Economists divided over Budget 2013

Like the country itself Malta’s economic observers also seem to be polarised along political lines when asked for reactions to a Budget that will almost certainly not be approved.

Gordon Cordina

A budget we are accustomed to seeing

Asked to react to the budget speech, economist Gordon Cordina said that the 2013 Budget ran along conventional lines that featured announcements and proposals in sectors that tend to be regularly emphasised.

These include, Cordina said, investment in the business sector, in training and education, in healthcare, and in Gozo-related investments.

Cordina however referred in particular to the Government's income tax scheme announcement.

He noted that while an income tax-related proposal or announcement tends to feature in every budget, this year's scheme was intimately related to the Government's 2008 electoral pledge to lower income tax.

Cordina observed that while last year's income tax-related budget proposal was aimed at families with children and enticing parents back into the work force, this year's proposal was "more political than economic."

John Cassar White

A budget lacking in strategic goals.

Reacting to the measures announced in the 2013 Budget, financial consultant John Cassar White's reactions were mixed.

He noted that despite how the budget speech placed a marked emphasis on strategy, certain 'strategic' aspects were conspicuously absent.

Among these, Cassar White said, are both short-term and long-term measures aimed at addressing the national debt, in line with the EU Commission's recommendations.

He noted that given how the national debt is already in the 90% region (73% of GDP Government debt alone, with another 17% Government-guaranteed debt incurred by parastatal entities), "this is an issue that will be felt in future as it will further detract from Government revenue."

There were many measures that will affect several sectors, the biggest headline measure among which was the drop in income tax for certain brackets.

Among the measures were are some which are positive and which should help various sectors to prosper.

Some will be especially positive. He noted that the Income Tax Reduction measure will be received as "socially regressive" as it will hit the hardest those income bands which earn the least.

At the same time, Cassar White noted that among the measures announced in the budget is the Children's Allowance measure, which he said will be particularly welcomed by those on minimum wage for the respite it would provide them.

He added that in this way, a number of micro-measures should have a cumulative effect and lead to positive results.

He however pointed to several measures which will negatively affect the rate of inflation and, consequently, the cost of living, pointing especially to the price hikes in both diesel and petrol.

These, Cassar White said, "will be felt sooner or later as they work their way into the economy and manifest themselves as increased prices for various products and services."

He also noted that the budget was composed of "tactical" measures in health and education, remarking also that despite advice by the IMF to ensure that both health and education expenditures are on solid footing, no measures to this effect materialised.

Cassar White also noted the absence of measures aimed at strengthening the sustainability of the expenditure in education and pensions.

Regarding pensions and Malta's aging population, he also expressed disappointment at the lack of a clear policy for preparations for Malta's inevitable demographic problems that stem from an aging population.

Discussing self-employed and the private sector, Cassar White noted that while some measures, such as the micro-invest scheme, were positive, they lacked 'focus'.

"They need to be more targeted towards small companies which have more value added and are more targeted towards exportation," he said.

Alfred Mifsud

A socially regressive budget

"From an economic side I can said that I am disappointed by the Government's 1% economic growth projection for the coming year," economist Alfred Mifsud told MaltaToday. "I think our country has far more potential than that."

From a budgetary perspective, Mifsud described the budget as a socially "regressive one" pointing to the manner in which lower tax bands were not touched.

"The budget has many good and nice things. But the way the marginal tax rate was reduced, and the fact that lower tax bands were not touched will mean that many who were not taxed before due to low earnings will now start being taxed, or be taxed more," Mifsud said.

"There are many nice things in the budget, but these are small," Mifsud said, expressing the hope that the "shower of tax credits" announced in the budget will have an effect and cushion this.

Alfred Mallia Milanes

Cautious budget mindful of international crisis

Economist Alfred Mallia Milanes described the budget as "a cautious one that is mindful of the government's strategy over the past several years."

Mallia Milanes noted that, as it always was with Malta's budgets, the three pillars of Health, Education, and Social Services absorbed the lion's share of the Government's annual budget allocation. Sectors such as tourism, business, and environment tended to be allocated what was left over.

He remarked the 2013 Budget is a "cautious one" and one that keeps in mind "the tempest that is yet to make itself felt all around us across the European Union," adding that Malta's challenges in this regard "are yet to start."

He noted that despite the international financial crisis, Government was able to reduce taxation, while also ensure that the sectors of health, education, and social services was not only maintained, but increased.

He however remarked that the social services in particular required greater discipline in terms of financial laxity, and argued that social problems such as poverty required an in-depth look at the root cause of the problem.

"The problem won't be solved by simply creating comfortable cushions," MalliaMilanes argued.

He similarly called for greater Governmental rigorousness in tax collection, insisting that if Government is willing to slash income tax, it should make every effort to ensure that taxation owed is collected.

Lawrence Zammit

A budget for a well-performing economy

Economist Lawrence Zammit was upbeat about the Budget 2013, describing it as "overall a positive one."

"I believe that given the very difficult international economic scenario we performed very well. The economy was sustained, the deficit was reduced, and the economy was grown. In that scenario, the economy is performing rather well," he said.

Zammit also noted that "Government must remain prudent" and remarked that its fiscal prudence has already allowed it to reduce the deficit while also ensuring that investment continued to be incentivised, and employment continued to be created."

While he remarked that "the measures announced cannot be described as something exciting," he argued that "they should give us, as a country, the self-confidence that we are moving in the right direction, and that we should continue to do so into 2013."

He noted that aside from the increases in excise tax in fuel and cigarettes, the Government announced no new tax increases, while the Budget promises "further deductions in taxation for most people in employment."

No forward-looking comments from Lawrence Zammit? Everyone knows what happened... what we needed was an economists opinion on what will happen as a result of the budget.
Interesting economic comments from most of the economists interviewed. However i feel they ignored the problem of the widening wealth gap and the rather regressive measures the budget and government policy of benefiting the well off in disbursing government benefits. The income tax reduction measure is socially regressive whilst it will put an extra 4000 euros in the pockets of the well off. On the other hand there is very little to go in the pockets of pensioners and low wage earners. I am afraid that social justice and government support to the most needy is no longer a top priority with our political parties. Following the media I only saw KMB speak strongly against this regressive income tax measure.