NEWS | Wednesday, 17 December 2008

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Fenech: increasing deficit now is essential for survival

Finance Minister Tonio Fenech yesterday admitted that government will have to postpone its target of reaching balance in the country’s finances because of the ongoing global crisis.
He said raising the deficit right now was essential to survive the economic turmoil.
Speaking at a GRTU conference, Fenech said it was essential for government to postpone its financial target to be able to give the economic stimulus required in the current economic slump.
“The measures taken in the last budget were taken on these fundamental principles,” Fenech said, referring to EU-wide measures aimed at helping the economy, including an injection of up to 1.5% of countries’ GDP.
“This package is aimed at sustaining public investment wherever the private sector is falling back, to generate jobs while creating productive assets that give long-term rewards.”
Fenech said postponing measures aimed at balancing the deficit can happen without compromising the government’s financial stability and sustainability.
“We can do this because in the past years we have taken concrete measures to improve our financial situation and to put the country’s finances on a sounder footing,” he said.
“We also know that this will in no way put us in a less favourable position with other countries, precisely because, in the circumstances we’re facing today, a rise in government’s deficit is essential to avoid unnecessary hiccups to the economy.”
 Fenech spoke about around €232 million to be injected in capital projects, including roads construction, factories, public infrastructure, the natural environment, culture, history and schools.
He said around €58 million will go in human resources, training and education, while €47 million will go towards developing enterprise, and another €30 million for the use of greener energy.
Fenech said that in the long term, government’s Vision 2015 of reaching levels of excellence in tourism, financial services, IT, value added manufacturing, education and health, remain.
He also announced that in the coming days, government will work towards reducing administrative red tape in financial reporting, and towards lowering MFSA tariffs related to the registration of companies and renewals.
Fenech said government will also keep providing help for industries that are not necessarily related to export of products and services.
Prime Minister Lawrence Gonzi yesterday said Malta had a solid base and was ready to overcome the economic challenges in the aftermath of the global financial crisis.
But Gonzi warned against any knee-jerk reactions over fears from the current crisis. He said Malta had emerged relatively unscathed from the crisis, while conceding he was aware of the pressures the crisis would exert on tourism and exports.
He said Malta was preparing for the effects of recession with a range of measures and schemes in the budget and the launch of new infrastructural projects.
Gonzi said the country should not fear bringing in the changes that were necessary for future growth, referring to the utility tariffs, which he said was meant to stop subsidising the wastage of energy.
Gonzi said a revision of prices would be considered once OPEC carries out its supply cuts.
Labour MP Gavin Gulia, who was speaking instead of PL leader Joseph Muscat, said the prevailing economic scenario was not promising.
“We are aware that the country’s GDP per capita is dropping, real wages are decreasing, and the cost of living ranks as the second highest in the Euro-zone.
“We are also aware of a situation where according to GRTU’s last Business Survey Results presented in June 2008, 44% of SMEs saw their profits decreasing by more than 30% in the first six months when compared to last year’s.”
On the utility bills, he said Labour was shocked to see the government’s adamant insistence to forge ahead with introducing these burdens on families and businesses.
“We fail to understand this logic, particularly when governments elsewhere are doing exactly the opposite, also in the context of a scenario where the price of oil is dropping rapidly. We fail to understand why families and SME’s are asked to pay for the inefficiencies of others.”
Like others during the conference, Gulia called on banks to refrain from introducing hefty “stealth” charges associated with the provision of finance capital to SMEs.
He said government must also intervene to ensure that banks reflect fully European Central Bank adjustments in interest rates afforded to their clients.
Also speaking at the conference was economist Edward Scicluna, who called on government to ensure there was enough liquidity in the country against the effects of a recession. He said that payments from both government and businesses should not be delayed, in a bid to ensure consumers’ purchasing power.
Scicluna warned of spiralling government expenditure in health and university education, saying the government should direct its assistance to enterprises, sectors and families which really needed assistance.

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