Last Updated on Thursday, 2 November, 2023 at 2:57 pm by Andre Camilleri
I must admit that all the build-up to last Monday’s budget speech, with regards having a budget “by the people for the people”, had given a clear indication as to what to expect from the main drift from Budget 2024.
In essence its main focus was on increasing government spending on various social measures and handouts. This means that the focus of Budget 2024 is to help the lower income classes of our society and to some extent the lower middle class, to go through the current inflationary period. Nothing wrong with that, however, as I keep repeating, wealth cannot just be distributed but needs to be first created. This is where this budget is lacking. It lacks a focus on strong new measures as to how our economy will keep growing by increasing productivity through an increase in its value-added output.
Figures speak louder than words. Looking at the forecasted public finance figures, one sees that recurrent expenditure is forecasted to grow by just over €1bn between 2023 to 2026, while capital expenditure is expected to increase by a mere €54m between 2023 to 2026. It seems clear that government is capping any growth in capital expenditure and instead pushing recurrent expenditure. The end result, however, is that government is forecasting to keep amassing annual public deficits ranging from just under €1bn in 2024 to just under €900m in 2026. This will mean that public debt will keep increasing from the level of just below €10bn by end 2023 to the level of €13bn by end 2026.
The government is forecasting that this massive increase in public debt will remain on sustainable footing as it expects nominal GDP to grow from a level of just under €19bn by end 2023 to just over €23bn by end 2026. However economic growth does not come from thin air. Reading the budget speech, although it has some incentives here and there on assisting businesses to invest, grow, diversify, internationalise, digitalise and become more environmentally sustainable, many of which are an extension schemes already there, you get the impression that economic growth is almost taken for granted.
Moreover, this budget leaves three important areas almost completely unaddressed. The first area is the control of inflation. As government is using its recurrent expenditure to increase social measures, subsidies and handouts, this will affect the internal demand within the economy by allowing it to remain relatively buoyant. This will likely mean that as internal demand remains buoyant, the stress on a tight labour market will remain so, hence pushing inflation even further as wage costs are set to keep increasing. There are already indications that while Malta’s projected inflation for 2024 is set to hit 3.7%, the euro area inflation is projected to be 2.8%. The risk here is that an elevated level of inflation in Malta, when compared to other competing economies, will erode our competitiveness, leading to bigger problems than the ones we are trying to address.
The second area left unaddressed is the transformation in Malta’s economic growth model, to a one that is based on a higher productivity level, thus needing less labour input to deliver economic growth. As I said, there are some schemes and incentives, intended to help businesses become more digitalised and also to help them transform towards ESG metrics, but in my opinion, it is too little to bring about the level of change required here. The real interesting initiative is the setting on Malta’s Venture Capital fund, which has been mentioned for many years, from one budget to another and which is now really seeing the light of day. This can prove to be an excellent platform to really have start-ups grow and provide the real high value added and productive jobs Malta needs to achieve.
The third area is traffic. One massive problem Malta is facing is traffic congestion. The 2024 budget tiptoes around this problem. What is mentioned is that consultation is ongoing on how to have services on our roads delivered in the rush hour before 9am, that further investment will be undertaken on alternative modes of transport to cars and that a study will be undertaken in 2024 to potentially implement new parking zones in a public-private partnership model. I hardly believe these will in any way, positively affect the traffic congestion problem.
In conclusion, this budget was focused on short-term issues, while not really focusing enough, with clear and courageous initiatives, on long-term economic planning, to allow higher levels of wealth to be created while using less labour input to do so.