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The highly publicised Girgenti retreat has been the government’s opening gambit on the 2005 budget negotiations with the social partners. It was reported in Friday’s newspapers together with a statement by the Malta Chamber of Commerce and Entreprise deploring confidentiality failures following the recent MCESD meeting mapping out a timetable for hammering out a plan for economic recovery. The Chamber also expressed its dismay at the GWU refusal to be bound by confidentiality in future talks because of the leaks it had itself denounced following the MCESD meeting.
It all feels like the birth pangs of a nascent arrangement. We’re not there yet and everybody is on a learning curve. The government still has its old attitude. The unions are still shaky about their new roles and the business side is still tugging on the rope as if any concession would be a defeat. Suspicion has not been laid to rest.
Every fast move in the process, every smart trick played, delays the process further. The one thing pushing things along is the universal realization that we have already run out of time. There is no time to clown about pandering to the audience. PR moves are an intolerable extravagance. Still it is hard to change habits and every institution has its own needs.
The pre-election call by UHM for the establishment of a social pact was as well received as could be expected. In an informal all stakeholder meeting the universal recognition of our economic predicament produced a greater consensus than appeared to be available when one read the several official reactions in the press.
The boat is sinking and there is no more time to waste on laying the blame on someone. When the wretched thing is on an even keel once more we should find the time. Meanwhile it is a matter of baling out in an ever more efficient manner.
At Girgenti the government ruled out tax cuts. It was a dog bites man headline. Nobody is expecting good news in Budget 2005. It also threw off the table a proposal by one of the MCESD partners to introduce a tax on vacant properties. The new tax had apparently been proposed as a substitute for the punishing income tax rates which depress the economy.
It is a pity that the PM was only bluffing on the Xarabank show when he invited the other political parties to participate on the MCESD. The Greens had snapped up his informal invitation but no formal invitation ever came. It was only a PR move to make the PM seem open, generous and inclusive and the Leader of the Opposition uncooperative. It was bluff and PR fireworks.
It’s a pity. Our economic proposals made to government are being taken up. In a paper entitled Meeting Maastricht the Greens spokesperson on the Economy, Edward Fenech, had outlined a commitment to be taken by government on how to beat the budget deficit. Government has effectively adopted it and set itself more ambitious targets than the Greens proposed.
Economic realism demands an acceptance of the fact that the government will not be easing off the tax burden until it meets its deficit reduction targets. However business needs to know well in advance of any changes in fiscal policy. It has been tortured by uncertainty since the fiscal carnival over VAT, the EU election campaign has kept it on tenterhooks and for the past year it has been exposed to unprecedented horror stories and harrowing rumours. The Greens proposed a fiscal model in which the tax burden would be kept in check, growing by just short of rate economic growth to leave economic operators some reward and incentive. We also outlined a plan for governing public expenditure. It should all be available on the arnoldcassola.com website.
We had also reacted positively and realistically to the proposal of framing out a social pact. The pre-requisite for anything of the sort is a commitment by government on revenue and expenditure. It is pointless for any of the social partners to agree on a long term strategy to encourage employment if they cannot be sure whether any wages policy will continue to make any sense following the next budget.
Although the current talks and the Girgenti conclave were related to Budget 2005 all parties concerned are clear in their minds that what is to be developed is an economic plan to which we can all commit for the next few years at least. Government is committed to submitting its deficit reduction plans to Brussels covering a three year period by November this year. It will be the framework on which all else will hang and a discussion of only the 2005 budget would be far from satisfactory to the social partners.
The suspended discussion on pension reform and that on the national health service must be central to the discussion. It is no accident that the newspapers reporting the Girgenti PR exercise also reported ongoing talks with Skanska, builders of the Mater Dei hiospital. It is the big lump in all our throats. It is the white elephant created by the PN which is creating an intolerable economic burden.
In a long term economic plan many Green proposals can find their place. The tax on vacant property has been rejected by government for Budget 2005. It will not be possible for the government to consider a shift in that direction until it has been able to study the economic effects and its capability to administer such a system.
In the Greens’ proposal it figured as a negative incentive to create a property rental market. It presumed a complete rehaul of the rent laws which would create a wholly new market currently suppressed unleashing a significant potential for economic growth and removal of distortions in the property market. It addresses the issue of having 25% of all properties vacant while prices rise inexhorably. It would also ease pressure on a vanishing countryside and its effect on tourism.
Government is probably happy with its capital gains tax and the skyrocketing property prices and unable to contemplate installing a safety valve on a market running into the danger zone. Capital gains is a fiscal measure addressing public finance needs without addressing economic needs. It is short term and failing.
As far back as 1992 the Greens also proposed that the government sells off its rural landholdings to bonafide farmers creating a market in registered agricultural land that cannot be used for development. This sell-off, also at giveaway prices, would give both public and private agricultural land a market price far above what it holds today allowing farmers collateral to develop their holdings and owners an attractive price to sell off their own properties to agricultural operators. It would generate very real economic growth and permit accretion of rural landholdings to viable size.
In ruling out social partner proposals the government has predetermined negotiations in the short term. It was a shortsighted PR exercise. Cooperating with the social partners cannot be achieved by jumping the gun in this way. It is old politics which the government will have to shed.
It will also have the dispose of the attitude adopted in the 2004 budget when it involved the social partners in talks and then ignored them almost completely. The risks involved in losing the last shred of trust are too great to contemplate. Only a government out of touch with reality will attempt to pull that trick off again.
Dr Vassallo is Chairperson of Alternattiva Demokratika – The Green Party
harry.vassallo@aletnettiva.org.mt
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