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The government, with much strategic thinking and political shrewdness, has managed to defuse the budget flak. It certainly pushed all the right buttons when selling the budget. The masterstroke was the intentional divorcing of the oil hike announcement from the budget.
Add to this the clear media control of a section of the independent press which was given preferential budget coverage, party driven editorials and the general acquiescence of the social partners; the net result is a much muted public reaction and an incoherent Labour party response, confirming further the sorry state the opposition finds itself in.
This may all make government over-confident in believing it can ride the looming political storm once the water and electricity bills start being received at home. It can only believe this at its own peril. It is about to enter a political minefield.
Together with its news management skills, government is to be commended for having reached its deficit reduction targets. Fully focusing on its reduction when the finances of government are in dire straits is good economic management. Hopefully with the passage of time debt servicing will be reduced and moneys saved can be invested in improved public services health and education. The debatable point remains whether we are paying too high a price to reach the deficit levels set by bureaucrats in Brussels with little sensitivity to people’s concerns and even less to government’s political survival chances.
Of major concern is the diminishing disposable income available in people’s pockets. Is the gain achieved in stronger government finances worth the lowering in the general standard of living? This is all highly debatable and a moot point. The litmus test is whether the better finances achieved will serve as a launching pad for economic growth.
We can argue till the cows come home whether government is right in focusing on deficit control rather than on low economic growth. Both are of equal importance and the one is of little significance without the other. Government’s credentials will be highly enhanced if it manages to achieve economic growth as admirably as it has managed to reduce the deficit.
Putting government finances on an even keel involves much more thinking than simply collection of taxation, an art where government is highly efficient. Government must first of all show concretely that it is controlling its own expenditure as the custodian of the public purse. The setting up of a monitoring group in this budget is a positive introduction. Its first brief should be giving the public a true picture of what the CHOGM event ends up costing the taxpayer, beyond the budget amount.
Government missed an opportunity in not rebalancing the direct and indirect taxation regime by lowering income tax and widening the tax bands while increasing VAT on luxurious items. Equally perplexing is how government boasts about the profits of the banks as evidence of a robust economy rather than concentrating on how a part of these profits could go back into the public coffers to help water down the deficit. Nothing wrong were government to adapt this approach – Thatcher, the pro-enterprise prime minister, had introduced windfall taxes on the highly profitable banks. The profits just announced by our local banks are obscene, when seen in the context of government’s squeeze on disposable incomes.
The statutory increase in wages is also debatable. It puts a further strain on businesses struggling to remain competitive. Government could well have introduced a one-off bonus compensating for the oil hike. It was all too keen on avoiding further tax increases while yet again shifting the burden onto businesses which are already cash-strapped.
We fear that government may have opened a Pandora’s Box on its change in the method of calculating how gains on transfers of immovable property will be taxed. It is correct to have made the inheritance burden lighter, this may indeed lead to further property being available on the market. It may not have studied sufficiently the implications of transfers particularly where the profit margin is low. In such cases it would appear that the withholding tax is higher than the previous 35 per cent on profits. Ironically this measure may have the effect of raising the prices of property! It’s best that government goes back to the drawing board and thinks this one out again. It has all to gain by admitting that this was rashly introduced and motivated by the desire of government to get its slice of the profit up front.
Of particular concern is the growing tendency of government to criticise the media and economists who dare question its economic performance. It also discriminates among the independent media. This is simply not on and should stop forthwith. The media is there to probe and to scrutinize and not to sing the praises of government by spinning stories. This brown-nosing is amply catered for by certain columnists and sections of the press.
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