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As recently reported a new industrial policy is in the offing according to a dialogue meeting held by the Office of the Prime Minister to discuss the use of EU structural funds.
Naturally one expects that such funds will percolate into areas such as education, job training and creation of sustainable employment. The matching of educational skills to the demands made by the jobs market has never been more acute. The good news is that with the extra funds one can pave the way for more research and better design. Certainly the buzz word on most lips is the craze for nurturing innovation and efficiency particularly in the ICT sector. Only recently the Ministry for Investment, Industry and Information Technology concluded an agreement with Oracle to extend the e-Government framework to include the Oracle technology stack.
This is another positive move to expand the capabilities of the e-Government infrastructure that has so far been only based on Microsoft technology stack. The agreement also commits Oracle to provide the government's technological arm - MITTS Ltd - with training for its staff to maintain and manage systems developed on Oracle technology. Ideally such efforts must be emulated by other ministries in order to motivate the productive sector and ease bureaucracy and cut unnecessary red-tape. This goal emanates very strongly from the revised Lisbon agenda. More funds would be made available for research from which Malta and other small islands could benefit. The writing is on the wall; we must roll up our sleeves to produce more while reducing our costs to buttress mounting competition. The main objective of government is to lower the deficit and aim at zero budgets from 2010. The impression one might get from hearing political speeches is that of a biblical allegory when a latter –day Moses, alias the prime minister, has led the Maltese people to the promised lands and defied the raging waters by miraculously providing a means of access right through the turbulent valley of deficits.
On a more serious note one can extract a common theme running through successive budget speeches over the past few years.
Starting in the early 1990s, the motto for each budget has been related to modernising the economy and improving our chances to enter the EU club.
As part of this process, heavy investment was made in modernising the infrastructure, including the building of a new power station, a new airport terminal, a new telephone system and various strategic projects such as introducing fibre optic cable.
Markets were liberalised, state subsidies and importation licences were dismantled and the frontiers of state control started being rolled back in earnest. The financial services industry started being built practically from scratch.
Public corporations too started a period of restructuring, the best known of which is Malta Shipyards. A sustained effort to privatise state corporations yielded good returns.
Massive investment was, and is still, being made in education, as witnessed by the steep increase in the University population and the opening of other institutions such as MCAST.
The crucial dynamic that underpinned the government’s policy was that it is the educational sector on which this country's future wealth depends. What we need now is to ensure that such a gargantuan allocation on education, some Lm130 million this year alone, is spent wisely to meet specific needs of the economy.
A lot has been written that we need to show higher productivity from the civil service given the hefty investment in training and computerisation. The first steps were taken to build a new hospital, Mater Dei that will ensure us a higher quality of health care. After a number of structural changes and cost–overruns Mater Dei Hospital is expected to be operational in 2007. It is expected to end up costing more than Lm250 million. Because of this and other cost-over runs such as the Cirkewwa/Mgarr passenger terminals, hard-pressed taxpayers are licking their wounds and pray for tighter control over capital projects. The reclamation of extensive foreshore at the Cirkewwa/ Mgarr harbours project has been an ambitious development that was expected to end in an all weather passenger terminal. In reality we notice that costs went haywire and now we are seeing that delays in completion may not provide adequate shelter for passengers this winter.
In spite of some shortfalls, credit has to be given where it is due and with all this massive transformation there is no prize for guessing why each year the budget run up a higher deficit.
It is pertinent to point out that the national debt, very small in 1987, now exceeds 76 per cent of our GDP.
The underlying theme justifying successive budget deficits was that so long as the government succeeded in collecting more tax revenue, especially as a result of economic growth, there could be sensible borrowing from local sources to bridge the deficit. Paradoxically, the secondary effect of successive deficits meant that the extra funds in circulation had benefited the economy partly due to a multiplier effect. This has created a surreal feel-good factor.
Over the years, new indirect taxes, as well as better tax collection, has yielded a steep increase in tax revenue but there have been complaints, notably from the GRTU and FOI that there is less money in circulation and consequently there has been a drop in sales this past Christmas.
Pundits are sowing doubts that this year’s expected 1.1% GDP growth could be attributed to one –offs such an increase in unsold inventories and a smaller part due to the higher rate of construction. However certain sectors such as banks have reported bumper profits.
Take HSBC; it announced that its captalisation went up to Lm583 million. On 31 December 2005 the bank’s share price went up from 2.79 cents during privatisation talks to Lm8 per share in less than 5 years. Yet in spite of pockets of unprecedented growth in one-off sectors Malta still faces the challenges to align its economy with the Maastricht criteria for euro adoption and belts are being tightened as if there is no tomorrow.
If we maintain this self restraint we can assure ourselves of a higher international profile for investor confidence.
As you would expect cynics lament that while the budget gap is closing, part of the projected revenue is not sustainable. For example the revenue estimate for 2006 shows a projected income of Lm20 million from the sale of land and Lm80 million receivable in grants, which will not reoccur each year.
The sad news is that a larger slice of our GDP is now needed to finance the purchase of fossil fuels for energy generation. Unfortunately due to a number of reasons the price of crude oil is not expected to drop in the short term.
Given the current circumstances, it was inevitable for Dr Gonzi to augment the utilities surcharge to partially compensate for the impact of higher oil prices.
Certainly more will be revealed next year as we live through the experience of the 2006 budget measures. The decisive factor is that our politicians have turned the corner. We hope that the plea by GRTU that government must change from a regulation-driven to an enterprise –driven one is heeded. Prudence has suddenly taken over and every effort is being made to count the pennies and eradicate waste. The journey may be arduous and tough but the virtue of trimming off our excess fat will lead us to live better lives.
gmm@pkfmalta.com
The author is a partner in
PKFMALTA
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