A greyless Budget
In its first reaction to the 2022 Budget UHM Voice of the Workers described it as rich on social measures and poor on reputation. One might also remark that this was a Budget with a tinge of green due to the various incentives aimed to promote the switch to electric cars and incentives to rehabilitate village cores rather than keep steaming full ahead to ruin the skyline of urban conservation areas.
The other side of the coin, however, is that the 2022 Budget fails to address very serious issues like Malta’s roadmap to get off the grey list, the soaring debt levels, the lack of new economic niches and worrying trends in employment.
At the start of the pandemic Prime Minister Robert Abela had warned that he was being careful not to empty the ‘war chest’ from day one to have further ammunition up his sleeve should the need arise. 18 months down the line the finance minister has said that Covid-19 has cost the State coffers the staggering sum of €1.5 billion – a quarter of all the debt which Malta accumulated in almost 60 years as an independent State.
Though everybody accepts that there was a price to pay to keep unemployment under control through the wage supplement scheme and to support the economy from a massive recession, this does not mean that one day we will not have to foot the bill. What is worrying in this regard is that the 2022 Budget has allocated a further €69 million to Steward Health Care who are running three State hospitals. None of this money is going for salaries, but at the same time the government has not explained where this money is really going and why are taxpayers being forced to foot the bill year after year. What is even more baffling is that in less than two years Government will be forking out the equivalent of the reported €100 million penalty which would be triggered if it had to rescind the contract. The mind boggles why it has not taken this route to at least stop the rot.
Meanwhile, the Budget forecasts that Malta will keep recording a deficit at least until 2024. Though the government is trying to gloss over the figure by citing the percentage amount of debt when compared to the economy, the bottom line is that within five years Malta’s debt will have doubled to €10 billion – the amount which must be paid in pounds shillings and pence.
It is also of concern that this level of debt could be even worse should Malta fail to reach the projected economic growth. In this respect, government should be diversifying the economy to avoid having all eggs in one basket – which is the situation at present with construction, tourism and the financial services industry. While the construction boom has come at a hefty environmental cost, tourism has been given a near fatal blow by the pandemic and the financial services were shaken from the foundations by the decision to grey list Malta. Hence, it would be naïve to set lofty growth targets for the sake of it. Meanwhile Malta’s taxation regime is increasingly under pressure and with it its attractiveness for foreign investors, especially after the decision by OECD to impose a 15% minimum tax for corporations having a turnover from €750 million upwards. Yet, the 2022 Budget makes no mention on efforts to create new economic niches.
As for employment, the Budget has very little to offer to reverse the brain drain from the private sector to the public sector be it directly on the State payroll or indirectly with a contractor servicing the government. Employers have long been warning that as long as politicians will keep poaching their employees by luring them with a cushy job in return for their vote, they can never thrive.
These shortcomings should trigger the alarm bells as the Budget should not simply be an accounting exercise peppered with pre-election goodies and topped with some green initiatives. The annual event is also a means for the government to take stock of the situation and showcase its vision for the future. The Finance Minister’s speech was akin to that of a doctor who avoids giving the full picture to his patient but limits the medical results to the positive aspects only. Unfortunately, we all know how the story will end. Failure to deal with the malaise at an early stage risks to end up with an amputation.