Sociologist, local councillor, activist from Malta

Friday, October 28, 2011

For a sustainable Budget

Michael Briguglio

The Times Friday, October 28, 2011
http://www.timesofmalta.com/articles/view/20111028/opinion/For-a-sustainable-Budget.391117

In a global context of economic crisis, one augurs that the upcoming Budget is sustainable while aiming to improve environmental, social and economic targets. Budgetary deficits and public debt should be manageable, thus entailing fiscal discipline. Within such a context, Alternattiva Demokratika – the Green party, has submitted 30 proposals to the Ministry of Finance, the Economy and Investment. In this article, I shall focus on the proposals related to economic policy.

In order to have a sustainable Budget, it is short-sighted to call for increased expenditure in certain areas without suggesting ways and means to make up for such costs. To begin with, efforts to reduce avoidable public expenditure should be stepped up. Mismanagement, excessive bureaucracy, wasteful methods and inflexible work practices should not be supported.

The government should not resort to fiscal populism in an attempt to win votes and should not take heed of the constant appeals by the Labour opposition to resort to such measures. On the contrary, Malta’s progressive income tax system – a pillar of Malta’s welfare state – should be maintained and not further dismantled. Progressive income tax is based on the ethical consideration that those who can contribute proportionally more do so and it also provides necessary funds to maintain public expenditure. The only changes in income tax rates that should be supported are those which raise ceilings for low-income earners in order that tax-free income for such persons is increased, thus leaving a larger portion of their income in their hands.

The government should introduce taxation on Malta’s most underutilised asset, namely vacant property. Recent estimates suggest that this has a value to the tune of about €7 billion, which is hardly surprising, considering that a quarter of properties are vacant.

Consequently, property speculation should be taxed from third vacant property. This would not only bring in revenue to the public coffer but would also encourage the renting and selling of properties that are kept vacant for speculation purposes and the use of existing buildings rather than building more areas.

Another consideration for a sustainable Budget concerns water, a strategic resource of national importance. Malta is one of the driest countries in the world, yet, extraction from boreholes goes on at a dangerous rate, making Malta increasingly dependent on seawater, which is very costly and energy-thirsty due to the usage of reverse osmosis plants. Hence, water should be priced in a realistic way.

In the short run, all unregistered boreholes should be banned. In the longer run, save for some strategic exceptions such as agriculture, which, in turn, could use purified sewage water following an upgrade in Malta’s sewage treatment processes, the true price of water should be reflected in its consumption. Utility tariffs should through an appropriate pricing strategy discourage wasteful practices, making sure that basic consumption is kept reasonably priced.

Another important consideration relates to the introduction of “shadow prices” by providers of public services, even if the consumers essentially do not pay the real cost. Yet, this can raise awareness on the true cost of public services. For example, bills and statements could include descriptions of the real cost of sewerage services, the cost of a medical operation and the cost of waste collection. This should also help in more realistic estimates of government expenditure on services offered free of charge or subsidised.

On the expenditure side, a realistic assessment of the cost-of-living adjustment should be carried out in order that the yearly compensation truly reflects the rise in inflation. The social partners should, therefore, consider updating the methodology to replace the one on which COLA is based.

The minimum wage in Malta should be revised upwards and should be extended to part-time and contractual workers as well as those who are being forced to register as self-employed by their employers. Low-income earners will have more money at their disposal and, if the measure is balanced by increases in labour productivity, it would not be inflationary.

The government should also introduce concrete policies with regard to the generation of green jobs in areas such as education, IT, transport, tourism, waste management and agriculture. Measures such as tax breaks, venture capital initiatives and soft-loans could be targeted at initiatives that promote employment in areas such as those leading to environmental protection and reduction of pollution. Local councils should also have more authority and resources for the generation of such employment opportunities. Such employment can have positive economic, environmental and social impacts, in line with the concept of sustainable development.

As regards Malta’s labour market, one should acknowledge that the government has offered a number of incentives to attract more workers to active employment. However, despite some growth in employment rates, the problem of inactivity persists and precariousness is on the increase, especially among workers on contract or those forced to register as self-employed.

More efforts need to be made to make the labour market more accessible to vulnerable groups such as women, persons with disability and immigrants. For example, family-friendly measures need to be stepped up. Affordable childcare, flexible working hours, extended maternity and paternity leave, after-school programmes all facilitate the full-time contribution of both mothers and fathers in the labour market while ensuring that a healthy work-life balance is achieved. Such measures need to be extended also to workers in the private sector. The state should shoulder part or all of the financial costs to enable small employers to be able to offer family-friendly measures to their staff.

Besides, vulnerable groups who depend on social benefits for their livelihood should be encouraged to seek employment, where possible. Active market policies should acknowledge the individual and diverse realities of vulnerable persons and should not be based on one-size-fits-all considerations. Maximum income capping should be increased to reflect today’s realities, otherwise deductions in one’s social benefits/disability pensions would act as disincentives to seek employment.

I invite readers of The Times to check out all of AD’s proposals at www.alternattiva.org/pdfupload/Budget2012-ADproposals.pdf.

www.alternattiva.org.mt

Michael Briguglio, a sociologist, is chairman and spokesman for economy and finance, Alternattiva Demokratika - the Green party.

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