Pre-Budget Document 2013

Anyone who has read this government publication is likely to conclude that it wasn’t really meant for local consumption as much as to impress the ever-vigilant E U Commission.  The last thing the Finance Minister would want at this point in time when his boss could suddenly call a general election is any rebuke, however mild, from the Commission on his fiscal management prowess.

Admittedly, this is an area where the Minister scored quite good points.  There were occasions in the recent past where he would have been justified in resisting the Commission’s diktat: tiny Malta being admonished for veniality whilst big strong countries experienced mere connivance for more serious misdemeanours.  In the        EU Commission’s record Malta must be in its uppermost echelon.  No less inside the European Parliament.

Nevertheless, in August one would not normally expect any Finance Minister to produce for public consultation projections prepared in mid-March.  But the Minister did just that.  Without even waiting for data on Q.1/12, he ventured to affirm that the real GDP would this year grow by 1.5% over last year.  In so doing he also shaped the 2013 budget around this audacious belief.

In March he must have had an inkling that the economy would contract during the first quarter by as much as 1% which, following the contraction in Q.4/11, plunged us back into a technical recession.   In August, however, he was in full possession of at least the first 2 quarters’ results.  Unless Q.2/2012 (about to be published ) shows a real GDP growth sufficient to at least offset the negative 1% result for Q.1/12, and thus exiting us from the recession, there is hardly a chance of achieving the positive 1.5%  target for the whole year, let alone the skeleton for 2013 which has been presented to us for discussion.

Whenever it suited him, the Minister did oblige with more up-to-date figures than March.  For inflation, the 12-month moving average for May was chosen in favour of the year-on-year because a figure of 2.6% looks more respectable than 4.1%, higher than the European average.  We are also reminded (pointlessly) that in 2010 the budget deficit had been 3.7% of GDP, to make a stronger impact when compared with the 2.7% for 2012.  But will it?  Latest NSO figures of government revenue and expenditure do not support the Minister’s rosy forecast.  But it does go down well at   EU Commission quarters: that’s what is most important.  If it is right for Brussels, it must be right for the purpose of a first draft for next year’s budget.

Especially if a distinction between an actual budget and a structural one is drawn, as so emphatically explained in the document.  If the latter were to exclude only              ‘temporary ‘effects, it would be acceptable, but to exclude also “the effects of the economic cycle “is tantamount to an economic aberration.  Totally unacceptable, besides being also incalculable and hence perilous.   The more so when used to implement the E U’s set target for annual deficit reduction of at least 0.5% p.a. as its benchmark.  In Malta’s case the deficit would need to be only 2.2% in 2012, 1.5 % in 2013, 0.9 % in 2014, 0.4 % in 2015, and afterwards a balanced or a surplus budget to facilitate the gradual reduction of the government’s debt ratio to the GDP to below 60%.

The Minister intends entrenching this E U requirement in the country’s constitution as recommended.  Not a bad idea, if only it would be workable with a qualification similar to ‘the effects of the economic cycle ‘.   Just imagine the Constitutional Court grappling to adjudge this incalculable factor.

The Finance Ministry has already betrayed amateurism when it publicly attributed the 1% fall in GDP during Q.1/12 mainly to subsidizing Enemalta so as not to increase its tariffs.  It has now done it again in the Pre-Budget document 2013.   Sad.

Maynard