Malta’s deficit, beyond fiscal populism

Malta's deficit stands at 3.3%, higher than the established Maastricht Treaty 3% threshold, the European Union statistical office Eurostat recently confirmed. Now it transpires that the European Commission is estimating a Maltese deficit of 3.7% by year end, though the Ministry of Finance is estimating a deficit of 2.7%.

In the past months, in the run-up to the general elections, and before Malta's 2012 official financial figures were out, it was clear Malta's deficit was likely to increase and that the Nationalist Government of the time was too optimistic in its financial projections. In such a scenario, it was irresponsible to carry out income tax reductions for high income earners, when this generates revenue for essential public services.

After the general elections, when Malta's official 2012 financial figures were out (in itself an interesting phenomenon), and a few days before the new Labour Government was to approve the 2012 Nationalist budget, it transpired that Malta's deficit for 2012 was much higher than expected.

I, for one, argued that reducing income tax for high earners would not only be socially regressive, but would also rob Malta of a much needed source of revenue, and thus widen the financial hole. In turn, this will result in greater pressure on Malta's welfare state, the same welfare state which has helped Malta avoid massive poverty, unlike many other countries which have long gone neo-liberal.

Approving such policies in an age of austerity is therefore uncalled for.

Now that the tax reductions for high income earners have been approved, and now that Malta's finances are, once again, in a not-so-good position - even before the reductions have been implemented, the inevitable comes to mind.

What is going to be done to ensure that Malta's deficit does not keep increasing? The slashing of public expenditure? Attempts to increase revenue? And through progressive or regressive policies?

One might hope for economic growth that results in extensive public revenue to compensate for revenue shortfalls. In a context of global economic crisis, I consider this to be too optimistic.

In such situations, pre-electoral populism finds its dead ends, and likewise, a politics without adversaries proves to be an impossibility. There is no such thing as a neutral or independent economic or social policy. Social justice and neo-liberalism cannot be reconciled. Sides have to be taken.