[WATCH] Last of the... socialists? | Clyde Caruana

Finance Minister Clyde Caruana defends his budget numbers and tells Kurt Sansone the Labour Party should not be ashamed of calling itself socialist. The following is an excerpt of the interview.

Finance Minister Clyde Caruana
Finance Minister Clyde Caruana

There is widespread consensus that the most significant measure in this budget is the subsidy of around €600 million on energy, fuels and grains. Nobody knows how long the war in Ukraine and the energy crisis will last. What you describe as a marathon risks becoming an ultra-marathon. What is the red line that will make you say this subsidy is no longer sustainable and the country cannot afford it?

I don’t think we can reach that circumstance… It is already clear that other countries do not have the same ability as we have to subsidise fuels and energy… These big economies next year will be reducing their economic rhythm… this will lead to less energy consumption and once this happens it means demand drops and along with it the price… others would have taken the hit while we are insulating our economy from these hits because government is shouldering the burden.

But what makes us more special than these countries to make this possible? The picture [you paint] is too good to be true.

Fiscal flexibility makes this possible. It’s not a question of painting a good picture but one where this country in the past built a big enough buffer in terms of its debt burden that made it possible for us to withstand the pandemic and now the energy crisis. Other countries do not have this buffer and are constrained to pass on the burdens onto the people and in turn this is causing fragile economies to stop growing. We have shouldered the burden thus allowing the economy to continue growing. The important thing about a marathon is being able to have enough stamina to run the full course  otherwise you will end the race prematurely. This is what will happen to other countries but not us. We can do this because it is fiscally possible and not because we are special.

In your outlook for next year, you are forecasting economic growth that will be half of what it was this year. Even Malta will experience a slowdown. How confident are you that the country will be able to weather the storm?

I told the economists working on this budget in my ministry to go for the most conservative scenarios. Normally, they would take the most probable scenarios but this year I did not want this. Mindful of international uncertainty, I wanted the most conservative scenarios, which means we may do better than what we are forecasting.

Debt in absolute terms will increase. In these circumstances, for the debt ratio to remain below or around the 60% mark, the economy needs to grow. How will the economy grow? Will we remain with the same economic model of the past five years?

Despite the €600 million in subsidies and a further €100 million to mitigate against inflation… the country’s deficit will go down from 5.8% to 5.5%... this is how we maintain the 60% mark. On the issue of changing to a new economic model, it is not a question of switching off your existing model today and tomorrow shifting to something new. As an economist, I do not simply look at economic growth because you can have growth that is more of the same. But I also look at economic development, something this country has managed to do over the past two legislatures. Economic development means that you move on to the next level of growth and that is what the economy has to look forward to now… we need quality growth.

If we are to move to an economy that levels up, what is there in this budget that gives a clear indication of this new policy direction?

In the past 10 years, the policy underpinning economic growth was intended to create a critical mass that translated into more workers, more talent, and businesses that grew their potential. All this made it possible for the country’s debt to decrease. If this did not happen, the conversation today would be totally different… we would be talking about the burden of higher energy bills. When I said, the economic recipe has to change going forward, this has to be driven by businesses… we need to have an economy that makes better use of technology rather than grow by attracting more workers. This may not happen in the hotel and restaurants sector but the better use of technology can be adopted in the transport sector, manufacturing and other areas… With the social partners, we need to draft a serious plan how this country can have the necessary skilled workers to start positioning our economy towards a certain direction. Government’s job is to chart the direction and outline a clear vision of where the country should go… but then it is up to the private sector to lead the way.

Government is subsidising free public transport and free school transport for everyone. Despite these generous subsidies, you refuse to ask people to share part of the burden of higher fuel costs. Why?

For me to solve the fiscal burden related to higher fuel costs, it will be useless to raise the price of fuel by 10c per litre. This will only alleviate the burden on public coffers by a few millions at most. But such a move risks weakening economic sentiment. Once economic sentiment is weakened, it can cause a ripple effect on other sectors. If we really want to do something that is fiscally meaningful, fuel prices will have to increase by at least 50c per litre. The implications of this on inflation and economic sentiment will be big and counterproductive. I will collect less than what I would have saved by removing the fuel subsidy… I would have saved around €40 million but as a result of the fear, uncertainty and inflation this will create, I’d end up losing much more than that in income.

Don’t you think that this effort to insulate Malta from rising energy and fuel prices can encourage waste because people feel the government is there ready to pump millions?

At some point, prices will rise but it makes a difference whether this fluctuation is just a few cents like we were accustomed to, or whether this is a €1, or 50c, hike at one go. The latter can hit the economy hard and destroy part of the structure. Eventually, the market will calm down because that is what always happens and when that occurs, we’ll announce that all the support mechanisms will be withdrawn. This is what happened with the wage supplement – the assistance was there for two years and when the pandemic ended the wage support was stopped.

Electricity prices today are practically frozen at 2014 levels. The stability mechanism agreed with Electrogas had to expire in April this year and after that tariffs would fluctuate according to international prices. But we have been isolated from all this. Don’t you fear that when the time comes for you to withdraw the subsidy, people will be faced with a substantial difference in price?

The budget contains a paragraph on renewable energy and this could be the next big thing…

It’s a small paragraph that does not say much, though.

It is a small paragraph but one that can mean a lot. And as [Energy Minister] Miriam Dalli announced during the week, this country has very big potential to tap into wind energy. This can be the solution in the not so distant future that keeps energy prices stable… If part of our energy mix comes from floating offshore wind farms that can be the solution to having stable electricity bills.

There is consensus that the budget has provided adequate support for pensioners and vulnerable families in these trying times. But what is there in this budget that targets the hardworking middle class?

A budget has to be socially just… those on the bottom rungs, who are worst hit by inflation, were given more impetus apart from benefiting also from stable energy prices. We did this because organisations like the Anti-poverty Alliance, Caritas and unions have been telling us for years that this category of people are being disadvantaged… As regards the middle class, the strongest measure to benefit them is an income tax cut. There is no such measure in this budget but I will see to it that this will happen, and not on the fifth year of this legislature. But a typical middle class family with two cars will be saving around €700 in fuel on each car and around €1,400 in savings on a typical electricity bill. The subsidies translate into a saving of between €1,500 and €3,000 for these families. But I do understand people who have arrived at a certain stage and wish to move one step up. We will eventually help them take that step…

You were not bothered to use the word ‘socialist’ in describing this budget. This is a word that within the Labour Party fell out of fashion since Alfred Sant’s time. It was almost a dishonour to use the word socialist. Why do you use the word?

I have been active in the Labour Party since I was 14 years old. After the 1998 election defeat I wanted to be active within the party. I lived for a good number of years in a party that was in Opposition. I can compare the mentality back then to the mentality when Joseph [Muscat] came along and afterwards. Over time we started associating being a socialist with election defeats. This is not the case. You lose elections because you do not present clear, concrete ideas that persuade people and not because you say you are a socialist. I come from a working-class family from Żabbar and I feel part of that class to this very day. I am not ashamed to say in my credo that I harbour that belief (socialism)… I don’t believe the Labour Party should be ashamed to say it is a socialist party… there are many within our grassroots who have been longing for that word to be used; wanting the Labour Party to be more socialist in its outlook.

But is your credo representative of the party?

I am one of many in the party… This is what I believe in and once I do so, I will continue working for it.

Don’t you think the word socialism risks shattering that coalition of moderates and progressives Joseph Muscat built up and which delivered the party significant electoral victories?

I don’t think so. After all, this party’s foundations were built on offering representation to all workers – manual and non-manual workers. And this is etched on the plaque outside our headquarters. What I always learnt in life is to never forget from where I started.

Was it responding to the cry of the party grassroots?

This party always turned to its grassroots in its hour of need… Being a socialist in the past was associated – in Mintoff’s time – with grabbing other people’s wealth to give it to someone else. Robbing Peter to pay Paul. Being a socialist means creating wealth and using it to support those who are most in need but also emphasising the need for fairness and justice and ensuring that everyone is doing their part.

There were a number of measures the government adopted such as the wage supplement, pandemic vouchers and energy subsidies where no distinction was drawn between those who are rich and those on the lower rungs.

The final aim of these measures is to protect the economy. If the economy slows down because those who spend the most in this country, stop doing so, workers will be the ones to suffer most. A distinction has to be done between economic support measures to ensure workers remain in their jobs and income support measures like the second COLA mechanism and higher pensions, which are intended to help these categories.