The politics behind the budget

Robert Abela has hyped up tomorrow’s mini-budget. He’s said it will have unprecedented incentives and giveaways. Is there a general election around the corner?

Abela denies it in a way that makes it difficult for him to change course. He has criticised Adrian Delia for talking up a general election. Abela says this is a recipe for instability.

It’s true an election would add uncertainty to post-pandemic investment hesitation. Plus, as ministers campaign for re-election, government initiatives would come to a halt.

ONE news has also been spinning the expected economic shrinkage by talking up the expected growth next year and in 2022. This message to the Party faithful is of a piece with Abela’s insistence that he wants to govern till the end of the five-year term.

The message is not just consistent. It rings true. The government is contemplating a scenario in which consumption this year could fall by up to 80%, according to another leaked paper by ‘The Office of Joseph Muscat’. In this scenario, consumption falls off the cliff across age groups. Despite a rise in savings during the pandemic, people told a survey that they will be holding back on spending until a vaccine is found.

Hence why Abela is hyping up this budget. He wants people to feel bullish, since right now they are wary of further nasty developments, like a second wave and further job cuts.

The worst thing that Abela could do to himself would be to announce an election. When everyone seems wary of a downturn, a general election following a bonanza budget would very likely boomerang. It will convince people that there truly is something ugly waiting for us just around the corner.

Having denied he wanted a general election, Abela would convince many voters there is something big to hide. He might still win the general election, given the opposition’s weakness. But he would have unnecessarily complicated matters for himself. He would be blamed for bringing about the very instability he denounced.

There is one scenario where he might go for a general election: if he can blame it on Delia. If Abela can plausibly say that the Opposition’s talk of a general election is slowing things down, then he can announce a general election as a way of getting rid of instability.

So is there anything else to watch for tomorrow, apart from what’s in it for you? Oh yes. The mini-budget will be unveiled in a European environment that is becoming increasingly, openly hostile to some of the key sources of Malta’s wealth.

Even as the mini-budget is broadcast, a pan-European webinar on zero tolerance for ‘tax dumping’ and money laundering will be live-streamed.

Never mind the 70 economists in attendance. One of the speakers is the EU Commissioner for Economic and Financial Affairs, Paolo Gentiloni. Another speaker is a German MEP well known in Malta, Sven Giegold. He is a stern critic not just of Malta’s easy manner with suspected money launderers, but of our financial services industry as such.

This webinar will be pushing for what Edward Scicluna, the finance minister, feared: essentially, a call for tax harmonisation to ease the financial burdens caused by the coronavirus. Just in case you doubt any change can happen without unanimity among Member States, the webinar promises to unveil a ‘strategy on how we can enforce our demands despite unanimity voting on EU tax issues’.

The webinar is primarily an Italo-German initiative but France’s broad support is not in question. The influential French economist, Thomas Piketty, is urging similar initiatives to address national deficits and fund climate change initiatives. These policies are designed to appeal to a broad coalition ranging from economic nationalists to centrist globalists and climate change environmentalists.

It’s not just Abela who has a general election to contend with. There is a tight race in Germany scheduled for October next year, while May 2022 will see a presidential election in France.

Such initiatives are storm clouds for tomorrow’s budget and the ones to follow. It is not just a drop in consumption that threatens our economic growth. There is also a structural threat to some of our economy’s milk cows.

If tomorrow’s budget simply seeks to restore the status quo, its hopes will be built on shifting ground. What the country needs is a vision to transform the economy to fit a post-COVID Europe, not just a post-COVID Malta.

Editor’s note: In a move that has now come to characterise Malta’s Prime Minister, Robert Abela scrapped the budget at the last minute saying he will be announcing new measures in a press conference on Monday.