A pleasantly boring Budget

While still aiming for a surplus, which appears to have become the new normal, the Budget for next year places an emphasis on the lower middle classes and targets the side effects of strong economic growth

Edward Scicluna’s seventh Budget comes with no surprises. It pretty much follows in the footsteps of the previous six.

It is the second consecutive Budget in which no new taxes were introduced and no existing taxes or tariffs were increased.

The Finance Minister has managed to turn government’s annual accounting exercise into a pleasantly boring event that falls squarely within an economic vision already spelt out in the Labour Party’s electoral manifesto.

Scicluna’s budgets have, from day one, been a balancing act between honouring electoral commitments and ensuring the country’s finances are kept in check.

There have been no surprises really. It’s been a question of which electoral commitments will make it into the Budget and which will be postponed to the next years.

It is probably how budgets should be – implementing government’s economic vision by making sure that policy announcements form part of a plan that also takes into account circumstances that may crop up throughout the year.

Budget 2019 is no different. While still aiming for a surplus, which appears to have become the new normal, the Budget for next year places an emphasis on the lower middle classes and targets the side effects of strong economic growth.

Government has set itself the lofty commitment to ensure that no child living in a household with at least one working adult remains in a state of deprivation. While the increase in children’s allowance for those who earn €20,000 and less is a positive step in this direction, government may have to provide a stronger impetus in the years ahead to achieve its aim.

Other measures such as the increased outlay on disability allowances and medical assistance benefits, higher pensions and other targeted measures will help alleviate the more vulnerable in society.

The second tranche of the promised income tax refund will come into force next year. This measure benefits those on the lower end of the income scale more than it does those who earn more.

Next year will also see those on the minimum wage jump up the salary ladder as a result of the agreement reached between unions, employers and the government in 2017.

These measures will not be life-changing for the more vulnerable categories but they will certainly help spread the wealth being generated across a wider section of the population.

But the Budget has also targeted the housing sector through measures aimed at helping people over a certain age join the home ownership ladder and support those who rent.

The government will be scrapping the means test for rent subsidy and replacing it with a series of benchmarks. The subsidy will also increase.
This signals the government’s willingness to address this problem that impacts a small cohort of people but which has the potential of being a social disruptor if left unchecked.

From a macro-economic perspective, the Budget lays bare government’s direction to target the digital innovation sector. The creation of Tech.mt, an agency, to promote Malta as a hub of disruptive technologies, and the commitment to attract eSport events, are signs of government’s ambitious plans.

But as Malta targets innovation, the investment in infrastructure is primarily linked to the development of new roads and the overhaul of existing ones. While this investment has long been overdue, the overall vision does little to target a modal shift in travel.

Free use of buses will be extended to those aged 14 and 15, and government is committed to create sea ferry landing places in St Paul’s Bay, St Julian’s and Ta’ Xbiex. These are positive measures but on their own will do little to create the necessary change to convince people to use their private car less.

The government appears reluctant to focus on plans for an underground mass transport system for the foreseeable future, which jars with its ambitious drive in other sectors of the economy.

If Malta wants to target quality, which is what Scicluna has set as his target for 2019, looking at a mass transport system in an earnest way is increasingly becoming a necessity.

With the economy performing well, public finances under control and national debt-to-GDP ratio at its lowest level in decades, Scicluna has managed to keep a steady hand on a ship that continues to sail in calm waters.

More importantly, the overall fiscal position gives him the space to manoeuvre if the sea becomes choppy in a year that will see the UK exit the EU and Italy playing the truant child in the Eurozone.