Issue link: https://maltatoday.uberflip.com/i/1302895
14 maltatoday | SUNDAY • 25 OCTOBER 2020 BUDGET 2021 ROBERT Abela has managed to present a relatively generous budget which increas- es pensions and social benefits, stimulates consumption during the COVID-19 pan- demic through vouchers and tax refunds, and retains the wage subsidies which have kept businesses afloat and jobs protected. All this was achieved without imposing any new taxes, an ability which Labour now wears as a badge of pride, a mark of Maltese economic "exceptionalism" in a world where socialist parties are derid- ed for tax-and-spend policies. Instead, Maltese Labour manages to spend more without taxing more. Even the Gener- al Workers Union congratulated the government for not increasing taxes. Contrast this with Spain, where the left- wing coalition's response to COVID-19 was higher taxes on the wealthy. So far it has been no additional pain for business and some gain for a wide section of the population, including pensioners and the disabled, albeit with some notable exceptions amongst those (mainly but not exclusively foreigners) exposed to high rents, dangerous and life-threatening work conditions, and low wages whose stories largely escape the official narrative. All this was achieved thanks to a re- duction in public debt in the wake of increased tax revenues generated by economic growth, thanks to popula- tion growth, spurts in construction and the sale of passports. In this way Malta can increase public debt again but well within safe fiscal limits, before the en- gine can accelerate again after the pan- demic recedes. The bubble... which won't burst It would be easy to deride this model as a bubble which is about to explode. The model, which balances neolib- eralism in wealth creation and social democracy in wealth distribution, has proved resilient enough to enable Abela to navigate through COVID-19 times. If the vaccine does arrive by January, the strategy would have paid off. If not, the danger of the bubble bursting would be- come more real. It may even be a double whopper if this is coupled with a negative Moneyval re- port penalising Malta for its bad reputa- tion in governance, another casualty of the "good times". But if things go according to plan – and there is a good chance that they would – the economic model is expect- ed to outlast COVID-19, with finance minister Edward Scicluna predicting a 5% growth rate next year. In short: the model has proved not just to be resilient in the short-term but also in the medi- um-term. But at what cost and what about the long-term? Hooked on the model? Apart from tangible environmental costs resulting from the construction boom, and the social impact of rising housing costs and an influx of precar- ious foreign workers, which erodes social cohesion, the other cost is that Malta is becoming hooked on a model which is self-perpetuating. In the absence of attracting significant new industries as was the case with the pharmaceutical sector in the 1990s and the aircraft maintenance sector in the noughties, Malta risks over-dependence on growth spurts generated by sheer numbers of consumers, in a context where the Prime Minister himself is claming that the country is "full up" – a term he applies for asylum seekers, but never to the legal foreign workers who until 2019 were contributing to Malta's economic success. In the meantime, the search for new industries like medical cannabis and cryptocurrency has so far proven elu- sive, while promising investments like Smart City or the American University have either floundered or degenerated into real estate projects. The ideological cost The other cost of dependence on this model is ideological, fatally neutering Labour's ability to redistribute wealth in fear of upsetting the engines which generate economic growth. Deputy PM and health minister Chris Fearne is right in describing Labour's What the budget says of the Muscat model Joseph Muscat's successful economic model gave Robert Abela breathing space in spending his way through the COVID-19 pandemic without taxing the rich. But is the model built on sand, asks JAMES DEBONO? Precarious resilience When COVID-19 will eventually recede, other risks like climate disasters loom in the horizon. If anything, COVID-19 has shown how exposed Malta's economic model is to the vagaries of the global market JAMES DEBONO