Wanted: a real safe pair of hands

If we are to really ensure a stable economic future, government policy must be motivated by more than just the short-term interests of its own political survival.

Cartoon by Mark Scicluna
Cartoon by Mark Scicluna

Prime Minister Joseph Muscat's revelation (which was not entirely unexpected) that Malta's deficit may exceed the 3%-of-GDP limit mandated by the European Commission, should pour cold water over any claims by the previous administration to have 'weathered' the global economic storm.

At a glance the immediate lesson to be learnt is that one cannot exploit serious issues (such as a global economic crisis) to spread fear and mistrust of one's political opponents, while at the same time going on a reckless pre-electoral spending spree in a transparent bid to win a few votes.

This is nothing but a recipe for economic disaster: for if a government overspends against the backdrop of increasing economic uncertainty - to the point where its own financial targets go haywire in the weeks before an election - it would not only be undermining its own reputation as a 'safe pair of hands'... it will also sow the seeds for an economic crisis that will have to cleaned up by others, with devastating possible consequences on the financial wellbeing of the country as a whole.

But there is a lesson for the incoming Labour government too. Muscat's response to the discovery was effectively a distant echo of the very first act of the incoming Labour government led by Alfred Sant in 1996.

Then as now, it was learnt (though this time with less surprise) that the previous administration had been 'economical with the truth' about the state of the economy. On that occasion the discovery gave birth to the unfortunate metaphor of a 'hofra' (hole) - and we all have memories of what happened next.

Faced with a vacuum where the nation's finances were meant to be, Sant proved unable to deliver on his own electoral programme; and to exacerbate matters he instead initiated a series of draconian austerity measures that caused a backbencher revolt, massive popular disgruntlement and ultimately precipitated early elections and a change in government.

There is however a difference this time round. Malta is now an EU Member State, and this carries weighty implications for government's failure to rein in the deficit by the end of the fiscal year. If Muscat's express hope (i.e., that the deficit will be reduced to below the 3% threshold) fails to materialise, there is a very serious chance that the Commission will initiate excessive deficit procedures that will effectively take direct control over the budget out of government's hands: forcing austerity measures upon us whether the Maltese government likes it or not.

Given that there have been queries about the true strength of Malta's economy in the international press of late, the real danger is that forced austerity measures (and above all tax regime amendments) may erode Malta's competitiveness when it comes to lucrative sectors such as financial services and online gaming (where Malta has outperformed its eurozone counterparts).

Even without this possibility, the reality of the economic situation should technically force a rethink on whether to go ahead with a rather lavish programme of tax cuts and other perceived 'goodies', to which the incoming government is bound by means of its electoral programme.

Yet this does not seem to be the government's plan. On the contrary, Muscat has rather rashly committed himself to pressing ahead with a programme based on stimulating the economy through measures which will both reduce government revenue and increase public spending.

From a political point of view his position is understandable. Any hint that he might renege on those promises will almost certainly be interpreted as a prelude to precisely the sort of austerity we still associate with the Sant era; and needless to say this will also bring about an abrupt end to the surge in popularity enjoyed by Muscat's PL (evidenced by the election result), and may seriously jeopardise his electoral chances in 2018.

But looked at from the perspective of the country's long-term interests, it is debatable whether Muscat is indeed being responsible by refusing to take timely measures to correct the flawed deficit projections as they arise, and bring them in line with our financial commitments.

For one thing, if he is indeed driven by fears of a repeat of 1998, Muscat can (unlike his predecessor) fall back on the comfort zone of an impressive nine-seat majority... which more or less rules out revolts of the kind launched by Mintoff in 1997, thus guaranteeing the Prime Minister the full five-year term to regain any trust lost in the interim.

Another reason to seriously consider scaling down his pre-electoral 'generosity' is the simple fact that Malta cannot afford to continue making future plans based only on the exigencies of the current administration of government.

Muscat based his election campaign on the motif that Malta 'belongs to us all'. One way to implement this motif in practice is to start extending the same concept to Malta's economic management.

If we are to really ensure a stable economic future, government policy must be motivated by more than just the short-term interests of its own political survival, and instead focus on laying the foundations for future economic prosperity, regardless of who is in power.

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