An overview of the Budget Speech and the first reactions

The Budget speech in a nutshell:

“Now we have turned the tide. We are reducing the deficit: now we need to hold strong so that we will not slide back.” This sentence, from the Budget 2000 Speech read by Minister of Finance John Dalli in Parliament on Monday evening, is the main message presented by the Minister with the measures taken in the Budget. However “to hold strong” the Minister announced an increase in taxation and other contributions from the citizens, including an increase in the payment of national insurance contributions to 10%; the introduction of 15% Value Added Tax (VAT) on petrol and diesel, and 5% VAT on telephone calls; the withdrawal of subsidies in the production of Maltese bread that will lead to an increase in the price of bread; an increase in the price of cigarettes to Lm1 (US$2.5) for a large packet; and an increase in the rate of income tax for higher income brackets. To offset these increases, the government will give a one-time Lm10 (US$25) payment to offset the increase in price of telephone calls and bread and a rise in wages of Lm1 (US$2.5) a week for the cost of living. With these measures, the government estimates that its ordinary revenue will increase by Lm54 million (US$135 million) to Lm595 million (US$1,487.5 million). Recurrent expenditure should increase by Lm29 million (US$72.5 million) to Lm553 million (US$1382.5 million). Lm50 million (US$125 million) will be raised from the privatisation of public companies. The structural deficit should decrease to Lm109 million (US$272.5 million), while public debt should increase to Lm810 million (US$2,025 million) or 56% of Malta’s Gross Domestic Product. The government is also insisting on getting more value for the money spent in social services and wages.

The first reactions of the Prime Minister and the Leader of the Opposition:

“We have changed the direction of the country” and “It is a budget with anti-social measures” were the immediate reactions of the Prime Minister and the Leader of the Opposition respectively given a few minutes after the end of the Budget Speech. In a short press briefing, Prime Minister Fenech Adami said that the Budget Speech reported concrete results and that the governments attained his financial objectives this year. He said that the Budget will continue to push forward the economy. Asked about the privatisation of public companies, the Prime Minister answered that the government is not in a position to mention names of the first wave of companies to be privatised shortly. On the other hand, the Leader of the Opposition Dr. Alfred Sant said that the Budget penalises those who can least carry the burden. While the workers will have to fork out more money with the increase in prices of petrol, bread, National Insurance and telephone calls, it does not offer any vision. There are no incentives to create more investment, he said.

The first reactions of the Constituted Bodies:

The immediate reaction to the Budget for the year 2000 presented by the Nationalist Government on Monday was not so diverse. Comments by the constituted bodies as reported in the local press were very similar. All agreed it was austere, aimed at controlling the ailing economy and the country’s deficit. It conveys a message of belt tightening. The general feeling is that it is bound to have a negative effect on the living standards, particularly the middle-class. In his reaction General Workers Union, GWU, general secretary Tony Zarb said the indications are that Malta will be going from a financial to a social deficit. “It seems to be heading towards a drop in the standard of living", he said. Gaetano Vella, secretary general of the Unjon Haddiema Maghqudin UHM pointed out that the introduction of VAT on certain items and the rise in social security contributions will add burdens on the citizen. On a positive note he said the attractive package of incentives by the Malta Development Corporation (MDC) would encourage foreign investment. Through its chairman Louis Farrugia the Chamber of Commerce expressed the belief that the government is moving steadily on its planned course to control the country’s deficit. He added however that certain budgetary measures would definitely add to the inflationary element. The Malta Employers Association (MEA) general director Alfred Mallia Milanes admitted the Budget was austere and that the middle class will be the worst affected, but, he said, it has addressed the problem of the ailing economy. According to the General Retailers and Traders Union’s (GRTU) director general Vince Farrugia, however, the Budget puts more pressure on the middle-class which was already in a tight position. It will also have a further adverse effect on the private sector as the minister has dealt the sector another blow.

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