Issue link: https://maltatoday.uberflip.com/i/1510560
14 maltatoday | SUNDAY • 29 OCTOBER 2023 BUDGET 2024 Budgetary matters WHILST the government announces various policies, schemes, and strategies during the year, the budget is still seen as a central economic policy document which lays out the action points and work pro- gramme for the following fiscal year. It remains a key economic document which outlines the way resources are being al- located especially if they are aimed at the short-term or more focused on addressing structural challenges or pre- paring for long-run goals. The annual budget is not just an accounting exercise where- by government projects its rev- enues and expenditures. It is an economic policy tool that allows governments to allo- cate resources within a finan- cial constraint. It allows the government to correct market failures and more importantly to direct present resources to future growth. In an economy, government seeks to fulfil five main roles through its resources, these be- ing: • A stabilisation role – gov- ernment intervenes to ensure that the economy continues performing and generating wealth and in a time of eco- nomic crisis, like the present energy hike situation, govern- ment intervenes to reduce this impact; • An allocative role – this is the way government allocates and gives signals on where and how to allocate resources; • A distributive role – gov- ernments exist to correct mar- ket failures to ensure that the vulnerable in the society are supported; • A regulatory role – this is the legal arm of government, and which focuses on creating the right conditions for busi- ness to thrive and for creating a society that is governed by the rule of law; • An administrative role – governments also play key administrative roles and this is primarily done through the civil and wider public service. From the various media inter- ventions that have been made, we can already get a feel that government will be focusing very much on the stabilising and distributive roles. Through the maintenance of the energy subsidies, COLA, and the ex- pected increase in minimum wage, one can clearly see that government is focusing on these two roles. We believe that Malta faces a productivity challenge and needs to leverage its allocative, regulatory, and administrative roles collectively to address this. Productivity is consid- ered a key source of economic growth and competitiveness and, as such, is basic statistical information for many interna- tional comparisons and coun- try performance assessments. Nobel laurate Paul Krugman states that "productivity isn't everything, but in the long run it is almost everything." Despite Malta's strong and resilient economic perfor- mance over the past few years, its productivity performance unmasks several structural economic challenges the coun- try and specifically non-ser- vice-based sectors are facing. Malta has successfully steered its economy towards ser- vice-based sectors. This has led to the formation of two main clusters. The first cluster, represent- ed by the gambling, informa- tion & communication, and other service-based sectors, presents higher-than-average productivity which generated a high-level of value-added with a leaner workforce. In contrast, the second cluster of more labour-intensive sectors has failed to generate high levels of productivity. Various other Dr Stephanie Fabri & JP Fabri are both economists Dr Stephanie Fabri & JP Fabri Finance minister Clyde Caruana