for oil from the emerging countries make it more than certain that the price of oil is most unlikely to decrease.
A blanket reduction while leaving more disposable income in people’s pockets means that government will have to increase the subsidy it dishes out to finance the increased cost of oil. This means that a larger burden would have to be shouldered by everyone through general taxation, which implies that either income tax will have to go up or else government would have to cut spending in other areas.
If halfing the surcharge is a Labour government’s top priority we expect to know where the spending cuts would come from.
A further source of concern is the removal of taxation for overtime earnings. A blanket provision not to tax overtime can have a devastating impact on public finances even rattling the foundations of the income tax regime.
There is a veritable problem with the proposal in that fixed wages can be reduced to the non-taxable threshold with the rest being declared as overtime. This is all the more probable since it benefits both employees and employers, who will in turn be paying less in social contributions.
Unless Labour wants to destabilise the foundations of our tax regime it needs to be specific about how it intends stopping this potential abuse.
But other parts of Alfred Sant’s speech do make economic sense. Of particular importance is the declaration reiterating the MLP’s commitment towards the European Union.
The Labour leader stated in no uncertain terms that he accepts to act within the European framework, albeit, rightly so, while still defending the national interest. This is all welcome talk, which should go a long way to creating business confidence and ending once and for all the political division on this issue. Equally noteworthy is his affirmation that the Labour Party will not be blinded by dogma in all initiatives it will introduce to encourage job creation.
So long as all these initiatives do not amount to compromising public finances they should be welcomed with open arms. We sincerely hope that such measures would include the abolition of succession duty, the capping of tax on rental income to 15%, the gradual reduction of income tax and a shift of taxation from earnings to consumption.
The very statement that a Socialist party will not be shackled by dogma is groundbreaking and praiseworthy. It is certainly a far cry from the Mintoffian era.
Other good proposals reiterated by Sant should be beefed up. It means little to state that one will reduce the hospital patient waiting lists without concretely stating how and at what cost.
The placing of education at the heart of the manifesto is positive as was the drive to go for growth.
However, we expected a more concrete road ahead, one that paves the way with solid proposals rather than a mere list of priorities.
Setting targets without stating exactly how these can be achieved is cheap talk that can come at a hefty cost. The perennial question aimed at politicians remains: how and at what cost?