Sociologist, local councillor, activist from Malta

Monday, April 22, 2013

Malta's deficit and the impossibility of neutral policy

Malta’s deficit stands at 3.3%, higher than the established Maastricht Treaty 3% threshold, the European Union statistical office Eurostat confirmed.

In the past months, in the run-up to the general elections, and before Malta’s 2012 official financial figures were out, I had publicly stated that Malta’s deficit was likely to increase and that the Nationalist Government of the time was too optimistic in its financial projections. I had also added that in such a scenario, it was irresponsible to carry out income tax reductions for high income earners, when this generates revenue for essential public services. For, example, I expanded on this in my article entitled ‘The Budget of Uncertainty’ on 7 December. This can be read on this link: http://mikes-beat.blogspot.com/2012/12/the-budget-of-uncertainty-nationalist.html

After the general elections, when Malta’s official 2012 financial figures were out (in itself an interesting phenomenon), and a few days before the new Labour Government was to approve the 2012 Nationalist budget, I said:

“As predicted, the deficit is much higher than expected. Reducing income tax for high earners will not only be socially regressive, but will also rob Malta of a much needed source of revenue, and thus widen the financial hole. In turn, this will result in greater pressure on Malta's welfare state, the same welfare state which has helped Malta avoid massive poverty, unlike many other countries which have long gone neo-liberal. Approving such policies in an age of austerity is uncalled for”.

Now that the tax reductions for high income earners have been approved, and now that Malta’s finances are, once again, in a not-so-good position – even before the reductions have been implemented, the inevitable comes to mind.

What is going to be done to ensure that Malta’s deficit does not keep increasing? The slashing of public expenditure? Attempts to increase revenue? And through progressive or regressive policies?

One might hope for economic growth that results in extensive public revenue to compensate for revenue shortfalls. In a context of global economic crisis, I consider this to be too optimistic.

In such situations, pre-electoral populism finds its dead ends, and likewise, a politics without adversaries proves to be an impossibility. There is no such thing as a neutral or independent economic or social policy. Social justice and neo-liberalism cannot be reconciled. Sides have to be taken.

Note: An updated version of this article was published as 'Malta's deficit beyond fiscal populism', in Malta Today on 6th May 2013. Link here:
http://maltatoday.com.mt/en/blogsdetails/blogs/Malta-s-deficit-beyond-fiscal-populism-20130506

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