BUDGET 2008 | Tuesday, 16 October 2007

Middle class families, and other abandoned animals

‘Tis the season for pre-electoral gimmicks, and what better place for them than Budget 2008? Raphael Vassallo examines the budgetary implications for the coming election

The times, they are a-changing. I seem to vaguely remember the days when budget speeches were delivered by a certain Wistin Abela, and involved grave and dignified proclamations such as: “The price of qaqqoc has gone down by 2 mils!”
To be honest I can’t remember much else, because these fluctuations in pitkalija prices would be greeted with such an explosive barrage of table-thumping, that the really important announcements (e.g., the price of kerosene, corned beef, “tonn taz-zejt”, etc.) would invariably be drowned out.
In some respects, this tradition hasn’t changed at all. Many of Dr Gonzi’s announcements last night were similarly lost on home audiences, again thanks to the energetic hammering of around 34 desktops in unison (with PN whip Mario Galea somehow managing to thump two tables at the same time).
But the little that filtered through was enough to confirm our greatest expectations. Dr Gonzi, it seems, has finally woken to the fact that his administration has been less than forthcoming with its own traditional support base over the years. Now, on the eve of an election, the time has come to overcompensate.
And this brings us to the biggest budgetary change in the past 30 years: the cost of bribing the floating voter. In 1976 it may have been possible to win an election on the promise of a cheaper artichoke. Today, you need more. Much, much more.
To discover exactly how much more, the Finance Ministry recently embarked on an unusual (but, in retrospect, ingenious) little experiment; that of asking the populace at large what it actually expected from Budget 2008.
In parliament yesterday, Gonzi justified this move by listing out a number of the “conclusions” he drew from the thousands of complaints/observations/threats/supplications received. But judging by Budget 2008, what his administration really took on board from the exercise was all of the following:
1. That middle-income, salaried employees had to be taken care of, and taken care of good and proper, before their disgruntlement reached critical mass;
2. That pensioners are only ignored or sidelined at one’s own political cost;
3. That a long list of environmental calamities (foremost of which, the ODZ extension last year) had earned Gonzi’s government a reputation for cultural and environmental philistinism surpassed only by King Nebuchadnezzar of Babylon;
4. That his nemesis Dr Alfred Sant had evidently struck a chord with his sudden interest in the price of property for first time buyers;
5. That Sant had also earned substantial street cred with his constant references to “the family” (as opposed Gonzi’s own allusions to the European Central Bank manager)
6. That his government could not realistically expect to be forever bailed out by the voluntary sector when it came to certain basic (but expensive) social necessities, such as animal welfare;
7. That the extreme right had made significant inroads, especially in the Armed Forces;
8. And finally, that the electorate does not live on fear of Alfred Sant alone. It also needs to be seduced, if not by reality, at least by a believable vision for the future.

Departing from this premise, Dr Gonzi has cooked up a budget which addressed all of the above, without exception. Individual measures are discussed in some detail in other parts of this publication. There are just one or two which deserve further scrutiny in this humble post mortem.
At a glance, perhaps the most remarkable aspect of Budget 2008 is the enormity of the government’s U-turn on the Arts. Actors, for instance, are now set to benefit from a 13 per cent reduction in VAT on rented theatrical space. Excuse me, but… wasn’t this the same government that wanted to appropriate the giant vacant theatrical space that is the Royal Opera House, and turn into a Parliament?
Then there was the great, unexpected budget beneficiary of 2008: abandoned animals. The government, we were told, has allocated Lm150,000 for voluntary organisations.
Lm 150,000! Never mind that it is marginally less than required to pay all of the same associations’ accumulated water bills for last year alone. For the first time ever, a Finance Minister has spared a thought to those poor decrepit flea-bags at the Island Sanctuary or the Abandoned Animals’ Association. It will cost the government virtually nothing, but it will no doubt have a few tails wagging by the end of the year. If that’s not a political masterstroke, I honestly don’t know what is.
The really clever part, however, is how Dr Gonzi has left the Opposition with the unenviable task of attempting to discredit several family-friendly measures… many of which were actually suggested, in slightly different form, by the Opposition leader himself. Any amount of examples, but the best is arguably the measure aimed at subsidising first time house buyers. Where on earth did Gonzi get this bizarre idea, if not directly from the Alfred Sant?
With a tiny difference. For while Labour has publicly committed itself to forking out five per cent of the down payment on a Lm50,000 property, the Nationalists have limited their market distortion exercise to subsidising home loan repayments in the event that the Central Bank raises the base interest rate beyond 3.75 per cent (the current rate is four per cent, which should give you an idea of how this will work in practice).
Effectively, a one per cent subsidy on the 0.25 per cent difference will go some way towards easing the financial burden of meeting one’s monthly mortgage repayments. But unlike a direct subsidy on the property price, the measure will not change the fortunes of those who could not previously afford the 10 per cent down payment.
As a result, Gonzi’s proposal will keep the first-time buyer happy, but without unduly influencing the mechanics of the property market. Strange, how a former Catholic Action president could grasp this basic concept, while a Harvard economist evidently couldn’t.
But at the end of the day, Gonzi has delivered more than just a few more euros a year to the long suffering middle-income earner. He has also outlined a vision, which (unlike so many other Nationalist illusions) is tantalising in its overall implications : a budget surplus by 2010.
Exactly how the Prime (and Finance) Minister intends to make good on this promise, after opening the floodgates of public spending – increasing capital and recurring expenditure, increasing social benefits, while at the same time predicting a decline in tax revenue – is of course a mystery. But achievable or otherwise, it nonetheless underscores the single, most vital element in any government’s economic policy: a sense of direction.
If this was the starter pistol for the election campaign, then it must be said that the PN is already halfway to the finish line while the Labour Party is still struggling to put on its running shoes.
Was it a false start? Time will tell…