Utility subsidies provide economic stability for all

Recently, I participated in an interview with The Malta Independent on Sunday, the sister newspaper of the TMBW. The discussion addressed various topics, including alternative approaches to economic growth aligned with several policies outlined in the PL’s electoral manifesto, Int Malta.

The interview also addressed matters of national interest, including environmental policy

One of the topics that I proposed was also a transition period from sectors that generate low gross value added and require several workers, whose labour force would need to be imported. In fact, I said that there must be bipartisan agreement on matters of national interest, including those related to the environment and education. We must converge on this matter both politically and economically. And the policies proposed within this area must be mature. However, the interview treated the economy, and economics is a complex topic. And as much as I understand that even politics can be a complex topic, especially here in Malta, economics becomes even more complex when theory becomes conflated with political rhetoric and partisan arguments.

Utility subsidies contribute to economic stability – Keynes vs Hayek

Indeed, I read what was issued, and I have no problem saying that utility subsidies must stay because the moment we create instability is the moment we ruin the economy. I have said this in my early podcasts in 2022, when the war in Ukraine broke out, and have kept this consistent in my arguments. There was no deviation since then. And there is not going to be any deviation, because I understand economic theory. And the part of utility subsidies is the way we view the economy, either from a Keynesian perspective or a Hayekian perspective. The former intervenes in the market in bad times to allow the economy to grow and stimulate demand without hindering growth. At the same time, the latter adopts a laissez-faire approach, leaving the market to operate on its own, much as it does with the electorate and citizens themselves. And as you may recall, I always said that I profess and follow Keynesian economics rather than Hayekian economics. This is my economic philosophy. And it dictates not to leave the market to function on its own.

However, given the complexity of the subject, I want to clarify that if subsidies are not retained, then we would shock the economy. I understand that this is not the PL’s policy, and that subsidies are here to stay. Back in 2022, I stated that had it not been for the utility subsidies, inflation would have hit double digits exactly as it happened in other EU member states. It would have wrought havoc on our economy, eroded incomes, and generated frustration among low- and middle-income earners. Such a blanket subsidy is provided to maintain economic stability. This means that the departure point must be the subsidies; then what comes after or complements it is another matter. Utility subsidies prevent imported energy shocks from cascading into domestic prices, wages, and expectations, which is crucial for a small open economy.

I respect and uphold journalistic independence

Additionally, I do not interfere with journalistic output when I sit for interviews, neither with the content nor with the headlines. And I leave it up to journalists to decide about headlines and outputs. What I always offer is that if any technical arguments are unclear, they can always revert to me; otherwise, it would be a dereliction of duty on my part not to assist. I take this approach because I am politically liberal and strongly support journalistic work that asks questions and provides readers with honest answers. This newspaper has never interfered with or altered my opinion pieces when I submit them. On the contrary, it always supported me. And I take a similar approach when this newsroom interviews me, as I do with other newsrooms. However, economics is a complex subject, and the interpretation of policies is also quite complex. And any reporting of deviation from my economic beliefs might be related to limited knowledge of the subject.

The PN’s aspirations for government

When asked what should be done if citizens wanted a phase-out of the subsidy under a different political party in government, I stated that there must be agreement on phasing it out; otherwise, it would shock the economy. And I will keep on reiterating it. If the PN aspires to be in government and politically decides to phase out the energy subsidy, it must do so in a way that does not shock the economy, with a phase-out that allows for planning, both income-wise and cost-wise. In truth, the PL in government managed to create an economy that withstood various economic shocks. Had it not been for past economic growth, including at times a surplus, we wouldn’t be in such a position to cover these costs. And as long as the economy keeps growing at the same rate and momentum, then we can sustain the current subsidies. It doesn’t make sense to remove a subsidy and create chaos, at least until this geopolitical chaos is ongoing.

Economic growth and the debt-to-GDP ratio

Those who do not understand economic theory might tell you that we are borrowing to keep what we have. True, they are seeing just one aspect of borrowing, especially when they view it in absolute terms. We need to see the other aspect of creating economic growth, too. And with creating economic growth, we are reducing the impact of the debt-to-GDP and deficit-to-GDP ratios. And I must agree with those leaving comments under the article that it is the PL in government that can solve this problem, as they did in 2013 with the reduction in energy bills. The comments reflect a limited understanding of the broader economic context. When asked where I was in 2008, I can tell Peter that I was working side by side with the Leader of the Opposition to win the government, grow the economy, and provide better policies, which policies are inter alia an increase in pensions, which he’s currently definitely enjoying, and would have been robbed of if there was an alternative government.

To conclude, I do not normally take such a direct route to explain myself. However, even the Leader of the Opposition referred to last Sunday’s article on subsidies in one of the local podcasts. And probably did not see what I said in an online post following the publication of the article. Well, now you know what I believe, economically and politically, about utility subsidies. And you may equally quote me in your next podcast. Now it’s high time for the Opposition to tell us what their alternative is for their energy policies, besides the proposed petrol station on the periphery of Hurd’s Bank, tsk, tsk.