PR AD'S DETAILED COMMENTS ON BUDGET 2006
PRESS RELEASE 01/11/05
SATISFACTORY FISCAL OUTCOME OVERSHADOWED BY DISMAL ECONOMIC GROWTH - AD
In a Press Conference held at the Party offices in Sliema, Alternattiva Demokratika The Green Party (AD) gave its comments on the budget presented by Prime Minister Gonzi on Monday. Party Chairperson Dr. Harry Vassallo launched the press conference stating that: It is indeed commendable that government has managed to meet the deficit target it had set, and is on the road towards lowering the deficit below 3% of GDP (Gross Domestic Product). Alternattiva Demokratika has always been supportive of this initiative as we have recognised the importance of reducing the fiscal deficit to more sustainable levels. Having said this, we are still concerned that in 2005, part of the reduction is due to the sale of government lands, whilst in 2006 the reduction of the deficit from Lm 76 million to Lm 55 million can be attributable to the sale of more government lands. This revenue is one-off and we consider that, like the revenue to be generated from the sale of shares in Maltacom and Bank of Valletta in 2006, it should be treated as a reduction of national debt, and not as ordinary revenue.
Edward Fenech, AD Spokesperson on Finance, the Economy and Tourism made reference to the countrys economic performance over the first nine months of the year. He said that: Yesterday morning the National Statistics Office published a very brief report on Maltas economic performance that at first indicates that the economy grew by 1.5% over the nine month period to September. It is important to note that the growth rate achieved, which Prime Minister Gonzi was lauding yesterday, is still below the very modest target government set for this year of 2%. Further we are noting once again, like we did when the statistics for the first six months of the year were published, that the economic growth rate can be completely attributable to a very extraordinary increase in inventories of almost Lm 50 million. This could mean that whilst economic operators were producing goods, these goods were not being sold but are being stockpiled. If one were to exclude this extraordinary increase then the economy actually contracted by 3.3%. We are still waiting for due explanation from the NSO as to this increase.
Dr. Vassallo added that: If one had to look at Maltas economic growth rate over the last 5 years and into 2006, it results that the economy will actually grow by a very modest 2.5% over a full six years. This is indeed a dismal economic record, particularly if compared for example to Slovenia a country in a similar state of economic development to Maltas that grew by more than 23% over the same 5 year period. The countrys record on exportation tells much of the same story. In the first nine months of this year exports decreased by 7.8%, reflecting the drop in national competitiveness. Over the last 5 years exports have fallen by some 28.7%. Tourism is not seeing a turnaround yet, with an increase of only 1% compared to governments target of 4% growth. These facts cannot be ignored just because government is claiming success on deficit reduction. What we invite government to do is to focus more on the countrys economic development whilst ensuring that the deficit is in check. We cannot understand the drive to reduce the deficit to 0% whilst the economy is grinding to a complete halt. A balance between the two is needed, and is possible with the right strategic planning.
Edward Fenech referred to the specific measures introduced in this budget. He said that: The compensation of 50 cents per week for the increase in energy prices is simply insufficient. One must remember that from these 50 cents every employee and his/her employer must pay an additional 10% in national insurance contributions, whilst employees pay an average tax rate of 15%. Therefore, on average, from the 50 cents increase taxes of 12c5 have to be paid leaving employees with just Lm 19 per annum to meet the additional energy costs. This compensation will only cover those whose annual domestic bills are Lm 65 or below; the rest of us will not be compensated. Whilst domestic consumers will be paying additional fuel bills of some Lm 15 million in 2006, the compensation of 50 cents a week only amounts to some Lm 3 million, meaning that a decrease in disposable income of Lm 12 million will result. On the other hand it is not possible to expect all employers to provide full compensation for the increase in energy prices, particularly those employers that are facing serious economic difficulties, particularly in the manufacturing and tourism sectors. Government should have at least considered giving the increase for energy costs as a tax free/national insurance free allowance, so that employees can enjoy the full benefit of the increase whilst employers would be exempt from paying their 10% share of the increase in national insurance contributions.
Edward Fenech referred to the SME (Small and Medium Enterprises) sector saying that: It is disappointing that whilst government continues to say that it gives importance to the sector very little is being done. We recommended before the budget that government considers a gradual reduction in income tax on small companies say by reducing the tax rate from 35% to 30% over five years through a 1% per annum reduction. This system was done with great effect in the United Kingdom that today has a small companies rate of 19%. This suggestion has, sadly, not been taken up. Further we are very disappointed that over the last four years government has been playing about with the introduction of a venture capital fund. In the previous budget the sum of Lm 900,000 was earmarked but this initiative has not taken off yet; nothing was mentioned in this budget.
Dr. Vassallo said that: AD welcomes the fiscal initiatives announced for domestic investment in photovoltaic cells. It is sad that only an energy crisis sparks off new thinking on renewable energy; however it is always better late than never. What we are disappointed about is the declaration in the budget speech that both wind farms and solar energy farms are not financially feasible for Malta. This is untrue and self-contradictory in the light of the Prime Ministers statement made in the same budget that one of the four initiatives of the government's environment strategy was to strive to ensure that we utilise the natural resources of our country.... to address to some degree our dependence on oil in generating electricity and water. Such arguments on the lack of economic viability of renewable energy were put forward years back when the price of oil was at US$ 19 per barrel; at US$ 65 a barrel the long-term investment in renewable energy is feasible. Such a declaration reveals the governments absence of long-term vision. Our near-complete dependence on fossil fuels must end; this government is not committed to bringing about this change.
Referring to the change in taxation on capital gains, Edward Fenech said that: Before the budget AD did not recommend a reduction in taxation since we understood the importance of reducing the budget deficit. It now seems however that this was possible and government chose to reduce tax on capital gains rather than alleviate tax on labour. We believe that a reduction on taxation of labour would have been more equitable and more socially just. Government still believes that property is the key driver of the economy, ignoring the fact that it accounts for just 5% of Maltas GDP.
Dr. Vassallo added that: As usual government is presenting many positive comments for Gozo. We welcome the fact that agro- and eco-tourism now seem to be on the governments agenda after a decade of ridiculing these niches often proposed by the Greens. We now invite government to move away from the pretty talk towards concerted action for Gozo. The island needs a boost to tackle its economic problems that in many respects are worse than Maltas.
Concluding the press conference Dr. Vassallo stated that: AD is very disappointed that the issue of rent reform has been completely omitted in this budget. Whilst the pre-budget document made minor and unspecific reference to this problem, the Budget on Monday ignored the issue completely. This is ample proof that government has no intention of carrying out a serious reform and shouldering part of the burden. It also shows that government is still insensitive towards the unaffordable cost of residential property. Witnessing this impasse from government, the Greens are continuing their campaign and we intend publishing our recommendations for rent reform by the end of November. It is only by keeping the pressure up that we can hope that government will enact the reforms that are necessary.
Alternattiva Demokratika The Green PartyAlternattiva Demokratika - The Green Party
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