|
In the post-budget discussions much will be emphasised about the merits of brinkmanship by the ruling party on setting the country’s finances in the black. Voters are continuously reminded that the road to recovery is well mapped and that the fruits of wise investment will be reaped by all. The broad basis of growth this year is firmly underpinned by tighter control over government expenditure thereby reducing the annual deficit to under 3% of GDP.
A radiant Prime Minister presenting his third budget speech has infused a feel-good factor after conceding double the tax cuts previously announced in the pre-budget document. At last the mounting pains of the middle classes were partially vindicated. With this sleight of hand we wonder how his medicine will take root and finally relieve us of the many Jeremiahs that have sprouted of late criticising the administration about a sluggish economy. The Times of Malta editorials have stressed the need for an immediate reshuffle of a fossilised cabinet of ministers although nothing was done, possibly because it is now too late. Reading and quoting from the economic survey it warns one’s heart to discover that the writing is on the wall for our country to prosper.
Unofficially we all expect a mini-boom in 2007 as money in circulation will be seeking a shelter in anticipation of the euro changeover. With an estimated Lm200 million in undeclared cash tucked away in the vaults and under the mattresses of the Maltese away from the watchful eyes of the country’s fiscal watchdogs, the clock is ticking for the bonanza of luxury apartments, diamond jewellery and premium cars which will be selling like hot cheesecakes. You only need to read the glossy adverts in the English newspapers of late to discover how advertisers are trying to satiate the appetite for tangible investment of hidden cash. Central Bank of Malta statistics indicate there is some Lm490 million in circulation.
Rumours abound that millions are being channelled into buying virgin land in pre-accession countries such as Bulgaria and Croatia. But this rally will be only a temporary boost to the domestic economy albeit a welcome one for the beleaguered administrators at Pietà who will thank heaven for such mercies. Regarding 2007, economists project that growth may lose some momentum as interest rate and inflation increases in the domestic economy is compounded by a slowdown in world trade. All this will start to weigh on our export potential unless we improve productivity. Constituted bodies have emphasised repeatedly that we must be competitive and entrepreneurial and be able to weather the storms that beset a micro-state like ours with no natural resources.
Competition
Competition and regulatory policy are vital for a market economy. Competition is a key driver to ensure increasing levels of efficiency and productivity. Working in tandem with the fundamental theorems of welfare economics, one expects a coherent and transparent privatisation policy is in place to offload remaining loss-making public sector entities. Without a shadow of a doubt many analysts have been rallying government to forge ahead with a more liberalised and competitive environment primarily to nurture existing business and attract new foreign inward investment. It is export or die.
Although the smaller businesses seem to struggle under the sluggish domestic market, it would appear that despite high oil prices and a slight slowdown in the global environment, the economy has expanded moderately, driven mainly by the rebound in exports, underpinned by a strong injection of the Italian protocol funds and the Mater Dei hospital capital works. Indeed, labour-market performance over the past year has been subdued as one sees that the privatisation of Maltacom has rudely awakened us to the unpalatable fact that the Gulf Arab owners aim to shed excessive staff surplus to requirements.
On a positive note unemployment under part one of the register has maintained a stable 4.5% rate. This is better than the EU average which grew at an annual rate of 1.5% in the first half of 2006 – the strongest increase since 2000 – helping to keep the unemployment rate on a downward trend. In July 2006, unemployment within EU stood at 7.8% of the labour force. Back to the 2007 budget we notice that in nominal terms, GDP advanced by 6.8 per cent to Lm987.7 million. The sad news is that while we have been regaled by endless rhetoric calling for better productivity in the civil service there has been no tangible tightening to ensure a higher delivery. Just try to ring for service to check progress on your file application at MEPA and you will immediately be reminded that customer service is a joke. Public sector employment, inclusive of temporary employees still tops 43,199, although this has dropped marginally mainly due to privatizations.
Without doubt there is very little that can be expected in tightening of the reins when we are so close to a general election but at least Dr Gonzi’s speech tried to rally support from unions to revisit the subject.
Regrettably employment in private direct production declined by 424 to 32,639 at the end of June 2006. This decrease reflects mainly the drop recorded in manufacturing employment. This stood at 31.0 per cent of gainfully employed. It is becoming a trend that part-time employment is on the increase.
This is a healthy sign that employers are satisfying their needs for flexibility while workers can benefit the lower tax concessions for part-time employment. The economic survey shows that total part-time employment at the end of June 2006 stood at 43,177, an increase of 2,982 or 7.4 per cent over the comparable period of 2005.
It appears that the trend towards more flexibility is increasing since statistics show how in the past four years aggregate part-time employment increased by 10,874 or 33.7 per cent reflecting increases in both part-timers holding a full time job and part-time as a primary job. Does this mean that our productivity level is waxing or waning? It is hard to say and more studies need to be conducted possibly using the services of the economic section at the University.
Naturally as the EU countries are our main trading partners much depends on their recovery to encourage them to import more from us.
We recall that the golden age of high European growth spanning the 20 years to 1973 has not reappeared. Many hoped that a recovery will feature in the mid 1990s but this was not sustainable. There is a sting in the tail that the recovery is not as strong as that witnessed by the US economy. The acceleration in American productivity growth has been much discussed and it is generally accepted that it owed a good deal to ICT. The episode has been analysed by several economists using variants of growth accounting techniques. They show a distinct change of pace in the mid-1990s and attribute this mainly to the impact of ICT.
Now that the Gulf Arabs have zoomed in to invest in Smart City no stone should be left unturned to embrace the full impact of enhanced investments in ICT. Excessive regulation has in the past had a negative impact on our productivity growth. More needs to be done by IT minister to combat the digital divide which remains persistently high. Productivity and competitivity rates are still well below the Lisbon targets. By sheer contrast other economies of countries such as Ireland, Sweden and Britain have flourished. They are currently allowing in floods of east European workers thereby reducing their cost of outputs and improving productivity levels.
In spite of this, most criticise lack of new jobs in ‘old’ European group blaming this is usurped by migrants. The truth is that in industry there has been a fair distribution of jobs. It goes without saying that for Malta this will be a challenge to skilled ICT workers seeking better prospects. Now that we know that over Lm100 million has been allocated to education which may go some way to revamp the education levels. Certainly improving our levels of education particularly in ICT and science subjects will take us a number of years to catch up with our competitors but we need to start.
We need to sharpen our pencils and make our presence felt in Europe. It goes without saying that in view of lower paid jobs abundant in ex-Communist countries our workers stand to benefit only if they can penetrate markets in richer northern states on the strength of superior skills. Again the budget cautions us to be vigilant. Only by increasing productivity levels can we survive the onslaught of globalisation.
George M. Mangion is a partner in PKFMALTA, an audit and business advisory firm gmm@pkfmalta.com
|
