No-pain budget but no pitch for new economic model

Only a few weeks ago, Finance Minister Clyde Caruana said a new economic model would be required for the next 10 years. “If we adopt the same recipe, in the morning, rather than being stuck for one hour in traffic, we will be stuck for one-and-a-half or two hours; the tourism sector will invest in hotels that will remain empty, and this will apply to other sectors eventually,” he warned.

Yet those who expected a glimpse of this new economic model in the budget presented yesterday are bound to be disappointed.

Surely it is thanks to the economic model adapted in the past years that Malta has managed to reduce its public debt to an extent which has permitted the Abela administration to spend its way through a pandemic and a war.

With our debt-to-GDP ratio well below the 60% mark indicated as the ideal threshold by the Maastricht criteria, Malta is in a much better position than many other EU countries which have once again resorted to crippling austerity. To put things into perspective, Malta’s debt ratio stood at 70% at the end of 2012 and Caruana is forecasting to remain one point shy of 60% next year.

This leaves the minister with ample wriggle room to continue spending his way out of the current international energy crisis, while shielding families and businesses from higher electricity and fuel rates.

Caruana has presented a sober budget for next year, which rightly so focuses the country’s resources on the most vulnerable categories like pensioners, who will get a €12.50 weekly increase, and those on a low income who will receive an additional allowance.

In this sense Caruana’s recipe does offer the country stability in an increasingly unstable international context.

Providing peace of mind and stability are not to be underestimated but once again, the budget does not go far in setting direction towards a new economic model, which prioritises the quality of life of the population.

Apart from greater investment in carbon neutrality and crucial sectors like waste, mostly thanks to the EU’s Recovery and Resilience Plan, the budget fails to address what the Finance Minister described in the budget as one of Malta’s “greatest challenges”.

Not only does the budget make no reference to mass transport systems, like the metro, which was the topic of a pre-electoral roadshow a few months ago, but is devoid of any carrot and stick measures to encourage people to make less use of their private cars.

The only concrete measure in this sense is the suggestion that services by road vehicles are provided after 9am to reduce traffic congestion during rush hour.

And while the shift from crippling austerity is largely positive, in the same way that the government has decided to increase gate fees at the landfill to discourage the indiscriminate dumping of waste, the traffic situation also merits a similar approach.

The hallmark of the budget is shielding the country from the spike in energy prices. While this is more than understandable in the case of electricity for households and businesses, it is less so in the case of petrol and diesel consumption. Government continues to refuse to share the fuel burden with motorists despite investing heavily in free public transport for all.

Caruana may want to re-evaluate this strategy over the medium term by reducing the subsidy on motor vehicle fuels and asking motorists to pick up part of the bill, thus reducing the pressure on public finances.