Opinion | Sunday, 21 March 2010

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No tidings of comfort and joy

The Prime Minister seems to want to rekindle the Christmas spirit and rejoice at ‘the tidings of comfort and joy’ he sees coming from the latest NSO figures that confirmed that in 2009, the Maltese GDP declined in real terms by 1.9%. Maltese families and businesses may beg to disagree with the Prime Minister, as they fail to see much good news in what the figures of economic growth for last year tell us.
Among the areas that showed growth in real terms in 2009 were those relating to public administration, water and electricity, gas and real estate. None of these sectors are directly related to growth in foreign demand for our goods and services. As the Governor of the Central Bank of Malta commented in the latest Quarterly Review of the Central Bank, sustainable economic growth in Malta can only come if we can satisfy increasing foreign demand for our goods and services.
Local consumption is, of course, important and it has increased in 2009. But at least part of this increase was a direct result of the substantial hikes in water and electricity tariffs and in the price of gas. Put in another way, people are spending more out of their savings to procure the same essential goods and services that they could buy before at lower prices. The price of crude oil is undoubtedly a factor in the increased costs, but so is the cost of present and past mismanagement of our energy policy by the Nationalist administration.
It is also very revealing that we are spending more on education and health thereby promoting GDP growth. But what do we have to show for this increasing expenditure? A waiting list of 20,000 people waiting for quality of life-enhancing procedures in the public health system, and four out of ten students still leaving our educational system without any formal qualifications or skills are emblems of this administration’s failure to give the public value for money for the taxes it collects from us. The PN administration is undoubtedly good at spending money, but certainly not at delivering value.
The same report by the NSO also confirms that in 2009 the sectors that showed declines were those relating to manufacturing industry, tourism, and wholesale and retail. The lack of focus of manufacturing by the Nationalist administration has been evident for most of the last twenty three years they have been in government. So no wonder that manufacturing output continues to decline.
The tourism industry suffers from benign neglect, despite reassuring rhetoric on how important it is in the government’s plans for sustainable economic growth. Operators in this sector continue to be ignored and lack of investment in the infrastructure is evident in most places. The €24.8 million decline in gross operating surplus is probably made up of a decline in profits of operators in this and other productive sectors of our economy.
The decline in the wholesale and retail sector turnover confirms that the increase in consumption expenditure has not been caused by consumers feeling confident about the current economic situation and spending extra income on consumption. In fact, the feel-good factor amongst consumers is evident by its absence. The increase in consumption registered in 2009 can best be explained by the still stubbornly high inflation in food and energy services.
But the most worrying figures that confirm that there are few tidings of comfort and joy in the NSO latest economic figures are those relating to the decline of 19.3% in gross capital formation. How can we feel good about the future if business leaders are spending less on investment then they were a year ago? Both local and foreign entrepreneurs are playing a wait-and-see game to see how and when the government will put in place some sensible plans to prop up the economy.
Public finances continue to be a major cause of concern in the long term, because they threaten the sustainability of our health, education and pensions system. As pointed out by the EU Commission in January the government continues to plan on a yearly basis with no long term targets and strategies to put public finances on a strong footing.
No, there certainly are no tidings of comfort and joy in what the latest NSO figures tell us.

Charles Mangion is shadow finance minister


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