Budget 2022 – The way forward from here

Professor Philip von Brockdorff, Dr Charmaine Portelli and Dr Mario Thomas Vassallo

Last Updated on Thursday, 7 October, 2021 at 8:52 am by Andre Camilleri

The Malta Business Weekly reached out to three leading academic economic experts for their views and advice to government, ahead of Monday’s budget, and what must be urgently addressed for Malta’s future.

Professor Philip von Brockdorff, Associate Professor and Deputy Dean of Faculty of Economics, UoM

“My advice is simple enough: the Recovery and Resilience Facility, as well as the Multiannual Financial Framework 2021-2027, provide the direction for Malta’s economy for the short and medium-term. Executing these plans is another matter of course though Malta’s absorption capacity of EU funds is among the better across the EU. However, the pressure to accommodate economic gains which may not be sustainable in the medium and long-term is as realistic as ever.

That is something politicians need to resist if carbon neutrality targets and sustainable economic objectives are to be reached. Again that may be easier said than done, but the European Commission will be more vigilant this time around. In this connection, efforts need to identify new and more sustainable forms of activity and reduce reliance on non-sustainable economic activities.

There may be a political price to pay for that. Still, politicians need to sell this to the electorate and constituted bodies by emphasising the welfare gains that in turn bring about economic benefits. Digitalisation will obviously provide new economic growth opportunities, but revisiting sectors such as manufacturing and the financial services sector is crucial for the economy to continue growing. Also, mainstreaming environmental initiatives within all economic activities offers investment opportunities. Moreover, infrastructure projects such as the metro system and the Gozo tunnel link will fuel economic growth for a number of years”.

Dr Charmaine Portelli, Lecturer, Department of Economics, UoM

“Every October brings with it the revealing of the Government Budget – government’s financial plan for the coming year. This is immediately followed by various questions, comments and reactions from all strata of society, which very often highly differ. Reading and hearing these different reactions on the announced budget plan each year brings one question to mind: What makes the Government budget a good one? On my part, I consider only one yardstick against which the design of the government budget should be examined – whether its strategy has the common good of society as its overarching priority. It is both very easy and tempting for policymakers to focus more on the aspect of consumption and wealth production emphasising individualistic needs rather than the common good. Against this background, the government budget should be one conducive to strengthening the economy and transforming it into one in which no one is left behind.

Still recovering economically from the effects of the Covid-19 pandemic, this budget should be an instrument that transforms the hardships we faced these past recent years into an opportunity that paves the path towards a green economy, a sustainable economy, environmental protection, fostering of innovation and the promotion of the blue and circular economy. Government budget should encompass immediate short-term measures required for the current circumstances and a long-term vision for the economy to recover, grow, and be capable of generating a better world for everyone. To reach this, the focus should be put on guaranteeing respect for the environment, social equality, incentivise investment in key sectors and, above all, ensure that the economy grows in such a way that reflects better quality of life.

More specifically, I consider that one way towards achieving the above is to attach importance towards the quality of public finance – ensuring that each Euro people pay in taxes is given a fair return. This can be done on three fronts: first, take concrete measures to reduce tax evasion and the black economy and increase compliance; second, cut down on waste and inefficiency. Increasing transparency on the use of public funds is paramount if government wants to be seen to manage its finances towards the common good. In this regard, it is necessary to stimulate a competitive business environment and eliminate the systemic use of non-competitive practices. Thirdly, the prioritisation of public spending is also crucial in this regard – expenditure should be directed towards stenghtening industry which in turn would create more employment opportunities.

Moreover, investment in infrastructure should also be prioritised, focusing on continuing the upgrading of the road network and giving attention to the digital infrastructure.   

It is also government’s responsibility to safeguard two most important sectors in the economy – the financial sector and gaming by restoring credibility and a good reputation after being greylisted by the FATF. This will surely necessitate measures towards increasing the autonomity and independence of institutions and a system of scrutiny.

A point that has already been mentioned above is the strengthening of industry, bolstering of private investment and employment in the private sector. Support to sectors mostly hit by the pandemic and still experience hardship should be sustained to help them bounce back and recover. Taxation measures should also be designed to help stimulate enterprises in re-investing their profits and increase their capital investment.

People are now recognising the importance of protecting the environment and how it is increasingly under threat. With this in mind, taxes, charges, grants, and subsidies are to be utilised to steer away from polluting sectors towards other sectors that equally contribute towards economic growth but surely gives us a better quality of life. Given Malta’s island status, government should tap the high growth potential of the blue economy in terms of jobs and investment. Government should take supportive measures towards marine-based and marine-related economic activities. These have a considerable impact on Malta’s economy and the labour market, particularly since these are interlinked with other sectors of our economy. Measures that encourage research and innovation in this area and support the education sector to address the skills gap present in the maritime sector are vital to achieving future trajectories for sustainable blue growth. Other new opportunities for growth may be tapped through Government support towards the circular economy.

A country that seeks to experience rapid economic growth must give high preference to ensuring that a high percentage of its population is entitled to quality education.

 Against this, above all else, government should prioritise education, especially at the higher level as this contributes directly to economic growth by making individual workers more productive and leading to the creation of knowledge, ideas, and technological innovation.

Designing government budget and discerning how to source and then use public funds is not an easy task. While ensuring that the country’s finances remain in check, it is crucial to work towards attaining economic, environmental, and social sustainability that considers not only the immediate desires but also the welfare of future generations.

Dr Mario Thomas Vassallo, Head, Department of Public Policy, UoM

“My advice ahead of the budget is to ensure that nobody loses sight of our current economic scenario. We are still in the midst of a pandemic and not over it yet. Therefore we must avoid the temptation to fall for a populist budget and be over-zealous. Instead, we must keep in mind all victims of the pandemic and those feeling the repercussions, both at an individual and corporate level.”

Regarding new niches for Malta to explore, it’s important to continue along with the narrative of digitalisation and technology. It is good to see that public services are shifting to such models. However, more focus must be given to public policy, particularly within the remit of FDI. Priorities? I would say fiscal morality must be addressed at every level of society and the subject of urban planning. Contractors, politicians, even those within the same party must well and truly be singing from the same hymn sheet. Sustainability is key”.

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