When reading comments posted on the Times of Malta website, one may be forgiven for thinking that we live in an insular society. The intensity of feelings in remarks exposes a deep undercurrent of dissent among bloggers particularly on aspects of the budget that touched their pockets.
A few blame gloom-mongers as being artificial and naïve, leading us to fear the financial maelstroms that are now hitting our European neighbours.
One blogger disagrees saying we need to take action. He mentions the Italian government recent approval of a “Pacchetto di emergenza” intended to put more money in peoples’ pockets. Many watched in awe Sky News last Sunday by the British premier proudly broadcasting a reduction in the price of petrol and diesel which in a full year will mean a saving of about €2,000 per family. Ironically, our fuel prices were further hiked on top of international prices at a time when oil is at a record low - the reason being to create a fund for renewables.
Paradoxically, after waiting for a cut in excessive car taxes, the finance minister’s new registration tariff now makes ‘hybrid’ cars unaffordable and dearer than cars burning fossil fuels with higher CO2 emissions.
On the international front, our manufacturing firms are facing plunging demand and falling profits and consequently failing any direct assistance started declaring workers redundant or forcing them to take a 20 per cent cut in wages on a four day week. The Employers association laments that while the Malta Shipyards as a corporation may be bailed out to the tune of €100m to wipe out past debts no such bailout packages have so far been offered to their members deeply affected by the economic crisis. They are also expected to pay higher energy bills this winter following the removal of capping.
Exporters are gloomy about next year and expect a revival plan not a moment too soon. So is there a short-term solution in sight to put money where our mouth is?
Any party apologist who blames Brussels for this parsimony needs only be reminded of what France has done in favour of its industry.
Last week, news of the rescue plan came from Mr Sarkozy, whose country currently holds the rotating presidency of the EU. This arrived hot on the heels of talks between leaders of the 15 countries in the euro currency zone.
President Sarkozy proudly launched a €20 billion ‘strategic’ industries fund to protect French key industries in the wake of the global financial crisis. So is this a unilateral move by one member of eurozone or is it the result of each member to his own?
The answer can be found in a collective effort recently discussed at Commission level.
In attempt to deal with the economic consequences of the current financial crisis, the Commission will open a consultation procedure on consumer collective redress and also adopt several legislative proposals concerning the EU’s cohesion policy. Going back to the Sarkozy plan, we note that this is no freebie. All the guarantees would be at commercial rates, and any rash banker who overstepped prudent lending for a higher profit would not benefit from the public intervention.
An ominous sign is posted as a pre-condition of assistance - if managers are at fault they will be dismissed.
Back to Malta, economists lament that so far there has been no attempt to put more cash into consumers’ pockets and encourage them to spend more. Consumer confidence in Malta has been rocked by the higher energy tariffs, fear of unemployment, higher car licenses and rising inflation in food and medicine prices.
On a positive note, the 2009 budget did announce a further reduction in personal taxes so that the lowest earners are taken out of the tax net altogether.
This is commendable and direct tax has been reduced progressively for three consecutive years.
But this is not considered to be enough to encourage higher spending.
The electoral promise to tax managers at a 25 per cent top rate has been postponed.
As a result, car dealers complain that less cars (particularly in the executive range) will be sold.
In particular, diesel car sales will plummet following a 45 per cent increase in tax on engines exceeding 2,500cc. As a short-term one year experiment, could we copy UK in trimming VAT, where it’s going down to from 17.5 per cent to 15 per cent?
In Britain, it would be the first time the sales tax has been changed since the early 1990s.
The UK government hopes to fund the gap in revenues by raising top tax rate on those earning more than £150,000.
SMEs would also be helped by deferring the increase in corporation tax from 21 per cent to 22 per cent. Revenue and Customs will be instructed to give small firms more time to pay tax bills.
The prime minister Gordon Brown said the government had to “persuade and cajole” banks into lending at appropriate prices and resume mortgage lending.
But some say this is all deja vu as labour in Britain may be facing an election soon, but in Malta this is four years away.
Ostensibly, we had our stimulus package last year in a pre-election budget that splurged over €200 m in extra funds over the Drydocks, healthcare salaries, children allowances and other goodies. This has maintained the higher rhythm of growth achieving 3.9 per cent in 2007. This is exemplary growth.
But of course some say more juice is needed in view of the hardest recession hitting the globe since the 1920s.
Need we say more? In the United States, President-elect Barack Obama promised to save 2.5 million jobs with a two-year stimulus plan.
But we all know stimulus packages cost millions and as Malta is already saddled with a 66 per cent debt to GDP ratio can we afford to top it up? It is a gamble, no doubt, but if it is successful there will be rich pickings.
Perhaps we lost a golden opportunity in past years in unveiling a windfall tax on banks making super profits on mortgagees and credit cards. Anyway, now the good times for banks are a bygone age and they no longer merit the cliché of the cash rich cows.
On the other hand doing nothing is not an option. A laid-back policy is diametrically opposed to Malta favoured policy of an aggressive spend now, tax later strategy. On the contrary we clamour for measures which put money into the peoples’ pockets - possibly the perennial battle cry of cash-strapped SMEs in Malta who are facing a drop in sales.
In the meantime, party apologists wax lyrical that Malta’s economy is not in recession and only countries such as Italy, Hungary, Ireland, Latvia, the UK and France need a stimulus. Yes in their view, our tiny state is cocoon from the storms buffeting the financial world.
They oppose any large capital plans to speed up infrastructure projects saying these can be co-financed out of the euro 855 funds. Certainly the much-hyped inner and outer harbour conversion project can wait until 2012 for its initiation?
Never mind other much-delayed projects such as the construction of Cirkewwa passenger terminal, the continued upgrading of arterial roads and the building of the opera house. In these difficult times, the public sector (which employs over 35,000) will, like the rest of the country, be tightening its belt to reduce its recurrent cost.
This may well be the gospel of salvation which fires the imagination of party cronies with a blinding faith in doing little, just letting the storm pass by.
All the rest tighten your belts to grin and bear the increases in fuel, food and energy bills not to forget renewal costs of car licenses.
True, there is hope of discounts on consumption and reduction on the water and electricity meters. Increases on the latter may be postponed after Xmas as a hard won concession by the government after unions took an unprecedented common front to oppose the imposition of tariffs.
To conclude, pervasive action is needed now to deliver the sort of stimulus necessary to raise demand, only thus will this lead to voters having faith in the political gospel of salvation
George Mangion
Partner at PKF – an audit and business advisory firm [email protected]
