Fabian Demicoli

Budget 2012 – GRTU Demands Growth in Capital Investment

The discussion on Budget 2012 has now started. The Pre-Budget outlining Governments intentions have been published in August and all those genuinely interested in seeing that our country gets the best of whatever resources are available to our elected Government within the framework of the current world and European economic scenario, have studied this document and drafted their recommendations.


Many alas as usual stayed put. They will only come out when someone pulls the string and orders them to act. GRTU as usual addressed its members in the various sections of businesses and enterprises and drew its own pack of proposals. GRTU through the active participation of its Director General in the discussions at European level is aware of the framework in which the Maltese authorities have to work in view of the new budgetary surveillance mechanism imposed on EU Member States following the worst economic crisis that hit Europe and more specifically the Eurozone. GRTU is also well versed in economic affairs and sufficiently knowledgeable on their impact of investment by small enterprises within the limited small Maltese economy. On the basis of our specific expertise GRTU came out with a number of conclusions and these have already been presented to Government. The first important opportunity was this week's MCESD meeting where representatives of workers` trade unions and leaders of enterprise presented their first reactions to the pre-budget document to the Minister of Finance who by the end of October must present his national financial package to the nation.

In his address to MCESD Vince Farrugia Director General of GRTU Malta Chamber of SMEs declared that GRTU wants to see a Budget that is strong on capital investment. He said that the economic analysis of the years since 2008 show that Government failed to continue to strengthen it's capital budget to match the shortfall gross capital formation suffered by the private sector as demand was driven down by the recession. Vince Farrugia said that it was terribly wrong for Government to have allowed that gross fixed capital formation in 2008 fall by 25.5% and in 2009 suffer another drop of 18.6% without having this matched by increased public capital investment. Indeed as capital investment began again to grow in 2010 by an increase of 10% and another increase that should be in the region of 11% by end 2011 the overall employment situation improved. Government is now projecting capital formations to grow only by an additional 3% in 2012. The schemes that have been put into action by Government through Malta Enterprise and other Government authorities like the Malta Resources Authority and the Malta Tourism Authority have helped to generate this growth but much more needs to be done.

Many of our enterprises in all sectors are aging and overall we have a shortage of employment so we need to invest more, and with urgency, in new technologies and new systems. This applies both to the public and to the private sector. We cannot compete in a new post recession Europe unless we change and re-invest. This is the time when we have to invent in new incentives to cause the financial institutions to give greater and wider access to finance to enterprises who want to invest and renovate. In addition, Government must be willing not only to invest in new public sector infrastructural projects that help renovate and modernise Malta but must also be willing to help enterprise and support the financial institutions by producing an extended loan guarantee scheme to cause more and more enterprises to invest. The loan guarantee scheme has been the most successful scheme ever introduced to support small and medium enterprises. There are so many enterprises that want to expand and change but cash flow in a period of recession and the immediate post recession period are scarce and opportunities are lost because the finance is absent. Now is the time for Government to be bold and plan for a strong revival in capital investment. "This is the main message of GRTU for Budget 2012" Vince Farrugia emphasised. There is much to be done and GRTU will be presenting details of its proposals in the coming few weeks. The message of Government should be very clear: money for increases in current expenditure is simply not available. Money for investment is available. The deficit will fall because cuts will be implemented so waste is diminished and better use of public moneys are made but the emphasis is on new capital formation. New incentives for the private sector and new forms of financing for large new public sector infrastructural projects is what makes Malta more competitive.

"Government should not face any problems with the new corrective measures demanded by the EU in their drive to cut on Member States budget deficits if the strategy is one based on investment in new capital formation that enables Malta's GDP to grow in real terms and sustain Malta's problems with economic imbalances." Vince Farrugia stressed. The multiplier effect of tax reduction and expenditure reduction is limited but in Malta capital investment has a multiplier of at least three to five times that of cuts in taxation like VAT. "We need to go for growth. The budget deficit ratio to GDP will fall the higher the growth rate of our GDP", concluded Vince Farrugia. "so lets go for growth, that's what our people urge you to do".

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