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MaltaToday 30 October 2022

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maltatoday | SUNDAY • 30 OCTOBER 2022 8 INTERVIEW Last of the... socialists? There is widespread consensus that the most significant meas- ure in this budget is the subsidy of around €600 million on en- ergy, fuels and grains. Nobody knows how long the war in Ukraine and the energy crisis will last. What you describe as a marathon risks becoming an ultra-marathon. What is the red line that will make you say this subsidy is no longer sustainable and the country cannot afford it? I don't think we can reach that circumstance… It is al- ready clear that other countries do not have the same ability as we have to subsidise fuels and energy… These big economies next year will be reducing their economic rhythm… this will lead to less energy consump- tion and once this happens it means demand drops and along with it the price… others would have taken the hit while we are insulating our econ- omy from these hits because government is shouldering the burden. But what makes us more special than these countries to make this possible? The picture [you paint] is too good to be true. Fiscal flexibility makes this possible. It's not a question of painting a good picture but one where this country in the past built a big enough buff- er in terms of its debt burden that made it possible for us to withstand the pandemic and now the energy crisis. Oth- er countries do not have this buffer and are constrained to pass on the burdens onto the people and in turn this is causing fragile economies to stop growing. We have shoul- dered the burden thus allow- ing the economy to continue growing. The important thing about a marathon is being able to have enough stamina to run the full course otherwise you will end the race premature- ly. This is what will happen to other countries but not us. We can do this because it is fiscal- ly possible and not because we are special. In your outlook for next year, you are forecasting economic growth that will be half of what it was this year. Even Malta will experience a slowdown. How confident are you that the country will be able to weather the storm? I told the economists working on this budget in my ministry to go for the most conserva- tive scenarios. Normally, they would take the most probable scenarios but this year I did not want this. Mindful of inter- national uncertainty, I wanted the most conservative scenar- ios, which means we may do better than what we are fore- casting. Debt in absolute terms will in- crease. In these circumstanc- es, for the debt ratio to remain below or around the 60% mark, the economy needs to grow. How will the economy grow? Will we remain with the same economic model of the past five years? Despite the €600 million in subsidies and a further €100 million to mitigate against in- flation… the country's defi- cit will go down from 5.8% to 5.5%... this is how we maintain the 60% mark. On the issue of changing to a new econom- ic model, it is not a question of switching off your existing model today and tomorrow shifting to something new. As an economist, I do not sim- ply look at economic growth because you can have growth that is more of the same. But I also look at economic devel- opment, something this coun- try has managed to do over the past two legislatures. Econom- ic development means that you move on to the next level of growth and that is what the economy has to look forward to now… we need quality growth. If we are to move to an econo- my that levels up, what is there in this budget that gives a clear indication of this new policy di- rection? In the past 10 years, the pol- icy underpinning economic growth was intended to create a critical mass that translated into more workers, more tal- ent, and businesses that grew their potential. All this made it possible for the country's debt to decrease. If this did not hap- pen, the conversation today would be totally different… we would be talking about the burden of higher energy bills. When I said, the economic recipe has to change going for- ward, this has to be driven by businesses… we need to have an economy that makes better use of technology rather than grow by attracting more work- ers. This may not happen in the hotel and restaurants sector but the better use of technolo- gy can be adopted in the trans- port sector, manufacturing and other areas… With the social partners, we need to draft a serious plan how this country can have the necessary skilled workers to start positioning our economy towards a certain direction. Government's job is to chart the direction and out- line a clear vision of where the country should go… but then it is up to the private sector to lead the way. Government is subsidising free public transport and free school transport for everyone. Despite these generous subsidies, you refuse to ask people to share part of the burden of higher fuel costs. Why? For me to solve the fiscal burden related to higher fuel costs, it will be useless to raise the price of fuel by 10c per li- tre. This will only alleviate the burden on public coffers by a few millions at most. But such a move risks weakening eco- nomic sentiment. Once eco- nomic sentiment is weakened, it can cause a ripple effect on other sectors. If we really want to do something that is fiscal- ly meaningful, fuel prices will have to increase by at least 50c per litre. The implications of this on inflation and economic sentiment will be big and coun- terproductive. I will collect less than what I would have saved by removing the fuel subsidy… I would have saved around €40 million but as a result of the fear, uncertainty and inflation this will create, I'd end up los- Finance Minister Clyde Caruana defends his budget numbers and tells Kurt Sansone the Labour Party should not be ashamed of calling itself socialist. The following is an excerpt of the interview. PHOTO: JAMES BIANCHI / MALTATODAY Kurt Sansone

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