Lehman Brothers, oil, cereals and pre-election collective agreements for healthcare professionals will make sure that Tonio Fenech’s first budget will not be a generous one. KURT SANSONE reports
If the name “Lehman Brothers” does not ring a bell you’d better get used to it. This large American bankrupt financial institution will find its place alongside crude oil and cereals when Finance Minister Tonio Fenech tells the nation what went wrong in 2008 when delivering his first budget later next month.
The trident of international woes, however, will not be the only gloom factors. The collective agreements for healthcare professionals, signed after last year’s budget prior to the election, have also contributed to increased public expenditure, which threatens government’s deficit target.
The collapse of Lehman Brothers and its implications on the world economy yesterday overshadowed the launch of a budget consultation leaflet that will be posted to every household.
When addressing the media about the next round of pre-budget consultations, the Finance Minister said that the budget will be drawn up in the context of an unstable international climate where economic growth rates have been revised downwards.
The 10-page leaflet makes no reference to the income tax cuts promised during the electoral campaign suggesting that the proposal may not be a priority for government in the next budget.
Fenech admitted there was a measure of “slippage” in public finances due to dim growth projections.
Fenech said that cuts in income tax had been possible two years on the trot because government was seeing higher growth prospects.
“The growth prospects were positive when we drafted the electoral manifesto. But with growth projections not being as positive now the situation puts the tax cuts into evaluation, even if it may be too early to rule them out completely,” he said.
Echoing the words of economist Edward Scicluna, who in a recent interview with Illum said that government’s main problem is to manage people’s high expectations, Fenech insisted expectations have to be tailored to reality.
Loosely translated, this means that there will be no income tax cuts come October.
The instability of international financial markets especially after the collapse of Lehman Brothers and the takeover of Merrill Lynch by Bank of America has now joined the price of oil and cereals as a major contributor to depressed global economic growth. Fenech said these factors contributed to his woes when drawing up the next budget, which will be pushed towards the end of October to allow time for evaluation.
The Finance Minister remained confident that, barring one-off contributions to subsidise Enemalta’s oil purchases and the payment of early retirement schemes to Drydocks workers, the deficit will remain on par with that of last year.
This means that the deficit may not go down as planned, but will not spiral out of control even if he deemed it too early to quantify the “slippage”.
Fenech also sought to allay fears of a financial crash in Malta.
“The Malta Financial Services Authority and the Central Bank have conducted their own evaluation of the financial services sector. Although the international crisis will have an impact locally, it is unlikely to be big since bank assets are well spread out,” Fenech said.
However, he did admit that lower profits by the major banks will contribute less tax to government coffers, which will add to his own challenges ahead.
The social partners have until the end of September to present their budget proposals while the general public has until 12 October to submit suggestions. Meanwhile there will be four public consultation meetings on the budget; one on small and medium enterprises, one on social policy, health and education another on the environment, one on government’s vision for 2015 and none on taxation.
Budget 2009 proposals at a glance
A selection of proposals to come out of pre-budget consultations – complete with MaltaToday Midweek’s comments
Support for businesses • Less bureaucracy and red-tape
• One stop shop for SMEs
• Simpler accounting systems
MaltaToday comments: • Less bureaucracy definitely needed, but not if it translates only into fast-tracking for mega-projects
Information & Communication Technology (ITC) • More investment in ITC research
• ITC programmes aimed at the elderly
• Electronic passports
• Integrated IT systems to connect hospitals and health centres
MaltaToday comments: • Will initiatives such as the pre-electoral Blueskies offer be repeated, and if so, when?
Infrastructure • More EU funds for new roads
• More investment in renewable energy, water distribution and sewage systems
• Strengthening of telecommunications infrastructure
• Improvements to public transport
MaltaToday comments: • What happened to the discussions on liberalisation of the public transport sector after the strike in July?
Environment and energy • Increase in the use of alternative energy
• Attractive offers on solar water heating photovoltaic systems and wind turbines
• Information campaign for a more efficient use of energy
• Revised taxation to favour smaller and less polluting vehicles
MaltaToday comments: • Proposals for alternative energy are at best modest, when one considers Malta’s commitments to increase renewable energy production to 20% by 2020
Social policy • More incentives for female participation in workforce
• More assistance for NGOs
• Rent law reform
• Furtherance of pension reform
• Improvement to cancer prevention and treatment programmes
MaltaToday comments: • Top marks for Rent Reform White Paper, but efforts to improve cancer treatment facilities still woefully inadequate
Education • Initiatives to reduce the number of early school-leavers
• More childcare centres around Malta and Gozo
• Assistance to students who seek to further their studies overseas
• More sports facilities and more participation by children aged four to 10 in ‘Skola Sport’ MaltaToday comments: • Too much emphasis on peripheral issues and not enough on intrinsic problems within the educational system as a whole: for instance, experts point out problems in streaming, among other major issues
Gozo • Overhaul of equipment at the Gozo General Hospital
• Initiatives to attract more investment
• Investment in niche attractions, including a prehistoric park in Xaghra
• Promotion of Gozo as a distinct tourist destination
MaltaToday comments: •All well and good, but what happened to the Gozo Eco Island electoral promise?
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