Monday’s parliamentary reply to the Budget by Alfred Sant marked a change in the discourse of the Labour leader. In his longish speech, Sant’s tedious number-crunching and statistical meandering were nowhere to be heard. Instead, in those two hours Sant used his Budget response as a platform for Labour’s electoral programme and to launch a damning indictment of Lawrence Gonzi’s government.
As much as Gonzi’s budget was dictated by the electoral polls, so was Sant’s an electoral response. Sant did not fail to hit out at government’s weaknesses: the endless list of corruption and bribery cases which have haunted this administration; the list of projects which were never commenced, those which are overdue and have gone beyond their original cost targets; and its misplaced backslapping when priding itself on record banking profits when the hardships facing families and lower and middle-income earners should be its main concern.
What is similar between both leaders is their vision of a future in which economic growth, and an optimistic level of growth at that, will enable them to commit more cuts in taxation and more benefits, aptly appearing as a duel between who gets to play Father Christmas in the run-up to the election. All this will be determined by who gets to successfully expand the economic base, and Sant has pledged various measures to allow business to flourish.
Both Lawrence Gonzi and Alfred Sant are mapping out ambitious targets for the next year. While Gonzi foresees economic growth of 4% within the next year, Sant believes he can go beyond that target to between 4-6% over a long-term period which would be characterised by fiscal incentives and a curtailing of taxation and bureaucracy on business and enterprise.
Whichever leader gets to be prime minister in 2008 will be facing a Lm70 million revenue hike – part Lm58 million in tax revenue Gonzi claims he will be collecting, part Lm12 million in income tax given back to the public after this year’s Budget. At the same time, Sant is promising to halve the energy surcharge, reduce taxes and other licences and additional expenses borne by business and industry. All lofty claims by both leaders.
If Sant is to truly achieve all this within the first six months of his administration, it will mean forgoing Gonzi’s ambitious target for a deficit of 1.2% of GDP next year, maybe leaving it to hover below the acceptable 3% target, having to spend an additional Lm12 million to halve the surcharge. In either of these two cases, 2008 is expected to be a crucial year in which the country must address its challenge of competitiveness and achieve a satisfactory level of economic growth.
This is where business may rue the Lm1.50 increase in the cost of living allowance. Economists rightly remark that this added burden is an uncomfortable weight to carry when the prime minister and finance minister have secured a six-month agreement with business to keep prices stable until March 2008. Sant predicts an inflationary explosion by then: with prices having been kept stable under the weight of increased labour costs, businesses will think nothing of increasing prices as soon as the agreement is over.
Surmising that this is nothing but an electoral ploy, Sant wants the agreement to be extended by a further two months. How this can be achieved is yet to be seen. Keeping prices stable will require a beefing up of the country’s regulatory mechanisms. Real competition can only flourish with full information and constant monitoring of the movement of prices. Business will surely be questioning whether they can take on the burden of keeping prices stable for another two months after March after having been imposed with a Lm1.50 in the COLA.
The additional increase in COLA can set a dangerous precedent. With political expediency having won the day, the increase passed on the burden and risks fuelling inflation, and over-heating the economy. The increase in COLA will certainly not help to increase competitiveness. If elected, Sant may find himself faced with a formidable price increase he may have a hard time to allay.