The elephant in the room

When the recession emerges with a vengeance, rest assured that the rich and well-off will be the biggest moaners... and the least affected

File photo
File photo

As the entire world reels back from a global economic crisis prompted by the war, the food shortages it has generated, and the inflationary effects on the rest of the world, an apparent indifference persists over here in Malta. Here the electorate seems to be kept in a permanent state of denial, with political rhetoric seemingly contrasting to the overall European discourse on saving money, saving energy, and subsidies without any long-term gains, being dished out to keep everyone happy.

The subsidies for energy have certainly helped consumers and households, keeping price inflation at home down. But this has had an effect on government finances, because a spending review is necessary to keep finances sustainable.

The government Cabinet knows that in the last two years, the COVID wage supplement allowed many companies to take advantage of government largesse, by manipulating their economic activity in such a way as to make a killing off these subsidies, especially some companies who actually stopped operating while claiming wage supplement.

Surely enough, in these situations there will be always be abuse and many will try their luck to short-circuit the system. Shafting the State is not something that comes with much guilt in this country, anyway.

But post-COVID, the country has made some great financial sacrifices, with the continued subsidising of energy prices, billed at around €200 million, being a rather expensive solution at keeping inflation down. Naturally, it is essential to stave off energy poverty in days like these where global energy prices are soaring; as always, the more well-off are the last to feel the pinch.

It is strange that the alarm bills are not ringing. The people who are the first to discern this would be finance minister Clyde Caruana and energy minister Miriam Dalli, ostensibly telling Prime Minister Robert Abela that some day the chickens will come home to roost.

Take for example, the fuel subsidies that allowed the price of diesel to be rather beneficial for those who own pleasure crafts or superyachts. Indeed, brokers know that bringing superyachts to Malta is attractive to their clients because of the cheaper price of fuel here, when elsewhere in Europe it costs double to refuel. Surely a slight hike in the price, especially for these pleasure crafts, would not have dented the popularity of this government.

Even worse is that in Malta, it seems we are the kind of nation where we seem to believe there is no tomorrow. And it surely exemplifies the political direction we are seeing here.

Take this week’s press conference by EU leaders, following the gas deal clinched with our corrupt co-partners Azerbaijan (the ones whose state energy company partially own our privatised gas plant). They are calling on EU states to save gas for the cold winter, fearing an imminent shutdown from Russia.

Many southern European countries, Malta included, disagree with the call to reduce gas consumption by 15%. Spain and Portugal were the first to react; Greece, Italy and Malta are not keen on it, neither are Poland and Hungary, of course. Frans Timmermans said air-conditioners could say, go up by one degree above 20... they do not work in our kind of heat.

That in itself is not an indecent suggestion, because it seems it’s only in Malta that the notion of conserving energy is really taken as a big joke. But as food and energy prices keep rising, the knock-on effect on consumer purchasing power will only lead to a creeping recession. And when that happens, something will have to give.

That is why, behind the scenes, government chiefs are being told to cut spending; and in a country like Malta, the powerful government machine has always been a central driver of economic activity. But drive and initiative only comes when money is thrown at big projects and stimulus initiatives are created.

The economists in the Cabinet are few. Nobody is suggesting that we should shock the country with austere measures, but a sense of responsibility, the vocal promotion of saving, rationalising, of winning efficiencies, and of cutting back, should be considered. It would not hurt anybody to realise that these are difficult times.

Inflation and recession are the elephants in the room. Businesses will have to be creative at keeping costs down, streamlining performances and get creative at winning trade and business. The same rationale should apply for government, but consumers should also exercise their own degree of responsibility.

When the recession emerges with a vengeance, rest assured that the rich and well-off will be the biggest moaners... and the least affected. The worst hit are the people lower down the scale. History unfortunately repeat itself, which is why government cuts will have to be watched closely.