by Prof. Edward Scicluna, timesofmalta.com - Mon 1st June 2009
Prime Minister Lawrence Gonzi is in the unenviable situation where he has left himself no room for manoeuvre to cushion our economy against the ravages of the international situation and save jobs. Instead, he has to start the whole deficit cutting exercise all over again, this time under the direct orders of the European Union through its excessive deficit procedure.
In his recent outburst against opposition criticism and mine in particular, the Prime Minister lectured his audience on the euro peg but failed to mention that our economic history since World War II reports only two Maltese lira devaluations, one in 1967 and the other in 1992. Both were carried out under Nationalist administrations.
The Prime Minister referred to the interview I had on timesofmalta.com wherein I had stated that I considered that the present predicament of the economy and public finances were due to two major wrong economic decisions taken in the past. One was the refusal by the Gonzi government to utilise the +/- 15 per cent band around the then existent parity during the ERMII period. This had been suggested by the European Commission.
At that time, I considered this refusal as "the worst advice the Prime Minister was to be given for many years to come".
I had argued that the float within the band during the two years prior to euro adoption would have given the chance to our lira to find its real value against the euro. This would have allowed our monetary authorities to choose the most suitable permanent euro/lira peg, which would have helped Malta's export competitiveness and the creation of more jobs.
It was the Prime Minister's mistake at that time to ignore this advice and trivialise the issue with the infamous devaluation scare. Four years later, on the eve of the European Parliament elections, Dr Gonzi repeats this mantra to deviate attention from the required policy measures needed to take us out of the present economic quandary.
The second wrong decision was to concentrate solely on deficit cutting to the detriment of economic growth and to carry out this exercise solely by increasing taxation.
The way we should have reduced the deficit I had spelt out in a paper presented at a Chamber of Commerce conference in 2003 entitled Cutting The Deficit: We Can Do It. I had warned that previous attempts by other countries such as Ireland to cut the deficit by raising taxes would not succeed in achieving sustainable public finances. This was also ignored.
When the period of euro examination was nearing, as a euro expert appointed by the European Commission, I was given to understand that Malta was failing the stress tests carried out with regard to the debt/GDP ratio. I had reported this in various interviews.
I had advised that the debt ratio was to be brought down not by the one-off proceeds from privatisation but by more diligent control of public expenditure programmes through appropriate reforms. This would have succeeded in putting our public finances on a sustainable path.
The real cost of ignoring this economic advice showed itself in our very first year of euro membership. In one single year (2008) we managed to reverse a seven-year stint of sacrifices of deficit reduction through higher taxation. Our deficit shot up to 4.7 per cent, the inflation went up to over five per cent at a time when the whole world was facing deflation, and the debt accelerated its upward climb. This has brought the wrath of the European Union, which has initiated the excess deficit procedure against Malta. The Gonzi government cannot tell us it was not forewarned.
Finally, as an economist, I have consistently been in favour of euro membership once the much-awaited structural reforms would have been in place. It is sad to note that these much-awaited reforms, notably in health, education and pensions, have failed to materialise in the period prior to EU membership as well as in the period prior to Malta joining the euro. Today, the Prime Minister is still talking about these reforms.
It is up to the electorate to judge who has indeed weakened the economy and its public finances and put Maltese workers' jobs at risk.
Prof. Scicluna will be contesting the MEP elections on a Labour Party ticket.
1.6.09
Il-biza' ta' Lawrence Gonzi
it-Torca - Il-Hadd 31 ta' Mejju 2009
M’hijiex sewwa-sew htija tieghi li hemm min, fosthom il-karikaturisti, ipingini bhala biza ta' Dr Gonzi.
Jiena dejjem ippruvajt nghid il-verita’ fid-dawl ta' ricerka onesta li naghmel fil-qasam li nifhem fih, jigifieri l-ekonomija. Kif naraha jien, u ta' dan xbajt naghti provi, il-pajjiz ilu jehtieg qawmien ekonomiku kif jixraqlu.
Tistaghgeb li jekk Dr Gonzi ma jaghtix kas x'jghidulu l-esperti, l-esperti jkollhom iduru kontrih? lmma l-PN mhux din biss ma nizzilx dwari, imma li hrigt bhala kandidat ghall-elezzjoni Ewropea mal-Partit Laburista, il-partit li fdani, mhux biss bhala expert fl-ekonomija imma bhala briedem li jghid u jistqarr dak li tassew ihoss, bla habi u minghajr pregudizzju. Fuq kollox, il-Partit Laburista huwa mehtieg ghal Malta ghax minghajru u jekk ma jqumx wahda sew fuq riglejh, tbati s-sistema demokratika hawn Malta u mat-tigrif taghha jkollna herba ekonomika u socjali.
Wara t-telfa li garrab il-PL is-sena l-ohra, il-PN beda jahseb li jista' jaghmel li jrid fil-pajjiz. Huwa fatt sagrosant. Jafu kulhadd u ma jista' jichdu hadd. Jekk il-PL ma jsibx 1-ghajnuna tan-nies kollha ta' rieda tajba, pajjizna jitlaq b'girja wahda lejn id-dittatura. Jekk thares lejn l-imgieba ta' xi ministri tal-kabinett ta' Gonzi malajr tintebah x'qed nghid.
Insemmi ftit ezempji. F'Settembru li ghadda harget l-ahbar li 20,000 email passwords mis-server tal-gvern waqghu f'idejn nies li tqabbdu jisirquhom minn xi hadd li s'issa qed jahseb li mhux maghruf . Fost dawn kien hemm dawk tal-Pulizija, tal-Forzi Armata, tal-gudikatura u tal-parlamentari.
Il-Ministru responsabbli minn dal-qasam, l-Onorevoli Austin Gatt qara rapport fil-parlament li kkonferma li s-serqa sehhet b'success u damet ma nkixfet tliet xhur shah. X'sar minn dakinhar '1 hawn biex tissewwa dil-qaghda tal-biki? Ftit wara kellna incident iehor marbut ma' dit-teknologija. Is-segretarju generali tal-PN, Pawlu Borg Olivier baghat, bi zball, messagg elettroniku lis-segretarju tal-PL, li fih kien hemm xhieda cara u tonda ta' kif il-gvern ta' Gonzi jahdem b'mod mhux xieraq mal-PN bhala partit politiku. X'gara wara dan l-iskandlu? Ittiehed imqar l-icken pass biex tissewwa l-qaghda?
Li ghandna llum hija diskriminazzjoni sfaccata kontra nofs il-poplu, jigifieri dawk li ma vvutawx lil GonziPN u preferenzi daqstant iehor sfaccati favor dawk ta' gewwa nett. Saqsi lil min trid u tara jaqbilx mieghi. Din hija aghar mill-kazi l-ohrajn, ghax din m'hijiex kaz imma attitudni li tlewwen il-politika kollha u r-relazzjonijiet pubblici kollha tal-gvern. Aqra l-gurnali, ifli dak li jiktbu l-propagandisti ewlenin ta' GonziPN u tara b'liema mod degradanti jitkellmu dwar dawk li m'humiex maghrufin bhala segwaci ta' GonziPN. Kieku kienu qieghdin jiktbu dwar nies ta' razza differenti kienu jitqiesu bhala qieghdin jikkommettu reat razzist.
Il-htija ta’ din id-diskriminazzjoni klassista hija kollha tal-magna propagandista ta' GonziPN immexxija minn nies li lanqas biss kienu eletti mill-poplu u ghalhekk m'ghandhom l-ebda qima lejn is-sistema demokratika. lr-rwol tieghi fil-Partit Laburista hu li nghin biex din id-diskriminazzjoni tingheleb u pajjizna jerga' jibda jara d-demokrazija tahkem fl-oqsma kollha tal-hajja u tghin, kif taghmel dejjem fit-trawwim u t-tkabbir ekonomiku.
Jiena staghgibt kemm laqghuni l-laburisti, minn fuq s'isfel, malli saru jafu li jiena lqajt l-istedina li nohrog bhala kandidat ghall-elezzjoni Ewropea f'isem il-Partit Laburista.
Din il-laqgha sabiha li tawni jiena nfissirha bhala x-xewqa tal-laburisti li jharsu '1 quddiem b’tama li pajjizna ghadu ma tilifx kollox bhalma qieghdin ibassru xi osservaturi politici. B'rieda tajba nistghu nahdmu id f'id ghall-gid tal-pajjiz u tac-cittadini kollha bla distinzjoni u minghajr diskriminazzjoni.
Fl-istess hin, jekk il-laburisti ferhu bil-kandidatura tieghi, hekk ghamlu wkoll dawk kollha, mhux bilfors mill-kamp luburista, ghax jafuni bhala bniedem li jqieghed l-ewwel u qabel kollox il-moderazzjoni, il-komprensjoni, u l-gid tal-pajjiz kollu.
Ma nistaghgibx, izda l-ahhar fehma tinkwieta lill-propagandisti horox ta' GonziPN li mohhhom biss biex ipingu lill-Partit Laburista bhala wiehed maghmul minn qatta’ xjaten kif kien irnexxielhom ipinguh fl-imghoddi. Lil dawn ma nista' nghidilhom xejn ghajr li l-pajjiz mhux lilhom jehtieg imma lil min, b’serjeta’ u b’dedikazzjoni jahdem u jhabrek biex kemm jista' jkun malajr nohorgu mill-krizi ekonomika li ninsabu fiha. Bla dubju, mod kif ma nohorgux mill-krizi ekonomika jkun dak li noholqu aktar krizi socjali u politika biex innessuha u ma nhallux il-poplu jahseb fiha u jfittex lil min tabilhaqq jista’ jghinu jeghlibha.
www.edwardscicluna.com
M’hijiex sewwa-sew htija tieghi li hemm min, fosthom il-karikaturisti, ipingini bhala biza ta' Dr Gonzi.
Jiena dejjem ippruvajt nghid il-verita’ fid-dawl ta' ricerka onesta li naghmel fil-qasam li nifhem fih, jigifieri l-ekonomija. Kif naraha jien, u ta' dan xbajt naghti provi, il-pajjiz ilu jehtieg qawmien ekonomiku kif jixraqlu.
Tistaghgeb li jekk Dr Gonzi ma jaghtix kas x'jghidulu l-esperti, l-esperti jkollhom iduru kontrih? lmma l-PN mhux din biss ma nizzilx dwari, imma li hrigt bhala kandidat ghall-elezzjoni Ewropea mal-Partit Laburista, il-partit li fdani, mhux biss bhala expert fl-ekonomija imma bhala briedem li jghid u jistqarr dak li tassew ihoss, bla habi u minghajr pregudizzju. Fuq kollox, il-Partit Laburista huwa mehtieg ghal Malta ghax minghajru u jekk ma jqumx wahda sew fuq riglejh, tbati s-sistema demokratika hawn Malta u mat-tigrif taghha jkollna herba ekonomika u socjali.
Wara t-telfa li garrab il-PL is-sena l-ohra, il-PN beda jahseb li jista' jaghmel li jrid fil-pajjiz. Huwa fatt sagrosant. Jafu kulhadd u ma jista' jichdu hadd. Jekk il-PL ma jsibx 1-ghajnuna tan-nies kollha ta' rieda tajba, pajjizna jitlaq b'girja wahda lejn id-dittatura. Jekk thares lejn l-imgieba ta' xi ministri tal-kabinett ta' Gonzi malajr tintebah x'qed nghid.
Insemmi ftit ezempji. F'Settembru li ghadda harget l-ahbar li 20,000 email passwords mis-server tal-gvern waqghu f'idejn nies li tqabbdu jisirquhom minn xi hadd li s'issa qed jahseb li mhux maghruf . Fost dawn kien hemm dawk tal-Pulizija, tal-Forzi Armata, tal-gudikatura u tal-parlamentari.
Il-Ministru responsabbli minn dal-qasam, l-Onorevoli Austin Gatt qara rapport fil-parlament li kkonferma li s-serqa sehhet b'success u damet ma nkixfet tliet xhur shah. X'sar minn dakinhar '1 hawn biex tissewwa dil-qaghda tal-biki? Ftit wara kellna incident iehor marbut ma' dit-teknologija. Is-segretarju generali tal-PN, Pawlu Borg Olivier baghat, bi zball, messagg elettroniku lis-segretarju tal-PL, li fih kien hemm xhieda cara u tonda ta' kif il-gvern ta' Gonzi jahdem b'mod mhux xieraq mal-PN bhala partit politiku. X'gara wara dan l-iskandlu? Ittiehed imqar l-icken pass biex tissewwa l-qaghda?
Li ghandna llum hija diskriminazzjoni sfaccata kontra nofs il-poplu, jigifieri dawk li ma vvutawx lil GonziPN u preferenzi daqstant iehor sfaccati favor dawk ta' gewwa nett. Saqsi lil min trid u tara jaqbilx mieghi. Din hija aghar mill-kazi l-ohrajn, ghax din m'hijiex kaz imma attitudni li tlewwen il-politika kollha u r-relazzjonijiet pubblici kollha tal-gvern. Aqra l-gurnali, ifli dak li jiktbu l-propagandisti ewlenin ta' GonziPN u tara b'liema mod degradanti jitkellmu dwar dawk li m'humiex maghrufin bhala segwaci ta' GonziPN. Kieku kienu qieghdin jiktbu dwar nies ta' razza differenti kienu jitqiesu bhala qieghdin jikkommettu reat razzist.
Il-htija ta’ din id-diskriminazzjoni klassista hija kollha tal-magna propagandista ta' GonziPN immexxija minn nies li lanqas biss kienu eletti mill-poplu u ghalhekk m'ghandhom l-ebda qima lejn is-sistema demokratika. lr-rwol tieghi fil-Partit Laburista hu li nghin biex din id-diskriminazzjoni tingheleb u pajjizna jerga' jibda jara d-demokrazija tahkem fl-oqsma kollha tal-hajja u tghin, kif taghmel dejjem fit-trawwim u t-tkabbir ekonomiku.
Jiena staghgibt kemm laqghuni l-laburisti, minn fuq s'isfel, malli saru jafu li jiena lqajt l-istedina li nohrog bhala kandidat ghall-elezzjoni Ewropea f'isem il-Partit Laburista.
Din il-laqgha sabiha li tawni jiena nfissirha bhala x-xewqa tal-laburisti li jharsu '1 quddiem b’tama li pajjizna ghadu ma tilifx kollox bhalma qieghdin ibassru xi osservaturi politici. B'rieda tajba nistghu nahdmu id f'id ghall-gid tal-pajjiz u tac-cittadini kollha bla distinzjoni u minghajr diskriminazzjoni.
Fl-istess hin, jekk il-laburisti ferhu bil-kandidatura tieghi, hekk ghamlu wkoll dawk kollha, mhux bilfors mill-kamp luburista, ghax jafuni bhala bniedem li jqieghed l-ewwel u qabel kollox il-moderazzjoni, il-komprensjoni, u l-gid tal-pajjiz kollu.
Ma nistaghgibx, izda l-ahhar fehma tinkwieta lill-propagandisti horox ta' GonziPN li mohhhom biss biex ipingu lill-Partit Laburista bhala wiehed maghmul minn qatta’ xjaten kif kien irnexxielhom ipinguh fl-imghoddi. Lil dawn ma nista' nghidilhom xejn ghajr li l-pajjiz mhux lilhom jehtieg imma lil min, b’serjeta’ u b’dedikazzjoni jahdem u jhabrek biex kemm jista' jkun malajr nohorgu mill-krizi ekonomika li ninsabu fiha. Bla dubju, mod kif ma nohorgux mill-krizi ekonomika jkun dak li noholqu aktar krizi socjali u politika biex innessuha u ma nhallux il-poplu jahseb fiha u jfittex lil min tabilhaqq jista’ jghinu jeghlibha.
www.edwardscicluna.com
The moderate face of Labour
Malta Today on Sunday - Sun 24th May 2009
Economist, lecturer and widely respected independent pollster, EDWARD SCICLUNA surprised everyone by emerging as Labour’s frontrunner for the European elections. He talks about his reasons for entering politics, as well as Gonzi’s ‘disastrous’ handling of the economy.
For years, we have grown used to Professor Edward Scicluna making appearances on television to announce the general election result. Like the ‘Man from del Monte’, he would come on the screen with his clipboard and his deadpan voice, analysing the earliest samples and accurately predicting the election result.
"My predictions have clearly irked the Gonzi administration,” he tells me with a smile as he leafs through a small mountain of newspaper cuttings at his San Pawl Tat-Targa home. In one cartoon, the placid economics professor is even portrayed as Gonzi’s worst nightmare, pricking the Prime Minister’s conscience with reminders of a long overdue economic reform.
But while he has long been a keen critic of government economic policy, Prof. Scicluna only nailed his political colours to the mast after last year’s budget... when Finance Minister Tonio Fenech accused him of “leaning towards Labour”, for failing to share the government’s optimism for Malta’s economic future.
It was in a sense a self-fulfilling prophecy: but does he now regret his decision to contest the election? Hasn’t he just gone and thrown away a painstakingly constructed reputation for impartiality, which – let’s face it – he will probably never be able to reclaim?
“I would have preferred to remain independent, certainly,” he replies. “It’s more comfortable. I could have very easily carried on doing what I was doing before: conducting studies for the private sector, like the evaluation of EU funding I was commissioned to do by an auditing firm...”
So what made him go out for politics precisely now?
“After Labour’s third consecutive electoral defeat last March, I felt the democratic deficit was too significant to ignore,” he begins. “On the one hand you have the Nationalist party which is projecting the image of ‘party is king’. They act as though they own the country, and will be in government forever. On the other hand, there was an Opposition whose morale was rock-bottom, absolutely zilch...”
From this perspective, Scicluna argues that the difference between the two parties goes well beyond the demographic split that separated them in the last election.
“The 2,000 votes are immaterial really,” he says. “The truth is that one half of Malta’s political establishment had simply collapsed. This creates a dangerous imbalance, and you don’t have to look very far to see the consequences...”
To illustrate the gravity of the situation, Scicluna invites me to consider a global analogy. “When did the United States start behaving questionably and making mistakes... like, for example, the invasion of Iraq?” he asks. The answer, he claims, goes back to the collapse of the Soviet Union in 1989. “After one side collapsed, the other had free reign to do as it pleased...”
By inference, Scicluna suggests that after the collapse of the Labour Opposition in 2008, the Nationalist government no longer felt it was accountable to anyone, and started to behave in an almost dictatorial, uncompromising fashion that – according to Prof. Scicluna – is now becoming dangerous.
He lists out a number of recent “incidents” that helped consolidate his impression.
“The first was the gov.mt issue,” he begins: alluding to the revelation last September that 20,000 email passwords had been stolen from the government server, allowing the hackers access to highly sensitive email accounts throughout public administration, including the Malta Police Force, the Armed Forces, the judiciary and parliament.
IT minister Austin Gatt himself later read out a report in parliament which confirmed that the theft had been successful, and that the passwords had been accessed by unauthorised persons for as long as three whole months before the breach had been discovered.
“It’s astounding,” Scicluna continues. “We forget so easily... things which are fundamental to the basic running of the State. How can we ignore something so serious? How can we pretend that nothing happened? And yet, to this very day, nothing has been done about it...”
The second incident – revealed when PN general secretary Paul Borg Olivier accidentally sent his Labour Party counterpart a confidential email – involved the extent of the incestuous relationship that now clearly exists between the government and the Nationalist Party.
“What emerged from that email was that officials from OPM held a meeting with PN officials at the Stamperija in Pieta’,” he explains. “How can you have government officials dancing like that into the PN headquarters to pass on sensitive information about private citizens? It’s scandalous. But what happened as a result? Absolutely nothing...”
The third issue is not so much a single event, but rather an entire attitude that has been allowed to spiral out of control in recent years, to the extent that even committed Nationalist supporters are starting to worry about it. Prof. Edward Scicluna, like many others outside the PN’s inner sanctum, is increasingly appalled at the levels of blind prejudice currently being displayed towards non-Nationalist politicians and sympathisers.
“People who support Labour are talked about almost as though they are a separate species: sub-humans, second-class citizens, ‘hamalli’...” he comments with distaste. “The language currently being used to describe Laburisti is a disgrace. If it were directed at people because of their skin colour or religion, it would be considered illegal. How can an entire category of people be disparaged like that? This is half the country’s population we are talking about here...”
Prof. Scicluna explains that on his home visits, he meets Nationalist supporters who tell him they are ashamed of this sort of thing.
“I know it’s a hackneyed and overused word, but this is arrogance, plain and simple,” he continues. “Faced with all this, I felt I had to do something. I couldn’t simply stand by and watch the country degenerate like this...”
And yet, this represents a curious reversal of roles from the situation many of us remember in the 1970s and 1980s. Back then it was the Labour party that had been in power for what felt like forever... and it was the Nationalists who bore the full brunt of discrimination and prejudice.
I ask Edward Scicluna if he feels the Labour Party might be directly responsible for its current predicament. After all, isn’t it payback time for the Nationalists after the humiliations of yesteryear? And couldn’t it be argued that the Labour Party made itself unelectable, simply because of the memory of those years?
Edward Scicluna acknowledges the point, but counters that the PN propaganda machine has blown it out of proportion for its own advantage.
“Were it not for the PN, Labour would already have put all that behind,” he says, reminding me how Joseph Muscat has already made overtures to the victims of Labour violence in the 1980s. “But at the same time, the Labour Party grassroots are unwilling to let go of the image they have of their party back then. They still have their pride. They don’t want to throw out the baby with the bathwater... a lot of good was done in those years, and they are justifiably proud of that...”
Ironically, though, his own popularity within the party appears to also signify a change in Labour. I ask Prof. Scicluna if he was as surprised as I to discover that independent polls place him ahead of incumbent MEPs and other party stalwarts. After all, he is hardly a typical ‘Laburist’, at least in the way a typical Nationalist would reason...
“I believe my candidature appeals to a lot of ordinary people who want moderation in politics. I get that sort of feedback from Nationalists too.”
Scicluna also freely admits that the party had to change, not just for the sake of reassuring frightened Nationalist voters, but also for the good of the country’s political balance.
“If we are to have a two-party system, I would like to see two well-prepared parties: two parties that can assume power, without disruption or upheaval. Two parties that can be trusted to administer the country...”
Labour, no doubt, believes it is now ready to govern under Muscat. In order to do so, however, it will still have to reach out across the political divide and convince at least a small proportion of Nationalists that it can be trusted. But has it reached that stage yet? Has Muscat’s earthquake of change shaken the political establishment enough to make Labour electable?There is a tiny moment of silence. “More work needs to be done,” he admits at length. “But it has already started. This is what the think tanks were all about. You can argue that the change has not to date been far reaching enough – personally I suspect that the MEP election itself got in the way, and that we will see considerably more change after June 7 – but the Labour Party has undertaken to build a new platform on a wide variety of policy issues...”
Do you think your own candidature is part of a strategy to make the Labour Party ‘less scary’ to Nationalist voters?“Yes, definitely,” Scicluna replies without a second’s hesitation. “It is also partly why I contested in the first place. I want to change the way people look at the Labour Party. Look at how Britain’s Tony Blair managed to reinvent ‘New Labour’ in the 1990s. He turned it around from a militant, old-fashioned institution to a more business-friendly political party. There is a tendency to think that, being a workers’ party, Labour will always look negatively at business. But this is not true today... it is perfectly possible to champion worker’s rights, while also acknowledging that jobs are created by the private sector...”
But Edward Scicluna also argues that in today’s economy, Maltese businesses have a good deal more to worry about than the mere prospect of a Labour administration.
“We have never had the economy so badly mismanaged as the last 10 years,” he says, with a bluntness that takes me by surprise. “Prime Minister Lawrence Gonzi forgot the economy when he took over the finance minister’s portfolio in 2004. The EU told him to concentrate on deficit reduction, and that’s all he did. He forgot everything else. Words like ‘economic growth’ and ‘divergence’ were simply not in his vocabulary...”
Scicluna insists that from a restructuring perspective, deficit reduction is useless on its own. “Cutting the deficit? We can do it,” he says with a shrug. “It’s easy: the IMF provides a blueprint for it how can be done, by decreasing expenditure without raising taxation. But what was needed was the restructuring of our economy. That, by way of contrast, is not easy at all. It is hard and painful. But it can’t be avoided. The longer you postpone it, the more painful it will be.”
Scicluna shows me a series of graphs to illustrate what he refers to as the government’s “disastrous” handling of the economy. One of these graphs, representing the deficit curve over the past five years, resembles an almost perfect boomerang.“Here you can see the deficit as it stood in 2004, at 4.7%. Then it was reduced gradually over the next two years... only to grow again by the last quarter of 2008 to reach 4.7%.”
For Scicluna, this was the inevitable result of bad economic management, and points out a whole raft of questionable measures to account for it. “Instead of emulating other countries like Sweden, the USA, etc., government took the easy way out and increased VAT to 18%. It negotiated a five-year collective agreement with UHM, providing for an immediate (nominal) wage increase, and promising further wages increases over the next five years. This was just before 2008, when we joined the Eurozone...”
And then, the election came along. “In the 2008 budget, government voted enough expenditure to win the election. They covered their tracks by estimating revenue increases of almost €200 million. But even at the time, as an economist I asked: what if those increases do not materialise? And sure enough, they never did. We have now come full circle: the deficit is back to 2004 levels, the EU is now initiating infringement procedures against Malta. How can anyone call this good economic management?”
Still, while Scicluna is scathing about the Gonzi’s administration’s economic skills, it remains debatable whether a Labour government will heed his own advice, and embark on the necessary reforms: which include a revision of the university stipend system, and also control of expenditure on public health. What does Edward Scicluna recommend for a political hot potato like stipends?
“It would be very presumptuous of me to say that we should ‘do away’ with stipends,” he replies cautiously. “But even a recent European Commission document suggests that they are a burden on the system. But these are things the taxpayer has to decide. Does the taxpayer want to keep subsidising university students? If not, there are a number of ways the system can be revised. They could be converted to loans, or grants, or part-loans, part-grants... it’s not up to me to decide how to reform the system.”
However, Scicluna argues the biggest haemorrhage is not stipends but government wastage and inefficiency... referring to the recent scandal involving the issue of direct orders at Mater Dei hospital. “It gives a bad example throughout the economy,” he says. “These are basic issues of accountability and transparency. They affect the entire country.”
And yet, while Scicluna presents convincing economic arguments (to a layman’s ears, at any rate), the level of debate in the country appears to be more concerned with how Labour candidates voted in the last European election in 2004. Unprompted, he takes the opportunity to smash the PN’s current – albeit somewhat outdated – witch-hunt for closet Euro-sceptics within the Labour fold.
“I will not reveal how I voted in the 2004 referendum,” he asserts emphatically. “But only for one reason: to show how utterly irrelevant this argument has become. I have gone on record on countless occasions to say that EU membership would be beneficial to the economy. I was interviewed in November 1996 – two months after Labour won the election – and went on record saying that the Labour party would eventually come round to accepting EU membership... and I have been proved right on this, too. But why grace the question with an answer? It is an irrelevance, nothing more, nothing less.”
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
Economist, lecturer and widely respected independent pollster, EDWARD SCICLUNA surprised everyone by emerging as Labour’s frontrunner for the European elections. He talks about his reasons for entering politics, as well as Gonzi’s ‘disastrous’ handling of the economy.
For years, we have grown used to Professor Edward Scicluna making appearances on television to announce the general election result. Like the ‘Man from del Monte’, he would come on the screen with his clipboard and his deadpan voice, analysing the earliest samples and accurately predicting the election result.
"My predictions have clearly irked the Gonzi administration,” he tells me with a smile as he leafs through a small mountain of newspaper cuttings at his San Pawl Tat-Targa home. In one cartoon, the placid economics professor is even portrayed as Gonzi’s worst nightmare, pricking the Prime Minister’s conscience with reminders of a long overdue economic reform.
But while he has long been a keen critic of government economic policy, Prof. Scicluna only nailed his political colours to the mast after last year’s budget... when Finance Minister Tonio Fenech accused him of “leaning towards Labour”, for failing to share the government’s optimism for Malta’s economic future.
It was in a sense a self-fulfilling prophecy: but does he now regret his decision to contest the election? Hasn’t he just gone and thrown away a painstakingly constructed reputation for impartiality, which – let’s face it – he will probably never be able to reclaim?
“I would have preferred to remain independent, certainly,” he replies. “It’s more comfortable. I could have very easily carried on doing what I was doing before: conducting studies for the private sector, like the evaluation of EU funding I was commissioned to do by an auditing firm...”
So what made him go out for politics precisely now?
“After Labour’s third consecutive electoral defeat last March, I felt the democratic deficit was too significant to ignore,” he begins. “On the one hand you have the Nationalist party which is projecting the image of ‘party is king’. They act as though they own the country, and will be in government forever. On the other hand, there was an Opposition whose morale was rock-bottom, absolutely zilch...”
From this perspective, Scicluna argues that the difference between the two parties goes well beyond the demographic split that separated them in the last election.
“The 2,000 votes are immaterial really,” he says. “The truth is that one half of Malta’s political establishment had simply collapsed. This creates a dangerous imbalance, and you don’t have to look very far to see the consequences...”
To illustrate the gravity of the situation, Scicluna invites me to consider a global analogy. “When did the United States start behaving questionably and making mistakes... like, for example, the invasion of Iraq?” he asks. The answer, he claims, goes back to the collapse of the Soviet Union in 1989. “After one side collapsed, the other had free reign to do as it pleased...”
By inference, Scicluna suggests that after the collapse of the Labour Opposition in 2008, the Nationalist government no longer felt it was accountable to anyone, and started to behave in an almost dictatorial, uncompromising fashion that – according to Prof. Scicluna – is now becoming dangerous.
He lists out a number of recent “incidents” that helped consolidate his impression.
“The first was the gov.mt issue,” he begins: alluding to the revelation last September that 20,000 email passwords had been stolen from the government server, allowing the hackers access to highly sensitive email accounts throughout public administration, including the Malta Police Force, the Armed Forces, the judiciary and parliament.
IT minister Austin Gatt himself later read out a report in parliament which confirmed that the theft had been successful, and that the passwords had been accessed by unauthorised persons for as long as three whole months before the breach had been discovered.
“It’s astounding,” Scicluna continues. “We forget so easily... things which are fundamental to the basic running of the State. How can we ignore something so serious? How can we pretend that nothing happened? And yet, to this very day, nothing has been done about it...”
The second incident – revealed when PN general secretary Paul Borg Olivier accidentally sent his Labour Party counterpart a confidential email – involved the extent of the incestuous relationship that now clearly exists between the government and the Nationalist Party.
“What emerged from that email was that officials from OPM held a meeting with PN officials at the Stamperija in Pieta’,” he explains. “How can you have government officials dancing like that into the PN headquarters to pass on sensitive information about private citizens? It’s scandalous. But what happened as a result? Absolutely nothing...”
The third issue is not so much a single event, but rather an entire attitude that has been allowed to spiral out of control in recent years, to the extent that even committed Nationalist supporters are starting to worry about it. Prof. Edward Scicluna, like many others outside the PN’s inner sanctum, is increasingly appalled at the levels of blind prejudice currently being displayed towards non-Nationalist politicians and sympathisers.
“People who support Labour are talked about almost as though they are a separate species: sub-humans, second-class citizens, ‘hamalli’...” he comments with distaste. “The language currently being used to describe Laburisti is a disgrace. If it were directed at people because of their skin colour or religion, it would be considered illegal. How can an entire category of people be disparaged like that? This is half the country’s population we are talking about here...”
Prof. Scicluna explains that on his home visits, he meets Nationalist supporters who tell him they are ashamed of this sort of thing.
“I know it’s a hackneyed and overused word, but this is arrogance, plain and simple,” he continues. “Faced with all this, I felt I had to do something. I couldn’t simply stand by and watch the country degenerate like this...”
And yet, this represents a curious reversal of roles from the situation many of us remember in the 1970s and 1980s. Back then it was the Labour party that had been in power for what felt like forever... and it was the Nationalists who bore the full brunt of discrimination and prejudice.
I ask Edward Scicluna if he feels the Labour Party might be directly responsible for its current predicament. After all, isn’t it payback time for the Nationalists after the humiliations of yesteryear? And couldn’t it be argued that the Labour Party made itself unelectable, simply because of the memory of those years?
Edward Scicluna acknowledges the point, but counters that the PN propaganda machine has blown it out of proportion for its own advantage.
“Were it not for the PN, Labour would already have put all that behind,” he says, reminding me how Joseph Muscat has already made overtures to the victims of Labour violence in the 1980s. “But at the same time, the Labour Party grassroots are unwilling to let go of the image they have of their party back then. They still have their pride. They don’t want to throw out the baby with the bathwater... a lot of good was done in those years, and they are justifiably proud of that...”
Ironically, though, his own popularity within the party appears to also signify a change in Labour. I ask Prof. Scicluna if he was as surprised as I to discover that independent polls place him ahead of incumbent MEPs and other party stalwarts. After all, he is hardly a typical ‘Laburist’, at least in the way a typical Nationalist would reason...
“I believe my candidature appeals to a lot of ordinary people who want moderation in politics. I get that sort of feedback from Nationalists too.”
Scicluna also freely admits that the party had to change, not just for the sake of reassuring frightened Nationalist voters, but also for the good of the country’s political balance.
“If we are to have a two-party system, I would like to see two well-prepared parties: two parties that can assume power, without disruption or upheaval. Two parties that can be trusted to administer the country...”
Labour, no doubt, believes it is now ready to govern under Muscat. In order to do so, however, it will still have to reach out across the political divide and convince at least a small proportion of Nationalists that it can be trusted. But has it reached that stage yet? Has Muscat’s earthquake of change shaken the political establishment enough to make Labour electable?There is a tiny moment of silence. “More work needs to be done,” he admits at length. “But it has already started. This is what the think tanks were all about. You can argue that the change has not to date been far reaching enough – personally I suspect that the MEP election itself got in the way, and that we will see considerably more change after June 7 – but the Labour Party has undertaken to build a new platform on a wide variety of policy issues...”
Do you think your own candidature is part of a strategy to make the Labour Party ‘less scary’ to Nationalist voters?“Yes, definitely,” Scicluna replies without a second’s hesitation. “It is also partly why I contested in the first place. I want to change the way people look at the Labour Party. Look at how Britain’s Tony Blair managed to reinvent ‘New Labour’ in the 1990s. He turned it around from a militant, old-fashioned institution to a more business-friendly political party. There is a tendency to think that, being a workers’ party, Labour will always look negatively at business. But this is not true today... it is perfectly possible to champion worker’s rights, while also acknowledging that jobs are created by the private sector...”
But Edward Scicluna also argues that in today’s economy, Maltese businesses have a good deal more to worry about than the mere prospect of a Labour administration.
“We have never had the economy so badly mismanaged as the last 10 years,” he says, with a bluntness that takes me by surprise. “Prime Minister Lawrence Gonzi forgot the economy when he took over the finance minister’s portfolio in 2004. The EU told him to concentrate on deficit reduction, and that’s all he did. He forgot everything else. Words like ‘economic growth’ and ‘divergence’ were simply not in his vocabulary...”
Scicluna insists that from a restructuring perspective, deficit reduction is useless on its own. “Cutting the deficit? We can do it,” he says with a shrug. “It’s easy: the IMF provides a blueprint for it how can be done, by decreasing expenditure without raising taxation. But what was needed was the restructuring of our economy. That, by way of contrast, is not easy at all. It is hard and painful. But it can’t be avoided. The longer you postpone it, the more painful it will be.”
Scicluna shows me a series of graphs to illustrate what he refers to as the government’s “disastrous” handling of the economy. One of these graphs, representing the deficit curve over the past five years, resembles an almost perfect boomerang.“Here you can see the deficit as it stood in 2004, at 4.7%. Then it was reduced gradually over the next two years... only to grow again by the last quarter of 2008 to reach 4.7%.”
For Scicluna, this was the inevitable result of bad economic management, and points out a whole raft of questionable measures to account for it. “Instead of emulating other countries like Sweden, the USA, etc., government took the easy way out and increased VAT to 18%. It negotiated a five-year collective agreement with UHM, providing for an immediate (nominal) wage increase, and promising further wages increases over the next five years. This was just before 2008, when we joined the Eurozone...”
And then, the election came along. “In the 2008 budget, government voted enough expenditure to win the election. They covered their tracks by estimating revenue increases of almost €200 million. But even at the time, as an economist I asked: what if those increases do not materialise? And sure enough, they never did. We have now come full circle: the deficit is back to 2004 levels, the EU is now initiating infringement procedures against Malta. How can anyone call this good economic management?”
Still, while Scicluna is scathing about the Gonzi’s administration’s economic skills, it remains debatable whether a Labour government will heed his own advice, and embark on the necessary reforms: which include a revision of the university stipend system, and also control of expenditure on public health. What does Edward Scicluna recommend for a political hot potato like stipends?
“It would be very presumptuous of me to say that we should ‘do away’ with stipends,” he replies cautiously. “But even a recent European Commission document suggests that they are a burden on the system. But these are things the taxpayer has to decide. Does the taxpayer want to keep subsidising university students? If not, there are a number of ways the system can be revised. They could be converted to loans, or grants, or part-loans, part-grants... it’s not up to me to decide how to reform the system.”
However, Scicluna argues the biggest haemorrhage is not stipends but government wastage and inefficiency... referring to the recent scandal involving the issue of direct orders at Mater Dei hospital. “It gives a bad example throughout the economy,” he says. “These are basic issues of accountability and transparency. They affect the entire country.”
And yet, while Scicluna presents convincing economic arguments (to a layman’s ears, at any rate), the level of debate in the country appears to be more concerned with how Labour candidates voted in the last European election in 2004. Unprompted, he takes the opportunity to smash the PN’s current – albeit somewhat outdated – witch-hunt for closet Euro-sceptics within the Labour fold.
“I will not reveal how I voted in the 2004 referendum,” he asserts emphatically. “But only for one reason: to show how utterly irrelevant this argument has become. I have gone on record on countless occasions to say that EU membership would be beneficial to the economy. I was interviewed in November 1996 – two months after Labour won the election – and went on record saying that the Labour party would eventually come round to accepting EU membership... and I have been proved right on this, too. But why grace the question with an answer? It is an irrelevance, nothing more, nothing less.”
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
19.5.09
Is restarting the Excessive Deficit Procedure justified?
Business Today - Wednesday, 13 May 2009
The European Commission last Monday 4th May 2009 confirmed that it was going to restart the Excessive Deficit Procedures against Malta for its high Budget deficit in 2008, which reached 4.7 per cent for last year, 1.7 per cent in excess of the EU’s budget deficit limit under the Stability and Growth Pact. Business Today’s CHARLOT ZAHRA spoke to Labour candidate for the European Parliament elections Edward Scicluna on the significance of this procedure, what effective measures the government should take in order in order to curb this deficit, and the different forecasts issued by the different financial institutions in Malta, among other things.
What is your reaction to the Excessive Deficit Procedure Deficit against Malta? Do you think that it is justified in view of the high budget deficit reached by Malta last year?
What was surprising was not the Excessive Deficit Procedure which was slapped on us this time, but the strange decision that we were let off scot-free some weeks back because the EU believed our government, that the reported deficit was a one-off. Any local or foreign economist familiar with our economy could see that this was not so. We are now among the three laggards in the Euro zone. Definitely it is not a situation to write home about.
In your view, what concrete action should the Government take to curb the budget deficit that Malta has incurred last year and likely to incur this year as well?
It all started in October 2007 when Government budgeted an unprecedented revenue forecast unrelated to the expected outcome of the economy. It was clear to me that if this revenue forecast would not materialise, our public finances would revert back to an over 3 per cent deficit/GDP ratio. I am getting annoyed that what could be evaluated using a back of the envelope calculation was not caught on the EU radar screen with their sophisticated economic models. But then I am not yet sure they are taking us seriously. Or else we are misreading their style of evaluation. It looks that each time they just want to call our bluff and when we are caught in our own trap, they pounce. For our own good I just wish they would act much earlier. For the government, local economists are a bunch of gloomers and doomers. The EU can afford to be neither. But when the government transgresses the EU rules, we still have to see how they would look like.
In view of the fact that the European Commission is now saying that the GDP for 2009 will actually shrink by 0.9 per cent and that budget deficit for 2009 will reach 3.6 per cent, do you think that Finance Minister Tonio Fenech is still able to reach the targets set out in the 2009 Budget of 2.4 per cent growth rate and 1.65 per cent budget deficit rate for 2009? How?
This woolly and opaque way of reporting and forecasting must stop. It is an insult to the intelligence of all Maltese and Gozitans living on this island. How can we state with a straight face we have an international financial centre on the island and then let this fireworks of meaningless economic and financial figures be allowed to be banded about as if it is business as usual. The three public agencies must get their act together. I am referring to the NSO, the CBM and the Ministry of Finance. I am more than sure they can do it. I know they have qualified people. Their data must converge to the EU’s own estimates and forecasts. It does not necessarily need to be a replica but some convergence is required. It is quite disquieting that it is not.
What is your reaction to the latest economic forecast announced by the European Commission on Monday, especially with regards to the forecast for GDP contraction in 2009 and a budget deficit of 3.6 per cent for this year?
I think that the Government has never to date been in such a difficult situation with regard to the economic management of our economy. You have to either inflate or deflate. Either way, in our situation Government will have to pay a very high price whichever way it goes. Unfortunately it painted itself in a corner with no exit in sight. It cannot say it was not forewarned.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
The European Commission last Monday 4th May 2009 confirmed that it was going to restart the Excessive Deficit Procedures against Malta for its high Budget deficit in 2008, which reached 4.7 per cent for last year, 1.7 per cent in excess of the EU’s budget deficit limit under the Stability and Growth Pact. Business Today’s CHARLOT ZAHRA spoke to Labour candidate for the European Parliament elections Edward Scicluna on the significance of this procedure, what effective measures the government should take in order in order to curb this deficit, and the different forecasts issued by the different financial institutions in Malta, among other things.
What is your reaction to the Excessive Deficit Procedure Deficit against Malta? Do you think that it is justified in view of the high budget deficit reached by Malta last year?
What was surprising was not the Excessive Deficit Procedure which was slapped on us this time, but the strange decision that we were let off scot-free some weeks back because the EU believed our government, that the reported deficit was a one-off. Any local or foreign economist familiar with our economy could see that this was not so. We are now among the three laggards in the Euro zone. Definitely it is not a situation to write home about.
In your view, what concrete action should the Government take to curb the budget deficit that Malta has incurred last year and likely to incur this year as well?
It all started in October 2007 when Government budgeted an unprecedented revenue forecast unrelated to the expected outcome of the economy. It was clear to me that if this revenue forecast would not materialise, our public finances would revert back to an over 3 per cent deficit/GDP ratio. I am getting annoyed that what could be evaluated using a back of the envelope calculation was not caught on the EU radar screen with their sophisticated economic models. But then I am not yet sure they are taking us seriously. Or else we are misreading their style of evaluation. It looks that each time they just want to call our bluff and when we are caught in our own trap, they pounce. For our own good I just wish they would act much earlier. For the government, local economists are a bunch of gloomers and doomers. The EU can afford to be neither. But when the government transgresses the EU rules, we still have to see how they would look like.
In view of the fact that the European Commission is now saying that the GDP for 2009 will actually shrink by 0.9 per cent and that budget deficit for 2009 will reach 3.6 per cent, do you think that Finance Minister Tonio Fenech is still able to reach the targets set out in the 2009 Budget of 2.4 per cent growth rate and 1.65 per cent budget deficit rate for 2009? How?
This woolly and opaque way of reporting and forecasting must stop. It is an insult to the intelligence of all Maltese and Gozitans living on this island. How can we state with a straight face we have an international financial centre on the island and then let this fireworks of meaningless economic and financial figures be allowed to be banded about as if it is business as usual. The three public agencies must get their act together. I am referring to the NSO, the CBM and the Ministry of Finance. I am more than sure they can do it. I know they have qualified people. Their data must converge to the EU’s own estimates and forecasts. It does not necessarily need to be a replica but some convergence is required. It is quite disquieting that it is not.
What is your reaction to the latest economic forecast announced by the European Commission on Monday, especially with regards to the forecast for GDP contraction in 2009 and a budget deficit of 3.6 per cent for this year?
I think that the Government has never to date been in such a difficult situation with regard to the economic management of our economy. You have to either inflate or deflate. Either way, in our situation Government will have to pay a very high price whichever way it goes. Unfortunately it painted itself in a corner with no exit in sight. It cannot say it was not forewarned.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
12.5.09
Employment predictions
by Prof. Edward Scicluna, Malta Today on Sunday - Sun 10th May 2009
There is no doubt that Mr Vince Farrugia attempted to attack my economic and statistical credibility when he tried to misrepresent the results of my model regarding the employment implications of a fall in our exports. He said and I quote: “With a 20% drop in exports according to his predictions we should by now have already suffered 15,000 job losses. The country would have been in a state of panic were his prediction to have come through.”
The results of my model were presented during a GRTU conference given last 16 December in the presence of the Prime Minister. Mr Farrugia was surely not paying attention to the mathematical caveats appearing on the same slide of the powerpoint presentation (PPP), which I included with regards to this multiplier. I did say that: A 2% annual fall was a simulation exercise of an across the board fall in all export-oriented industries including tourism. If this were to happen this would translate into an over 1,000 full-time equivalent job losses directly and half as much again indirectly. Furthermore this Leontief model is estimated for a given year and so the ratio of full-time equivalent jobs is to nominal value of exports in a given year.
The slide also said that the labour-intensive industries such as tourism, transportation and recreational and similar services are affected more, while the more capital intensive industries are expected to have a much lower employment multiplier effect than the estimated average of 1,000 persons.
Mr Farrugia ought to know that up to the end of 2008, according to the NSO national accounts statistics and as confirmed by Eurostat the percent fall in nominal exports of goods and services was of 5.6% and not of 20% as wrongly stated by Mr Farrugia. Furthermore the industry mostly affected was manufacturing and in particular ST Microelectronics and similar highly capitalized industries, which according to my model have a multiplier much lower than 1,000.
If he applied these obvious observations he would predict that the employment loss expected over the long run for the reported fall in exports would be more in the region of 2,000 direct and 1,000 indirect rather than the 15,000 exaggeration implied by Mr Farrugia.
Where shall we look for these expected 3,000 full-time equivalent lost jobs. Surely not just in the unemployment register. Unemployed persons according to Eurostat comprise employable persons who are without work during the reference week, are available to start work within the next two weeks, and have been actively seeking work in the past four weeks. Data are presented in seasonally adjusted form. Eurostat reports that between September of last year and March of this year there was a 1,500 increase in persons unemployed.
Where are the other 1,500 predicted by the model? Mr Vince Farrugia should know that full-time equivalent jobs are not persons but man-hours lost divided by 40 hours of work a week. This includes all overtime work and part-time work which has now been terminated. It includes jobs which were terminated by some early retirement scheme or other. It includes workers working on a four-day week which amount to over 2,000 in the formal sector and much more among the GRTU self-employed members who are finding themselves on a less than a four-day week. It includes workers in a number of companies with whom government has reached an agreement to retain workers and or revert to a five-day week (ST, etc). Taking all these working hours lost together we would be fair to translate these into at least another 1,000 full-time equivalent persons unemployed.
These total figures fall short of the 3,000 full-time equivalent predicted by the model and leave a balance of about 500. But everybody knows that next month and the in following ones unemployment is expected to rise further. The reason being that unemployment is a lag not a lead indicator. It takes many months of loss of sales during which first it will be profits that are eaten away. Only after that would employers resort to the unfortunate shedding of their staff. During the last three months of 2008, firms saw a fall of about €65 million in their profits. With that money they would have paid for 6,000 jobs.
I do hope that we get serious with statistics. I cannot understand why persons who enter politics should pretend they have a licence to start playing around with figures. I can assure the reader that whether in politics or out of it, I will never betray my academic training by using statistics frivolously.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
There is no doubt that Mr Vince Farrugia attempted to attack my economic and statistical credibility when he tried to misrepresent the results of my model regarding the employment implications of a fall in our exports. He said and I quote: “With a 20% drop in exports according to his predictions we should by now have already suffered 15,000 job losses. The country would have been in a state of panic were his prediction to have come through.”
The results of my model were presented during a GRTU conference given last 16 December in the presence of the Prime Minister. Mr Farrugia was surely not paying attention to the mathematical caveats appearing on the same slide of the powerpoint presentation (PPP), which I included with regards to this multiplier. I did say that: A 2% annual fall was a simulation exercise of an across the board fall in all export-oriented industries including tourism. If this were to happen this would translate into an over 1,000 full-time equivalent job losses directly and half as much again indirectly. Furthermore this Leontief model is estimated for a given year and so the ratio of full-time equivalent jobs is to nominal value of exports in a given year.
The slide also said that the labour-intensive industries such as tourism, transportation and recreational and similar services are affected more, while the more capital intensive industries are expected to have a much lower employment multiplier effect than the estimated average of 1,000 persons.
Mr Farrugia ought to know that up to the end of 2008, according to the NSO national accounts statistics and as confirmed by Eurostat the percent fall in nominal exports of goods and services was of 5.6% and not of 20% as wrongly stated by Mr Farrugia. Furthermore the industry mostly affected was manufacturing and in particular ST Microelectronics and similar highly capitalized industries, which according to my model have a multiplier much lower than 1,000.
If he applied these obvious observations he would predict that the employment loss expected over the long run for the reported fall in exports would be more in the region of 2,000 direct and 1,000 indirect rather than the 15,000 exaggeration implied by Mr Farrugia.
Where shall we look for these expected 3,000 full-time equivalent lost jobs. Surely not just in the unemployment register. Unemployed persons according to Eurostat comprise employable persons who are without work during the reference week, are available to start work within the next two weeks, and have been actively seeking work in the past four weeks. Data are presented in seasonally adjusted form. Eurostat reports that between September of last year and March of this year there was a 1,500 increase in persons unemployed.
Where are the other 1,500 predicted by the model? Mr Vince Farrugia should know that full-time equivalent jobs are not persons but man-hours lost divided by 40 hours of work a week. This includes all overtime work and part-time work which has now been terminated. It includes jobs which were terminated by some early retirement scheme or other. It includes workers working on a four-day week which amount to over 2,000 in the formal sector and much more among the GRTU self-employed members who are finding themselves on a less than a four-day week. It includes workers in a number of companies with whom government has reached an agreement to retain workers and or revert to a five-day week (ST, etc). Taking all these working hours lost together we would be fair to translate these into at least another 1,000 full-time equivalent persons unemployed.
These total figures fall short of the 3,000 full-time equivalent predicted by the model and leave a balance of about 500. But everybody knows that next month and the in following ones unemployment is expected to rise further. The reason being that unemployment is a lag not a lead indicator. It takes many months of loss of sales during which first it will be profits that are eaten away. Only after that would employers resort to the unfortunate shedding of their staff. During the last three months of 2008, firms saw a fall of about €65 million in their profits. With that money they would have paid for 6,000 jobs.
I do hope that we get serious with statistics. I cannot understand why persons who enter politics should pretend they have a licence to start playing around with figures. I can assure the reader that whether in politics or out of it, I will never betray my academic training by using statistics frivolously.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
10.5.09
Gozo needs a generous Public Service Contract
Gozo needs a generous Public Service Contract in a soon-to-be liberalised inter-island transport sector
For every one million Euro reduction in fares charged by Gozo Channel, Gozo's economy gains about five to seven million Euro in visitor spending, which would mean two to three million Euro in additional wages and profits.
This was revealed by Professor Edward Scicluna, Labour Party candidate for the MEP Elections while addressing a conference "Vision for the Development of the Island Region of Gozo" organised today by the Gozo Business Chamber.
The grounds for a generous public service obligation (PSO) are economic and not just social, Prof. Scicluna argued in his speech.
This could be arranged through a public service contract (PSC) even in a liberalised transport sector between the two islands. However, this contract must not discriminate between community ship owners, according to the PL candidate.
Professor Scicluna said that the time has come for the setting up of a Gozo Enterprise with a strong business promotion policy and programme covering high value added manufacturing, niche tourism and back office administration.
"Gozo needs special EU funding no less than other Island Regions in the European Union. Although the government seems to have missed the boat for the 2007-2013 budgetary period contrary to what had been promised, a socio-economic study needs to be carried out with urgency in consultation with all Gozitan stakeholders including the Gozo Business Chamber, the Gozo Tourism Association, the NGOs Association, the Church in Gozo and the Gozitan local councils, to establish the real needs of Gozo," Prof. Scicluna said.
Rather than empty slogans of eco-island, the island of Gozo needs sustainable development, Prof. Scicluna concluded.
For every one million Euro reduction in fares charged by Gozo Channel, Gozo's economy gains about five to seven million Euro in visitor spending, which would mean two to three million Euro in additional wages and profits.
This was revealed by Professor Edward Scicluna, Labour Party candidate for the MEP Elections while addressing a conference "Vision for the Development of the Island Region of Gozo" organised today by the Gozo Business Chamber.
The grounds for a generous public service obligation (PSO) are economic and not just social, Prof. Scicluna argued in his speech.
This could be arranged through a public service contract (PSC) even in a liberalised transport sector between the two islands. However, this contract must not discriminate between community ship owners, according to the PL candidate.
Professor Scicluna said that the time has come for the setting up of a Gozo Enterprise with a strong business promotion policy and programme covering high value added manufacturing, niche tourism and back office administration.
"Gozo needs special EU funding no less than other Island Regions in the European Union. Although the government seems to have missed the boat for the 2007-2013 budgetary period contrary to what had been promised, a socio-economic study needs to be carried out with urgency in consultation with all Gozitan stakeholders including the Gozo Business Chamber, the Gozo Tourism Association, the NGOs Association, the Church in Gozo and the Gozitan local councils, to establish the real needs of Gozo," Prof. Scicluna said.
Rather than empty slogans of eco-island, the island of Gozo needs sustainable development, Prof. Scicluna concluded.
18.4.09
Intaxxati bil-moħbi
minn Edward Scicluna, Kandidat tal-PL ghall-elezzjonijiet tal-Parlament Ewropew
l-orizzont - It-Tlieta 14 ta' April 2009
l-orizzont - It-Tlieta 14 ta' April 2009
Kulħadd jaċċetta li kull Gvern irid jintaxxa biex ikollu x’jonfoq fuq is-servizzi pubbliċi. Però għal kol lox hemm limitu. U dan japplika għat-taxxi wkoll. Mhux l-ewwel darba fl-istorja nisim għu b’rew wixti meta l-pajjiż iħoss li m'għan dux iħallas iżjed milli jmissu. It-tbatija, riżultat tal-piż tat-taxxa, tkun tant kbira li l-pop lu ma jkunx jiflaħ għaliha aktar.
Dan il-gvernijiet jafuh. Biex iżidu d-dħul tagħhom b’mod si ni fikattiv dawn iridu bilfors idaħ ħlu xi taxxa ġdida, jew inkel la jgħollu r-rata ta’ taxxa li teżisti diġà. Hekk pereżempju ġara me ta ddaħħlet it-taxxa tal-VAT, kif ukoll meta din għolietilha r-rata minn 15 għal 18 fil-mija.
U għalhekk il-Gvern jipprova skemi biex dan il-piż jiżdied kemm jista’ jkun mingħajr ma jinduna l-poplu. Irridu ngħidu li l-ekonomija tkejjel dan il-piż bħa la l-proporzjon tad-dħul naz zjonali li jinġabar f’taxxi. Sintendi anke jekk ma jitkejjilx il-piż ħafna drabi jinħass sew. It-taxxi ma jagħmlux il-Gvern popolari u għalhekk f’dan ir-rigward jekk jirnexxielu, huwa jipprova jaħbi idu.
Fil-każ tal-Gvern Malti huwa ċar li hekk qed jiġri.
Nieħdu l-ewwel mod. Kull sena minħabba l-għoli tal-prezzijiet, min iħaddem iżid il-pagi tal-ħaddiema biex dawn ilaħħqu mal-ħajja. Dan id-dħul m'huwiex reali għax fejn konna bqajna. Bi dħul miżjud b’ħamsa fil-mija biex tlaħħaq mal-ħajja li tkun għoliet b’ħamsa fil-mija ma tkun għamilt l-ebda gwadann.
Mhux hekk għall-Gvern. Kontra dak li jsir f’ħafna pajjiżi oħra tal-Unjoni Ewropea, il-Gvern Malti ma jgħollix ’il fuq awtomatikament is-'ceiling' ta’ kull 'income tax bracket'. Għal hekk il-ħaddiem Malti jispiċċa jaqbeż is-'ceiling' u jibda jħallas iżjed taxxa mis-sena ta’ qabel.
Għaliex għandhom ħaddiema jispiċċaw iħallsu iżjed 'income tax' jekk ikunu baqgħu kif kienu s-sena ta’ qabel? Huwa għalhekk li f’ħafna pajjiżi din it-taxxa moħbija mhix permessa u l-'bra ckets' jew 'ceilings' huma awto ma tikament aġġustati kull sena, f’sistema msejħa “index-linked”.
Tant hawn Maltin li ma jafux b’din it-taxxa moħbija li meta kultant dan it-'tax bracket' jiġi rranġat, kulħadd jaħseb li dan hu xi att karitatevoli tal-Gvern li qed jaqta’ t-taxxa. Dan ġara dan l-aħħar. Sew qabel u sew wara l-elezzjoni ta’ sena ilu. Li jkun biss ġara hu li l-Gvern ikun radd lura xi ftit mit-taxxi li jkun ħa hu stess bil-moħbi fis-snin ta’ qabel.
Iżda dan l-aħħar il-Gvern qed juża metodi ġodda kif iżid it-taxxi bil-moħbi jew kif jgħidu bl-Ingliż, “by sleight of hand”. F’ħakka ta’ għajn mingħajr ma tinduna jkun għolla l-piż tat-taxxi. Dan hu permezz taż-żieda ta’ tariffi monopolisitiċi wara t-tneħħija ta’ xi sussidji li kien hemm fuq dak is-servizz. Dan jinkludi iż-żieda fit-tariffa tal-gass fl-ewwel ta’ April, iż-żieda fil-kontijiet tad-dawl u l-ilma mill-ewwel ta’ Ottubru li għadda u ż-żieda mħabbra, iżda mhux attwata s’issa, fis-servizz tad-drenaġġ. X’qiegħed jiġri hawn?
Qabel ma nwieġeb din il-mistoqsija importanti rrid inkun ċar biex ma niġix ikkritikat li bħala ekonomista ninstema' li ma nemminx fil-liberalizzaz zjoni tas-swieq. Mhux qed ngħid li ċertu sussidji m’huwiex tajjeb li jitneħħew biex is-servizz jirrifletti kemm jiswielna biex nipproduċuh u biex inqassmuh. Dan japplika għall-gass, id-dawl u l-ilma u d-drenaġġ.
Però din il-politika tas-suq m'għandiex tintuża mill-Gvern biex jgħolli l-piż tat-taxxi minn wara dahar il-poplu. Kif fil-fatt qed jiġri. Ħalli nfiehem aħjar.
Lejlet li għola l-prezz taċ-ċilin dri tal-gass, l-ispejjeż tal-produz zjoni u distribuzzjoni kienu qed jitħallsu minn żewġ sorsi. Parti mill-konsumatur permezz tal-prezz issussidjat u parti mit-taxxi tagħna li kienu qed imorru biex jitħallas is-sussidju li l-Gvern kien jgħaddi lil Enemalta.
X’ġara sew fl-1 ta’ April? Il-konsumatur ġie mitlub iħallas 37% tal-prezz ta’ qabel iżjed biex is-sussidju fuq il-gass jonqos sew. B’hekk jippermetti li l-Gvern ma jibqax iħallas il-'public service obligation' li fil-passat parti minnha kienet tmur għas-sussidju tal-gass.
Mela filwaqt li l-ħaddiem Malti ntalab iżid il-kontribuzzjoni tiegħu permezz tal-prezz, l-istess ħaddiem ma ngħatax lura u lanqas ġie kkumpensat għall-fatt li issa m'għandux bżonn jikkontribwixxi mit-taxxi tiegħu għas-sussidju li issa se jitneħħa jew jonqos. Mela dan il-gwadann jekk ma ħadux min iħallas it-taxxa minn ħadu? Qtajtu sew. Id-differenza żamma l-Gvern Malti. Dan it-'trick' magħmul f’ħakka t’għajn se jippermetti l-Gvern idaħħal aktar taxxi, tant li se jgħolli l-piż tat-taxxa fil-pajjiż. Dan ġara wkoll fil-każ tad-dawl u ilma, fil-każ tal-gass u dalwaqt fil-każ tas-servizzi tad-drenaġġ.
Fir-rapport ta’ stabbilità u konverġenza li l-Gvern Malti għadda lill-Kummissjoni Ewropea f’Diċembru li għadda huwa wiegħed li se jżid il-piż tat-taxxi (b’parti ta’ perċentwal tal-GDP) matul din is-sena li qegħdin fiha. Ħafna skantaw kif dan jista’ jsir. Qalu li żgur din is-sena l-Gvern mhux se jazzarda jdaħħal taxxi ġodda jew jgħolli r-rati ta’ taxxi li jeżistu. Dan veru, iżda bħalma rajna hawn fuq, il-Gvern għandu modi oħra kif jintaxxana iżjed, anke bil-moħbi. U allura l-wegħda tal-Gvern lill-Kummissjoni Ewropea ma kienet żball xejn.
www.edwardscicluna.com
Dan il-gvernijiet jafuh. Biex iżidu d-dħul tagħhom b’mod si ni fikattiv dawn iridu bilfors idaħ ħlu xi taxxa ġdida, jew inkel la jgħollu r-rata ta’ taxxa li teżisti diġà. Hekk pereżempju ġara me ta ddaħħlet it-taxxa tal-VAT, kif ukoll meta din għolietilha r-rata minn 15 għal 18 fil-mija.
U għalhekk il-Gvern jipprova skemi biex dan il-piż jiżdied kemm jista’ jkun mingħajr ma jinduna l-poplu. Irridu ngħidu li l-ekonomija tkejjel dan il-piż bħa la l-proporzjon tad-dħul naz zjonali li jinġabar f’taxxi. Sintendi anke jekk ma jitkejjilx il-piż ħafna drabi jinħass sew. It-taxxi ma jagħmlux il-Gvern popolari u għalhekk f’dan ir-rigward jekk jirnexxielu, huwa jipprova jaħbi idu.
Fil-każ tal-Gvern Malti huwa ċar li hekk qed jiġri.
Nieħdu l-ewwel mod. Kull sena minħabba l-għoli tal-prezzijiet, min iħaddem iżid il-pagi tal-ħaddiema biex dawn ilaħħqu mal-ħajja. Dan id-dħul m'huwiex reali għax fejn konna bqajna. Bi dħul miżjud b’ħamsa fil-mija biex tlaħħaq mal-ħajja li tkun għoliet b’ħamsa fil-mija ma tkun għamilt l-ebda gwadann.
Mhux hekk għall-Gvern. Kontra dak li jsir f’ħafna pajjiżi oħra tal-Unjoni Ewropea, il-Gvern Malti ma jgħollix ’il fuq awtomatikament is-'ceiling' ta’ kull 'income tax bracket'. Għal hekk il-ħaddiem Malti jispiċċa jaqbeż is-'ceiling' u jibda jħallas iżjed taxxa mis-sena ta’ qabel.
Għaliex għandhom ħaddiema jispiċċaw iħallsu iżjed 'income tax' jekk ikunu baqgħu kif kienu s-sena ta’ qabel? Huwa għalhekk li f’ħafna pajjiżi din it-taxxa moħbija mhix permessa u l-'bra ckets' jew 'ceilings' huma awto ma tikament aġġustati kull sena, f’sistema msejħa “index-linked”.
Tant hawn Maltin li ma jafux b’din it-taxxa moħbija li meta kultant dan it-'tax bracket' jiġi rranġat, kulħadd jaħseb li dan hu xi att karitatevoli tal-Gvern li qed jaqta’ t-taxxa. Dan ġara dan l-aħħar. Sew qabel u sew wara l-elezzjoni ta’ sena ilu. Li jkun biss ġara hu li l-Gvern ikun radd lura xi ftit mit-taxxi li jkun ħa hu stess bil-moħbi fis-snin ta’ qabel.
Iżda dan l-aħħar il-Gvern qed juża metodi ġodda kif iżid it-taxxi bil-moħbi jew kif jgħidu bl-Ingliż, “by sleight of hand”. F’ħakka ta’ għajn mingħajr ma tinduna jkun għolla l-piż tat-taxxi. Dan hu permezz taż-żieda ta’ tariffi monopolisitiċi wara t-tneħħija ta’ xi sussidji li kien hemm fuq dak is-servizz. Dan jinkludi iż-żieda fit-tariffa tal-gass fl-ewwel ta’ April, iż-żieda fil-kontijiet tad-dawl u l-ilma mill-ewwel ta’ Ottubru li għadda u ż-żieda mħabbra, iżda mhux attwata s’issa, fis-servizz tad-drenaġġ. X’qiegħed jiġri hawn?
Qabel ma nwieġeb din il-mistoqsija importanti rrid inkun ċar biex ma niġix ikkritikat li bħala ekonomista ninstema' li ma nemminx fil-liberalizzaz zjoni tas-swieq. Mhux qed ngħid li ċertu sussidji m’huwiex tajjeb li jitneħħew biex is-servizz jirrifletti kemm jiswielna biex nipproduċuh u biex inqassmuh. Dan japplika għall-gass, id-dawl u l-ilma u d-drenaġġ.
Però din il-politika tas-suq m'għandiex tintuża mill-Gvern biex jgħolli l-piż tat-taxxi minn wara dahar il-poplu. Kif fil-fatt qed jiġri. Ħalli nfiehem aħjar.
Lejlet li għola l-prezz taċ-ċilin dri tal-gass, l-ispejjeż tal-produz zjoni u distribuzzjoni kienu qed jitħallsu minn żewġ sorsi. Parti mill-konsumatur permezz tal-prezz issussidjat u parti mit-taxxi tagħna li kienu qed imorru biex jitħallas is-sussidju li l-Gvern kien jgħaddi lil Enemalta.
X’ġara sew fl-1 ta’ April? Il-konsumatur ġie mitlub iħallas 37% tal-prezz ta’ qabel iżjed biex is-sussidju fuq il-gass jonqos sew. B’hekk jippermetti li l-Gvern ma jibqax iħallas il-'public service obligation' li fil-passat parti minnha kienet tmur għas-sussidju tal-gass.
Mela filwaqt li l-ħaddiem Malti ntalab iżid il-kontribuzzjoni tiegħu permezz tal-prezz, l-istess ħaddiem ma ngħatax lura u lanqas ġie kkumpensat għall-fatt li issa m'għandux bżonn jikkontribwixxi mit-taxxi tiegħu għas-sussidju li issa se jitneħħa jew jonqos. Mela dan il-gwadann jekk ma ħadux min iħallas it-taxxa minn ħadu? Qtajtu sew. Id-differenza żamma l-Gvern Malti. Dan it-'trick' magħmul f’ħakka t’għajn se jippermetti l-Gvern idaħħal aktar taxxi, tant li se jgħolli l-piż tat-taxxa fil-pajjiż. Dan ġara wkoll fil-każ tad-dawl u ilma, fil-każ tal-gass u dalwaqt fil-każ tas-servizzi tad-drenaġġ.
Fir-rapport ta’ stabbilità u konverġenza li l-Gvern Malti għadda lill-Kummissjoni Ewropea f’Diċembru li għadda huwa wiegħed li se jżid il-piż tat-taxxi (b’parti ta’ perċentwal tal-GDP) matul din is-sena li qegħdin fiha. Ħafna skantaw kif dan jista’ jsir. Qalu li żgur din is-sena l-Gvern mhux se jazzarda jdaħħal taxxi ġodda jew jgħolli r-rati ta’ taxxi li jeżistu. Dan veru, iżda bħalma rajna hawn fuq, il-Gvern għandu modi oħra kif jintaxxana iżjed, anke bil-moħbi. U allura l-wegħda tal-Gvern lill-Kummissjoni Ewropea ma kienet żball xejn.
www.edwardscicluna.com
11.4.09
Could interest rates in the Euro area go any lower?
Last Thursday, the European Central Bank (ECB) cut interest by 0.25 per cent to 1.25 per cent, falling short of analysts’ expectations of another 0.5 per cent rate cut. Business Today spoke to economic analyst – Labour candidate for EP elections and economist Edward Scicluna, about the ECB’s latest decision, the issue of non-standard measures and whether Maltese banks should cut their interest rates after the latest ECB cut, among other things. Report by CHARLOT ZAHRA
Edward Scicluna : “Too little too late”
What is your opinion about the ECB’s decision to cut interest rates at a historic low of 1.25 per cent?
Too little too late. The ECB does what some other Central Banks would have done with a bolder cut a month earlier. The overly conservative attitude of the ECB is now well established.What, do you think, led the ECB to exercise caution with cutting the interest rate this time around despite the worsening of the economic crisis in the euro area, especially the inflation figures? The ECB is more reluctant than the Federal Reserve to start using what it refers to as “non-standard” measures to support the Euro zone economy.The tiny and sparse cuts in the interest rates prove that the ECB wanted to take its time before reaching this unorthodox stage, which every central banker dreads.Resorting to quantitative easing and direct printing of money is not a light decision to take. It is still uncharted waters.
ECB Governor Jean-Claude Trichet reiterated his warning of using “non-standard” measures to support the Euro zone economy, saying that the ECB would be discussing the matter next month. Do think that the time is now ripe for non-standard economic measures or not? Why?
Quantitative easing is the term we use which a Central Bank may use in such an eventuality. It is similar to a tourniquet used in first aid; it may stop the haemorrhage but creates dangerous side effects.The printing of money sends shivers down the spine of any central banker. Can you imagine the European Central Bank getting to that stage in a country like Germany – where hyperinflation is likened to a volcano exploding in the middle of the town? Memories are hard to be forgotten.On the other hand, the downward risks are still there in spite of seeming observations of traces of an economic uplift on the horizon. Economic activity and asset prices are falling at a lesser rate.But one still needs to use all the monetary and fiscal instruments at one’s disposal to stop this dangerous beast. The 1930s devastation happened only 80 years ago.The stages being reached are still very similar. That’s why it is so scary. The G20 meeting has to be seen in this perspective.
Last month, Maltese banks did not pass on the full interest rate cut to clients, claiming that they wanted to protect depositors. In view of the current crisis facing the Maltese economy, do you agree with the banks’ approach? Why?
The fall in the central interest rates have stopped being effective because the banks are no longer responding in sympathy. Today’s banks are upping their rates rather than lowering them.The reason is simple to understand. Interest rates include a risk element. That risk element is increasing and the cautious and correct banks want to reflect it in their lending rates.And that is why soon the Central Banks have to do what the Japanese did in their decade long recession – quantitative easing.
In your view, should they now pass the full interest rate cut to their consumers, especially since the rate cut is smaller?
Governments may use cajoling, suasion and similar methods to get banks to respond to ECB rate changes. But there is a limit to what they can do.
Edward Scicluna : “Too little too late”
What is your opinion about the ECB’s decision to cut interest rates at a historic low of 1.25 per cent?
Too little too late. The ECB does what some other Central Banks would have done with a bolder cut a month earlier. The overly conservative attitude of the ECB is now well established.What, do you think, led the ECB to exercise caution with cutting the interest rate this time around despite the worsening of the economic crisis in the euro area, especially the inflation figures? The ECB is more reluctant than the Federal Reserve to start using what it refers to as “non-standard” measures to support the Euro zone economy.The tiny and sparse cuts in the interest rates prove that the ECB wanted to take its time before reaching this unorthodox stage, which every central banker dreads.Resorting to quantitative easing and direct printing of money is not a light decision to take. It is still uncharted waters.
ECB Governor Jean-Claude Trichet reiterated his warning of using “non-standard” measures to support the Euro zone economy, saying that the ECB would be discussing the matter next month. Do think that the time is now ripe for non-standard economic measures or not? Why?
Quantitative easing is the term we use which a Central Bank may use in such an eventuality. It is similar to a tourniquet used in first aid; it may stop the haemorrhage but creates dangerous side effects.The printing of money sends shivers down the spine of any central banker. Can you imagine the European Central Bank getting to that stage in a country like Germany – where hyperinflation is likened to a volcano exploding in the middle of the town? Memories are hard to be forgotten.On the other hand, the downward risks are still there in spite of seeming observations of traces of an economic uplift on the horizon. Economic activity and asset prices are falling at a lesser rate.But one still needs to use all the monetary and fiscal instruments at one’s disposal to stop this dangerous beast. The 1930s devastation happened only 80 years ago.The stages being reached are still very similar. That’s why it is so scary. The G20 meeting has to be seen in this perspective.
Last month, Maltese banks did not pass on the full interest rate cut to clients, claiming that they wanted to protect depositors. In view of the current crisis facing the Maltese economy, do you agree with the banks’ approach? Why?
The fall in the central interest rates have stopped being effective because the banks are no longer responding in sympathy. Today’s banks are upping their rates rather than lowering them.The reason is simple to understand. Interest rates include a risk element. That risk element is increasing and the cautious and correct banks want to reflect it in their lending rates.And that is why soon the Central Banks have to do what the Japanese did in their decade long recession – quantitative easing.
In your view, should they now pass the full interest rate cut to their consumers, especially since the rate cut is smaller?
Governments may use cajoling, suasion and similar methods to get banks to respond to ECB rate changes. But there is a limit to what they can do.
8.4.09
Taxation by stealth
by Prof. Edward Scicluna
The Times of Malta - Wed 8th April 2009
We define a tax burden as the ratio of revenue from taxation to the country's national income as measured by the GDP. This ratio varies over time and from country to country. What is definite about it is that, as the tax burden increases so does the pinch on one's pocket.
Most of the time this tax burden can come about either by increasing a current tax rate, as has been the case with VAT, which was raised from 15 per cent to 18 per cent, or by introducing a brand new tax. The third way of increasing the tax burden, which is the subject of this contribution, is by stealth. Governments the world over have sneaky ways whereby revenues can be increased to such an extent that they push up the tax burden and this without the full knowledge of the taxpayer.
I am not here referring to tax buoyancy. That is the quality of intelligently-designed taxes that can keep their due revenues growing at the same rate that the economy is expanding, if not more. Income tax and VAT fulfil this prerequisite. They can look after themselves and are able to fill the public coffers as the economy's growth manages to surge forward. For many that is understandable and find no objection. But for sneaky ways?
The first sneaky way to increase the tax burden is by avoiding to inflation-proof the country's income tax. Most advanced countries are not allowed to use this form of hidden taxation. We all know that inflation, even if it were compensated by appropriate wage increases, such as with our local Cola arrangement, does nothing to add to our standard of living. So why should we pay income tax on our Cola and additional inflation-related wage and salary increases? Up to now the Maltese government has not put into place a system whereby each year the tax thresholds are increased automatically (index-linked) to account for nominal wage increases that do not add anything to the real take-home pay.
Many tax payers do not perceive the effects of this nominal fiscal drag. The government knows this. So it may prefer to adjust tax brackets manually once every few years. What in effect is simply the restoring of real tax rates to their approximate pre-inflation levels appears to be a benevolent act of the government looking as if it is cutting taxes. Not surprisingly, such changes are usually made right before a general election or after, in fulfilment of a pre-election promise.
The latest weapon to be used by the government to increase the tax burden by stealth is the increase of public monopoly tariffs following the removal of a government subsidy. This has been observed with tariff increases of electricity and water last October, the price hike of gas as of April 1 and the soon-to-be introduced drainage tariff.
Let us be clear about the argument. One could make a good case for the introduction of earmarked tariffs for specific services such as water or drainage facilities to ensure the recovery of their cost. One may also make a similar good case for the removal of subsidies on certain services such as energy, water, gas and other public utilities to reflect their true cost to society.
However, one should not use this change of policy to increase the tax burden by stealth. Let me explain. Take the price hike on gas cylinders. On the eve of the price hike, the production and distribution of gas on the island was paid for in two ways. One was paid directly by the consumer, admittedly at a relatively low price. The other was paid for, indirectly, by the taxpayer who ultimately finances the subsidy paid by the government to Enemalta to keep the price of a gas cylinder lower that the market would demand.
What has changed on April 1? The consumer has been asked to shoulder a price hike, which permits the government to reduce its previous public service obligation subsidising the price of gas. So while the Maltese, with a consumer hat on, has been asked to make a higher contribution, he or she, this time wearing the tax payer hat, has not been compensated for the saving made on the reduced subsidy. The government has pocketed the difference. The same sneaky tax deal has occurred with water and electricity and soon would be applied to drainage services.
If one had any doubt as to how the Maltese government has promised the EU, in its latest stability and convergence report, that the tax burden for Malta was to increase without the introduction of new taxes or the raising of current tax rates, now one knows how this is done.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
Most of the time this tax burden can come about either by increasing a current tax rate, as has been the case with VAT, which was raised from 15 per cent to 18 per cent, or by introducing a brand new tax. The third way of increasing the tax burden, which is the subject of this contribution, is by stealth. Governments the world over have sneaky ways whereby revenues can be increased to such an extent that they push up the tax burden and this without the full knowledge of the taxpayer.
I am not here referring to tax buoyancy. That is the quality of intelligently-designed taxes that can keep their due revenues growing at the same rate that the economy is expanding, if not more. Income tax and VAT fulfil this prerequisite. They can look after themselves and are able to fill the public coffers as the economy's growth manages to surge forward. For many that is understandable and find no objection. But for sneaky ways?
The first sneaky way to increase the tax burden is by avoiding to inflation-proof the country's income tax. Most advanced countries are not allowed to use this form of hidden taxation. We all know that inflation, even if it were compensated by appropriate wage increases, such as with our local Cola arrangement, does nothing to add to our standard of living. So why should we pay income tax on our Cola and additional inflation-related wage and salary increases? Up to now the Maltese government has not put into place a system whereby each year the tax thresholds are increased automatically (index-linked) to account for nominal wage increases that do not add anything to the real take-home pay.
Many tax payers do not perceive the effects of this nominal fiscal drag. The government knows this. So it may prefer to adjust tax brackets manually once every few years. What in effect is simply the restoring of real tax rates to their approximate pre-inflation levels appears to be a benevolent act of the government looking as if it is cutting taxes. Not surprisingly, such changes are usually made right before a general election or after, in fulfilment of a pre-election promise.
The latest weapon to be used by the government to increase the tax burden by stealth is the increase of public monopoly tariffs following the removal of a government subsidy. This has been observed with tariff increases of electricity and water last October, the price hike of gas as of April 1 and the soon-to-be introduced drainage tariff.
Let us be clear about the argument. One could make a good case for the introduction of earmarked tariffs for specific services such as water or drainage facilities to ensure the recovery of their cost. One may also make a similar good case for the removal of subsidies on certain services such as energy, water, gas and other public utilities to reflect their true cost to society.
However, one should not use this change of policy to increase the tax burden by stealth. Let me explain. Take the price hike on gas cylinders. On the eve of the price hike, the production and distribution of gas on the island was paid for in two ways. One was paid directly by the consumer, admittedly at a relatively low price. The other was paid for, indirectly, by the taxpayer who ultimately finances the subsidy paid by the government to Enemalta to keep the price of a gas cylinder lower that the market would demand.
What has changed on April 1? The consumer has been asked to shoulder a price hike, which permits the government to reduce its previous public service obligation subsidising the price of gas. So while the Maltese, with a consumer hat on, has been asked to make a higher contribution, he or she, this time wearing the tax payer hat, has not been compensated for the saving made on the reduced subsidy. The government has pocketed the difference. The same sneaky tax deal has occurred with water and electricity and soon would be applied to drainage services.
If one had any doubt as to how the Maltese government has promised the EU, in its latest stability and convergence report, that the tax burden for Malta was to increase without the introduction of new taxes or the raising of current tax rates, now one knows how this is done.
Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.
www.edwardscicluna.com
5.4.09
The 'big R' has arrived
Economic growth for the whole of 2008 reached 1.6 per cent, which, although positive, was still two percentage points lower than the previous year and half of what the government was forecasting in the budget. Figures released by the National Statistics Office last Wednesday confirmed that last year the economy contracted in real terms in the third and fourth quarters after registering growth in the first half of the year.
Eurostat defines a recession as two successive negative quarter-on-quarter changes in constant-price GDP. The seasonally-adjusted data for last year, which made it possible to compare one quarter with the preceding one, showed that the economy contracted by 0.3 per cent in Q3 and a further one per cent in Q4.
Reacting to the news, economist and Labour MEP hopeful Edward Scicluna said he was amazed that the government's economists did not get wind of the GDP data for the third quarter when drawing up the budget last year. "The budget predictions were always looking too optimistic and the latest data confirms what some economists, including myself, had been warning," Prof. Scicluna said.
A more shocking revelation for economist Karm Farrugia was the data for gross fixed capital formation, which measures public and private investment in the economy. "Gross fixed capital formation contracted by more than 14 per cent year-on-year. This is serious because capital investment is what pumps up an economy. It transpires that the government was not aware of the circumstances that suggested we could be heading into a recession and insisted on reducing its capital investment programme. "Unfortunately, people like myself were described as prophets of doom," Mr Farrugia said.
Although Malta has not seen negative economic growth in years, economic analyst John Cassar White said it was not surprising considering the prevailing global recession. Mr Cassar White stressed that the most important figure to be worried about was the yearly growth rate, which for last year, although lower than predicted, was still positive. The NSO statistics show that GDP topped €5.7 billion in 2008. Growth in value added was generated in the transport, storage and communications sectors, financial intermediation, real estate, renting, business activities, public administration, education and health. There were also increases in wholesale and retail trade, quarrying and construction. Drops in value added were seen in agriculture, fishing, manufacturing, particularly of electrical and optical equipment, electricity, gas and water supply and hotels and restaurants.
The Times of Malta, Friday 13th March 2009 by Kurt Sansone and Christian Peregin
4.4.09
Net gainers or net donors
Times of Malta, Friday 20th March 2009 by Prof. Edward Scicluna
The interview with EU Commissioner Dalia Grybauskaite which appeared in The Times last Tuesday misses the whole point at issue. It gives the impression that what matters mostly to the Maltese now is whether it was the Permanent Representative to Brussels, Richard Cachia Caruana or Labour leader Joseph Muscat who was right by a whiff of a few million euros either way, making us marginally net gainers or net donors vis-à-vis the EU.
Let us put the record straight.
As a member of the EU, Malta is gaining significantly in the environmental, social and economic fields through the various standards being imposed on our policy makers and operators, for example with respect to liquid and solid waste management, fiscal discipline and better legislation throughout. This is affecting positively our health, our standard of living and our various rights. It must be said that this would have been more positive had the government not dragged its feet with respect to various directives, besides the infringement this is giving rise to. Furthermore, a better negotiated treaty for various sections of the population would also have meant less suffering and less broken promises.
Coming to the financial package we recall the €855 million obtained for the 2007-13 budget period and how this was promised to revamp our economy. Nothing was said then about what were our dues, our EU membership fee, for that same period, and which we now roughly estimate to take about half that amount back to the EU.
Emphasis is also being made on the fact that we were record spenders with regard to pre-accession and transition facility funding. Agreed. But these were monies spent mostly on civil servants to train abroad (air fares, accommodation and fees) and twinning programmes with EU partner countries that provided, against payment, the training and consultancy on the island. Not so difficult to spend these monies.
The question here to ask is not whether we spent most of the money (mostly in foreign countries) but what benefits did we obtain from them. The various evaluation reports, including those carried out with the participation of the undersigned, might be seen on the web and can be judged on their own merits.
The problem with the 2007-13 Structural and Cohesion Funds is that they entail the planning, approval, building and completion of major projects. Various urban waste water treatment plants, waste recycling plants, incinerators, roads etc. It is an admitted fact that our Administration cannot cope adequately with these projects and, as a result, we are very late on most projects and risk losing funds if not completed in the agreed periods. So much so that, even according to the table provided by the EU Ambassador himself, in 2008 Malta finished a net gainer from the EU by some €5 million. Big deal!
To try to drag the Commission to underline that Malta need not be a net contributor is babyish at best. Of course, we know that these monies are due to us and perhaps they might not be lost to us. But can you imagine if a patient is given only half the medicinal dose due to him/her on two consecutive days in the comfort that the medicine will be alright in the fridge? Malta today is that patient. It needs its planned investment in full today.
Using half the amount over two consecutive years is no help to the economy. The EU has even allowed us to dip into the 2010 budget to help ride the recession. Keeping the funds for the future will not do us any good.
The interview with EU Commissioner Dalia Grybauskaite which appeared in The Times last Tuesday misses the whole point at issue. It gives the impression that what matters mostly to the Maltese now is whether it was the Permanent Representative to Brussels, Richard Cachia Caruana or Labour leader Joseph Muscat who was right by a whiff of a few million euros either way, making us marginally net gainers or net donors vis-à-vis the EU.
Let us put the record straight.
As a member of the EU, Malta is gaining significantly in the environmental, social and economic fields through the various standards being imposed on our policy makers and operators, for example with respect to liquid and solid waste management, fiscal discipline and better legislation throughout. This is affecting positively our health, our standard of living and our various rights. It must be said that this would have been more positive had the government not dragged its feet with respect to various directives, besides the infringement this is giving rise to. Furthermore, a better negotiated treaty for various sections of the population would also have meant less suffering and less broken promises.
Coming to the financial package we recall the €855 million obtained for the 2007-13 budget period and how this was promised to revamp our economy. Nothing was said then about what were our dues, our EU membership fee, for that same period, and which we now roughly estimate to take about half that amount back to the EU.
Emphasis is also being made on the fact that we were record spenders with regard to pre-accession and transition facility funding. Agreed. But these were monies spent mostly on civil servants to train abroad (air fares, accommodation and fees) and twinning programmes with EU partner countries that provided, against payment, the training and consultancy on the island. Not so difficult to spend these monies.
The question here to ask is not whether we spent most of the money (mostly in foreign countries) but what benefits did we obtain from them. The various evaluation reports, including those carried out with the participation of the undersigned, might be seen on the web and can be judged on their own merits.
The problem with the 2007-13 Structural and Cohesion Funds is that they entail the planning, approval, building and completion of major projects. Various urban waste water treatment plants, waste recycling plants, incinerators, roads etc. It is an admitted fact that our Administration cannot cope adequately with these projects and, as a result, we are very late on most projects and risk losing funds if not completed in the agreed periods. So much so that, even according to the table provided by the EU Ambassador himself, in 2008 Malta finished a net gainer from the EU by some €5 million. Big deal!
To try to drag the Commission to underline that Malta need not be a net contributor is babyish at best. Of course, we know that these monies are due to us and perhaps they might not be lost to us. But can you imagine if a patient is given only half the medicinal dose due to him/her on two consecutive days in the comfort that the medicine will be alright in the fridge? Malta today is that patient. It needs its planned investment in full today.
Using half the amount over two consecutive years is no help to the economy. The EU has even allowed us to dip into the 2010 budget to help ride the recession. Keeping the funds for the future will not do us any good.
EC ‘too naïve’ to believe Malta’s fiscal deficit was a one-off
Business Today - Wednesday, 04 March 2009
Senior economist and Labour candidate for the European Parliament (EP) elections Edward Scicluna said that with its assessment of Malta’s Stability Programme for 2009, “once and for all the EU has clarified a point which I felt was being misunderstood by many local economic observers. “This refers to the quick conclusion reached, that while the impending recession necessitates some form of economic stimulus, and that since the EU Commission itself was encouraging many EU countries to initiate such a stimulus, Malta would be allowed to exceed the three per cent deficit,” Scicluna explained. “This, I had emphasised, applied only to countries which had enough room to manoeuvre. Surplus countries like the UK and Germany were given the go-ahead,” he said. “But an excessive deficit procedure was slapped on all those who have exceeded the three per cent limit.”
Asked whether he agreed with the European Commission’s assessment on Malta, Scicluna said: “Where I disagree is the politics played by the Commission vis-a-vis Malta. “I cannot believe the Commission is so naive as to believe that Malta can actually fall in line in a short while in view that our excessive deficit was merely due to a one-off fiscal slip,” Scicluna insisted. “Of course it could well be that the Commission is playing a game, calling Malta’s bluff that it would correct its excessive deficit in a few months,” he added.
Scicluna said that he agreed with the EC’s assessment “that the risks of Malta delivering on any of its promises are high. I would go one step further and state it is nearly impossible to deliver such promises at this stage of our economic cycle.” On the other hand, Scicluna disagreed with the European Commission asking Malta to lower its expenditure in the health sector as proposed in the EC’s assessment.
“With Malta experiencing a record fall in exports throughout 2008, and the ramifications on future employment outlook, and with the whole business and private sector baying for assistance, I cannot see Malta increasing effectively its tax burden and lowering public expenditure in its most suffering sector – health,” Scicluna told Business Today.
Scicluna said the Maltese were “eager” to see efficiency being raised so as to expand the level of service in their hospitals without necessarily spending more. “But I cannot see the Government raising efficiency by cutting costs. I wish the EU Commission could elaborate more on this subject,” the senior economist insisted.
“In the meantime just wait to hear noises from the Government side about stipends blaming the EC for pushing for their downward revision,” Scicluna told Business Today. Scicluna said that he “agreed fully” with the EC’s assessment that a significant part of the reduction of the budget debt during 2004-2007 was the result of one-off privatisations and sale of property. “If we exclude one-off privatisations the debt ratio cannot fall by its own accord unless we manage a surplus on our primary balance. “This was the only reason I thought the EC would fail us in the Euro test. They did not. Fine,” the senior economist told Business Today.
“Now we are facing problems and the EC is still saying it believes our Government’s conclusion that the public finances are sustainable and the glitch was a one time event. I fail to see the logic,” Scicluna insisted. Asked to elaborate on what other avenues the Government has to curb expenditure in view of the fact that there were few public entities suitable for privatisation, Scicluna explained: “The Government has to bite the bullet and ensure that public expenditures fall in line within what the country can bear to pay in taxes. It is that simple,” he told Business Today. “But the Government has been trying to avoid facing this home truth for years on end.
“Of course we may scream and say that this is definitely not the time to do it. And perhaps this time round we are right,” Scicluna explained. “But would the EC listen? Promises are promises,” he warned. In view of how the public finances performed last year, Scicluna was very sceptical about the Government’s ability to meet its budget deficit target of 1.5 per cent of GDP again this year, particularly in view of the economic recession that has hit the Euro area.
“Without giving figures from the top of my head, in the absence of an econometric model, I would say that I would be very surprised if we manage to squeeze ourselves inside the three per cent allowed cap during 2009,” Scicluna told BusinessToday.
Senior economist and Labour candidate for the European Parliament (EP) elections Edward Scicluna said that with its assessment of Malta’s Stability Programme for 2009, “once and for all the EU has clarified a point which I felt was being misunderstood by many local economic observers. “This refers to the quick conclusion reached, that while the impending recession necessitates some form of economic stimulus, and that since the EU Commission itself was encouraging many EU countries to initiate such a stimulus, Malta would be allowed to exceed the three per cent deficit,” Scicluna explained. “This, I had emphasised, applied only to countries which had enough room to manoeuvre. Surplus countries like the UK and Germany were given the go-ahead,” he said. “But an excessive deficit procedure was slapped on all those who have exceeded the three per cent limit.”
Asked whether he agreed with the European Commission’s assessment on Malta, Scicluna said: “Where I disagree is the politics played by the Commission vis-a-vis Malta. “I cannot believe the Commission is so naive as to believe that Malta can actually fall in line in a short while in view that our excessive deficit was merely due to a one-off fiscal slip,” Scicluna insisted. “Of course it could well be that the Commission is playing a game, calling Malta’s bluff that it would correct its excessive deficit in a few months,” he added.
Scicluna said that he agreed with the EC’s assessment “that the risks of Malta delivering on any of its promises are high. I would go one step further and state it is nearly impossible to deliver such promises at this stage of our economic cycle.” On the other hand, Scicluna disagreed with the European Commission asking Malta to lower its expenditure in the health sector as proposed in the EC’s assessment.
“With Malta experiencing a record fall in exports throughout 2008, and the ramifications on future employment outlook, and with the whole business and private sector baying for assistance, I cannot see Malta increasing effectively its tax burden and lowering public expenditure in its most suffering sector – health,” Scicluna told Business Today.
Scicluna said the Maltese were “eager” to see efficiency being raised so as to expand the level of service in their hospitals without necessarily spending more. “But I cannot see the Government raising efficiency by cutting costs. I wish the EU Commission could elaborate more on this subject,” the senior economist insisted.
“In the meantime just wait to hear noises from the Government side about stipends blaming the EC for pushing for their downward revision,” Scicluna told Business Today. Scicluna said that he “agreed fully” with the EC’s assessment that a significant part of the reduction of the budget debt during 2004-2007 was the result of one-off privatisations and sale of property. “If we exclude one-off privatisations the debt ratio cannot fall by its own accord unless we manage a surplus on our primary balance. “This was the only reason I thought the EC would fail us in the Euro test. They did not. Fine,” the senior economist told Business Today.
“Now we are facing problems and the EC is still saying it believes our Government’s conclusion that the public finances are sustainable and the glitch was a one time event. I fail to see the logic,” Scicluna insisted. Asked to elaborate on what other avenues the Government has to curb expenditure in view of the fact that there were few public entities suitable for privatisation, Scicluna explained: “The Government has to bite the bullet and ensure that public expenditures fall in line within what the country can bear to pay in taxes. It is that simple,” he told Business Today. “But the Government has been trying to avoid facing this home truth for years on end.
“Of course we may scream and say that this is definitely not the time to do it. And perhaps this time round we are right,” Scicluna explained. “But would the EC listen? Promises are promises,” he warned. In view of how the public finances performed last year, Scicluna was very sceptical about the Government’s ability to meet its budget deficit target of 1.5 per cent of GDP again this year, particularly in view of the economic recession that has hit the Euro area.
“Without giving figures from the top of my head, in the absence of an econometric model, I would say that I would be very surprised if we manage to squeeze ourselves inside the three per cent allowed cap during 2009,” Scicluna told BusinessToday.
Capital projects could re-ignite economy
Interview by Gerald Fenech, The Malta Business Weekly - 5th March 2009
The capital projects proposed by government could be the key for public finances to recover from the current state which saw the deficit expand by EUR74m in January. Statistics issued last week by the National Statistics Office showed that government debt increased by 117 per cent during January to EUR136.5m, more than double the amount of last year.
Speaking to The Malta Business Weekly, economist Edward Scicluna said that the islands should work hard on EU funded capital projects to receive payment for the work completed. While on paper, EU funded projects require partial government funding, the secondary linkages and tax proceeds from the economy leave a positive effect on public finances.
Prof. Scicluna, however, complained that the situation is precarious with expenditure rising in an unsustainable manner and figures for the whole 2008 still unavailable. “As a Maltese citizen I feel annoyed that government supplies the data to the EU Commission with regards to the Convergence and Stability Programme but does not find it necessary to publish it in Malta. The figures for January 2009 were published while those for the whole of 2008 are still not. Worse we are told that we need to wait till March or April to see last year’s full figures published.
“The data for January, taken on its own, shows a bleak picture of government finances. They give the lie to what has been promised to the EU Commission that the excessive deficit at the end of last year was a one-off due to the energy subsidy and the Dockyard early retirement scheme. I find it hard that the Commission can believe such an excuse.”
We also seem to have convinced the Commission that apart from this one-off item we could quickly bring the deficit under control by increasing the tax burden and reduce the public expenditure portion of the GDP.
“End of January figures show that this could be a dream. How can you promise to squeeze the economy at a time when it is asking for financial oxygen? With a clearly declining economic activity, one would be expected to collect less income tax, less national insurance contributions and over time less VAT.”
Asked which sectors have contributed towards the deficit ballooning in such a manner, Prof. Scicluna acknowledged that the energy benefit and the ’yard’s early retirement scheme did contribute towards the deteriorating state of public finances, although he adds a caveat that expenditure “exploded” across all sectors.
“According to government, it is the one-time EUR100m spent on the energy subsidy and early retirement scheme. The figures show that public expenditure exploded across all sectors, with some more than others. Wages took a spike in 2008 and remained high thereafter. Transfer payments too have increased. Since none of these public sectors have been restructured, this upward pressure is to be expected. What we are seeing is government containing expenditure by making it difficult for the entitled consumer to get his deserved service. Out of stock pills and hospital queues are a symptom of this ‘expenditure containment’ method. We all know that this is not sustainable.”
Prof. Scicluna also explained that the deficit will continue to grow as the economy worsens and more public sector money is put into the economy to prop up ailing sectors. “This is one of the tenets of macro-economic policy that during an oncoming recession the automatic stabilisers fire in. These are money from the public sector which automatically are paid to those who are being hit negatively by the current recession. This will benefit the economy, but obviously worsens the deficit. Beyond this, there is the more obvious fact that less income tax, national insurance contributions and VAT are collected when the economy falters.”
Asked whether government debt has become unsustainable in the long run, Prof. Scicluna explained that a slowdown in growth will further accelerate debt as the interest being paid by government to service the debt will probably be exceeded eventually.
“The debt ratio is made up of the gross debt and the GDP. For the ratio to stop growing we require that for the future, the rate of economic growth rises faster than the interest rate paid by the government to service that debt. Once the debt servicing rate of interest exceeds the rate of economic growth, the debt burden shoots up. The longer the recession the faster the burden grows.”
The capital projects proposed by government could be the key for public finances to recover from the current state which saw the deficit expand by EUR74m in January. Statistics issued last week by the National Statistics Office showed that government debt increased by 117 per cent during January to EUR136.5m, more than double the amount of last year.
Speaking to The Malta Business Weekly, economist Edward Scicluna said that the islands should work hard on EU funded capital projects to receive payment for the work completed. While on paper, EU funded projects require partial government funding, the secondary linkages and tax proceeds from the economy leave a positive effect on public finances.
Prof. Scicluna, however, complained that the situation is precarious with expenditure rising in an unsustainable manner and figures for the whole 2008 still unavailable. “As a Maltese citizen I feel annoyed that government supplies the data to the EU Commission with regards to the Convergence and Stability Programme but does not find it necessary to publish it in Malta. The figures for January 2009 were published while those for the whole of 2008 are still not. Worse we are told that we need to wait till March or April to see last year’s full figures published.
“The data for January, taken on its own, shows a bleak picture of government finances. They give the lie to what has been promised to the EU Commission that the excessive deficit at the end of last year was a one-off due to the energy subsidy and the Dockyard early retirement scheme. I find it hard that the Commission can believe such an excuse.”
We also seem to have convinced the Commission that apart from this one-off item we could quickly bring the deficit under control by increasing the tax burden and reduce the public expenditure portion of the GDP.
“End of January figures show that this could be a dream. How can you promise to squeeze the economy at a time when it is asking for financial oxygen? With a clearly declining economic activity, one would be expected to collect less income tax, less national insurance contributions and over time less VAT.”
Asked which sectors have contributed towards the deficit ballooning in such a manner, Prof. Scicluna acknowledged that the energy benefit and the ’yard’s early retirement scheme did contribute towards the deteriorating state of public finances, although he adds a caveat that expenditure “exploded” across all sectors.
“According to government, it is the one-time EUR100m spent on the energy subsidy and early retirement scheme. The figures show that public expenditure exploded across all sectors, with some more than others. Wages took a spike in 2008 and remained high thereafter. Transfer payments too have increased. Since none of these public sectors have been restructured, this upward pressure is to be expected. What we are seeing is government containing expenditure by making it difficult for the entitled consumer to get his deserved service. Out of stock pills and hospital queues are a symptom of this ‘expenditure containment’ method. We all know that this is not sustainable.”
Prof. Scicluna also explained that the deficit will continue to grow as the economy worsens and more public sector money is put into the economy to prop up ailing sectors. “This is one of the tenets of macro-economic policy that during an oncoming recession the automatic stabilisers fire in. These are money from the public sector which automatically are paid to those who are being hit negatively by the current recession. This will benefit the economy, but obviously worsens the deficit. Beyond this, there is the more obvious fact that less income tax, national insurance contributions and VAT are collected when the economy falters.”
Asked whether government debt has become unsustainable in the long run, Prof. Scicluna explained that a slowdown in growth will further accelerate debt as the interest being paid by government to service the debt will probably be exceeded eventually.
“The debt ratio is made up of the gross debt and the GDP. For the ratio to stop growing we require that for the future, the rate of economic growth rises faster than the interest rate paid by the government to service that debt. Once the debt servicing rate of interest exceeds the rate of economic growth, the debt burden shoots up. The longer the recession the faster the burden grows.”
A piglet on Noah's Ark
Published on The Times of Malta - Wednesday 25th February 2009
In spite of the great foreboding 10 years ago, that the eurozone is not exactly the United States with its near optimum currency area characteristics, results have shown that it did pretty well. Its members saw satisfactory rates of economic growth, equally impressive rates of job creation and subdued inflation; really, a model of economic stability. This happened in spite of the lack of independent economic adjustment by the individual eurozone members normally used to independent monetary and exchange-rate policies.
However, it must be recalled that many of its promoters wished it would be much more. The euro was supposed to be an engine driving supply-side reforms across its member states, making them more productive and competitive than any other world economic block. Actually, this did happen with a number of eurozone countries. Germany, Austria, Finland and the Netherlands did indeed bite the bullet and duly implemented reforms to make their economies more flexible and more competitive.
With time, though, the zone was turned into an animal farm, with some animals being more equal than others. At one end a group of like-minded Mediterranean countries, nicknamed "PIGS" in view of the fact that the main protagonists were Portugal, Italy, Greece and Spain, were having a different view of the eurozone. Their view all along has been that the eurozone was itself a safe haven. It would serve them as a Noah's Ark in times of a global financial deluge.
Fine. So they made supernormal efforts to qualify and join at any cost. They increased taxation significantly and introduced one-off fiscal schemes, kept expenditure temporarily on hold and kept wage increase at bay until the euro test-time. One particular country, Greece, was even subsequently caught cheating and got fined.
As soon the euro test was over, these countries, having felt secure with having boarded what each believed is Noah's Ark, have gone back to their old practices and economic sinful behavior. The euro saw the end rather than the beginning of their economic reforms. Sounds familiar? The result now is that the eurozone is no longer seen as a top notch club of first-class economies but a club with two classes of members. The "PIGS" group is showing common symptoms: High effective exchange rate and endemically uncompetitive exports, rising unit labour costs, deteriorating current account balances and similar deterioration of its member's public finances. With an economy that seems to be and, in fact is, stuck, the feeling is dismal and general frustration is there for all to see. Feeling cosy within the eurozone, their respective peoples, however, have no appetite for painful reforms. In fact, their political masters have ruled this out in no uncertain terms.
In the face of greater global stress, a sharp rise in bond spreads are being observed for Portugal, Italy, Greece, and Spain. You cannot expect, in these testing times, that capital markets will be less forgiving of high public debt or rising budget deficits. To make matters worse, Standard & Poor's - a credit-rating agency - has recently downgraded Spain, Portugal and Greece.
Which brings us to our own predicament. Like the "PIGS", we too made strenuous and admittedly heroic efforts to join. We truly believed that we could not stay out in the cold. Even now, we are thankful that we are cosy within, watching the outside world fall apart. Non-eurozone island states like Iceland are pointed out to us like a Titanic film watched from the cosiness of our sitting room.
But are we sure we are not the piglet on Noah's Ark? Are not our symptoms very much akin to the "PIGS" family? Are not our exports and tourist services uncompetitive? With exports falling record heights when compared to all the other European Union countries, resulting in yawning current-account imbalances. Has not the IMF and, more recently, the EU warned us about the repercussions of unsustainable wage agreements in 2008? And how can we explain that we managed to break all three sacred vows we took when we joined the eurozone, namely not to exceed the three per cent deficit-GDP ratio, to keep inflation low and to maintain a declining debt ratio.
Most economic observers were fooled when they thought they heard the European Commission telling EU members to stimulate their economies through more spending. They thought that the message was meant for all the member countries irrespective of whether they had room to manoeuvre or not. Of course, they were wrong. It was only meant for surplus and not hugely indebted countries like the "PIGS" family and piglet Malta.
It must have come as quite a shock to many last week that Malta was close to be slapped by the EU's standard "excessive deficit procedure". Instead, we were given a reprieve. Unlike Latvia and the other wavering countries, we were smart enough to impress on the Commission that this state of economic affairs was a one-time quirk, almost a mirage. And, of course, we are now in for a bigger shock. Because the reprieve was conditioned by the promise that Malta would soon get its public finances in order in two principal ways; One, by cutting public expenditure as a result of a health reform and, two, by increasing the tax burden by nearly a percentage point of the GDP. Yes, you read well. This much is stated to have been promised in the European Commission's Assessment of Malta's Stability and Convergence Programme.
How we can promise this plan in the face of increasing pressure from the business and private community for some relief from the scourge of the impending recession boggles the mind of anyone, not least the economist.
Prof. Scicluna is a Labour candidate for the European Parliament elections
In spite of the great foreboding 10 years ago, that the eurozone is not exactly the United States with its near optimum currency area characteristics, results have shown that it did pretty well. Its members saw satisfactory rates of economic growth, equally impressive rates of job creation and subdued inflation; really, a model of economic stability. This happened in spite of the lack of independent economic adjustment by the individual eurozone members normally used to independent monetary and exchange-rate policies.
However, it must be recalled that many of its promoters wished it would be much more. The euro was supposed to be an engine driving supply-side reforms across its member states, making them more productive and competitive than any other world economic block. Actually, this did happen with a number of eurozone countries. Germany, Austria, Finland and the Netherlands did indeed bite the bullet and duly implemented reforms to make their economies more flexible and more competitive.
With time, though, the zone was turned into an animal farm, with some animals being more equal than others. At one end a group of like-minded Mediterranean countries, nicknamed "PIGS" in view of the fact that the main protagonists were Portugal, Italy, Greece and Spain, were having a different view of the eurozone. Their view all along has been that the eurozone was itself a safe haven. It would serve them as a Noah's Ark in times of a global financial deluge.
Fine. So they made supernormal efforts to qualify and join at any cost. They increased taxation significantly and introduced one-off fiscal schemes, kept expenditure temporarily on hold and kept wage increase at bay until the euro test-time. One particular country, Greece, was even subsequently caught cheating and got fined.
As soon the euro test was over, these countries, having felt secure with having boarded what each believed is Noah's Ark, have gone back to their old practices and economic sinful behavior. The euro saw the end rather than the beginning of their economic reforms. Sounds familiar? The result now is that the eurozone is no longer seen as a top notch club of first-class economies but a club with two classes of members. The "PIGS" group is showing common symptoms: High effective exchange rate and endemically uncompetitive exports, rising unit labour costs, deteriorating current account balances and similar deterioration of its member's public finances. With an economy that seems to be and, in fact is, stuck, the feeling is dismal and general frustration is there for all to see. Feeling cosy within the eurozone, their respective peoples, however, have no appetite for painful reforms. In fact, their political masters have ruled this out in no uncertain terms.
In the face of greater global stress, a sharp rise in bond spreads are being observed for Portugal, Italy, Greece, and Spain. You cannot expect, in these testing times, that capital markets will be less forgiving of high public debt or rising budget deficits. To make matters worse, Standard & Poor's - a credit-rating agency - has recently downgraded Spain, Portugal and Greece.
Which brings us to our own predicament. Like the "PIGS", we too made strenuous and admittedly heroic efforts to join. We truly believed that we could not stay out in the cold. Even now, we are thankful that we are cosy within, watching the outside world fall apart. Non-eurozone island states like Iceland are pointed out to us like a Titanic film watched from the cosiness of our sitting room.
But are we sure we are not the piglet on Noah's Ark? Are not our symptoms very much akin to the "PIGS" family? Are not our exports and tourist services uncompetitive? With exports falling record heights when compared to all the other European Union countries, resulting in yawning current-account imbalances. Has not the IMF and, more recently, the EU warned us about the repercussions of unsustainable wage agreements in 2008? And how can we explain that we managed to break all three sacred vows we took when we joined the eurozone, namely not to exceed the three per cent deficit-GDP ratio, to keep inflation low and to maintain a declining debt ratio.
Most economic observers were fooled when they thought they heard the European Commission telling EU members to stimulate their economies through more spending. They thought that the message was meant for all the member countries irrespective of whether they had room to manoeuvre or not. Of course, they were wrong. It was only meant for surplus and not hugely indebted countries like the "PIGS" family and piglet Malta.
It must have come as quite a shock to many last week that Malta was close to be slapped by the EU's standard "excessive deficit procedure". Instead, we were given a reprieve. Unlike Latvia and the other wavering countries, we were smart enough to impress on the Commission that this state of economic affairs was a one-time quirk, almost a mirage. And, of course, we are now in for a bigger shock. Because the reprieve was conditioned by the promise that Malta would soon get its public finances in order in two principal ways; One, by cutting public expenditure as a result of a health reform and, two, by increasing the tax burden by nearly a percentage point of the GDP. Yes, you read well. This much is stated to have been promised in the European Commission's Assessment of Malta's Stability and Convergence Programme.
How we can promise this plan in the face of increasing pressure from the business and private community for some relief from the scourge of the impending recession boggles the mind of anyone, not least the economist.
Prof. Scicluna is a Labour candidate for the European Parliament elections
6.2.09
Most households paying €120-€240 more a year
Published on Times of Malta
Saturday, 31st January 2009 by Kurt Sansone
The vast majority of households will see their yearly utility bill increase by between €120 and €240, according to an impact analysis of the new tariffs carried out by the Malta Resources Authority.
Around 32,000 households will see their bills go up by between €120 and €160 a year while a further 46,000 households will experience increases of between €160 and €200.
Some 28,000 households can expect to see hikes of over €240 while another 42,000 could expect yearly expenditure on water and electricity to rise by between €240 and €280.
All increases are over and above what consumers had been paying with the 95 per cent surcharge.
The impact analysis has also established that around 56 per cent of households should benefit from the eco-reduction on electricity consumption on every bill while 24 per cent would only benefit "sometimes". A further 20 per cent of households will receive no eco-reduction at all.
The analysis was presented yesterday to the 11 unions that are still contesting the bills. The meeting lasted just over two hours.
Significantly, the regulator said its technical analysis is "more accurate" than the one which auditing firm KPMG had done for Enemalta in terms of the figures for single-person households and accounts for places where no people live.
This very point was one of the issues raised by economist and Labour MEP candidate Edward Scicluna, who argued that the government had included garages, for instance, in the list of households which were meant to benefit from an eco-reduction under the new regime for utility bills.
The authority reached its conclusions after a detailed analysis of real invoices issued to households for the period April 2006 to December 2007. The invoices were those for actual meter readings rather than estimates.
An MRA official reluctantly admitted that Enemalta's auditors, KPMG, had the possibility of conducting a similar detailed exercise before coming up with the tariffs. However, he insisted the exercise required "particular skill".
In analysing the impact of the social assistance vouchers granted to needy families, the MRA only calculated the impact on a typical four-person household. In this case, most eligible families will benefit from a 20 per cent reduction in their bill, according to the authority.
The regulator admitted that a similar exercise would need to be carried out for single person households in order to establish the impact of the vouchers on pensioners. Single person households are more likely to be inhabited by pensioners.
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