Why Most Eminent Economists Differ in the Interpretation of The Budget

Good evening

Today's topic involves the Economy and The Budget. Why most eminent Maltese economists differ radically in the interpretation of the budget. Is this a case of different ideologies ? or is it just political rhetoric ?

This budget gives a huge stimulus to medium to high earners by reducing tax. Taken by itself this should have been lauded by everyone in that this will increase money available to individuals who will use this to continue stimulating the economy either by investing more in business and therefore employ more people or spending

In a previous post a person commented that this is actually not true because high end earners will use this savings to travel abroad which will not benefit our economy or our GDP whereas low income earners are the ones that spend most in a country and influence the economy .According to him we should have a slow- down in growth.

This seems to be strange even if one is an expert in Keynesian theory and logic dictates otherwise .

This budget cannot be taken on its own. This budget is part of a series of budgets aimed at stimulating individuals to invest. If one takes the tax cuts on their own ,one must also take into account the various tax credits given during this legislature. From 8150 taxable income 4 years ago to 8500 today . An individual with a child will start paying tax at 9300 euros . So a couple with 2 children will have a new disposable income of 350 euros every year.

Other measures taken a few years ago are still effective today , such as non taxable income for the first  year for the mother who re- enters the work force. Tax reduction for parents who send their children to private school or child care centres. Children s allowance has increased by 100 euros ,so now the minimum is 450 euros. Individuals who are on the minimum wage have had their children's allowance increased by 177 euros to a total of 1155 euros for each child .

Another important factor which should  be taken into account is the way this Government has focused ,i would say in an obsessive way ,on small and medium sized business . It recognises the fact that it is these small business which will continue the upward trend in growth of the country . Varies measures were introduced  to  stimulate investments by given tax credits and varies schemes to enable employees to better their knowledge base.This has been augmented in this budget

Again one must not forget the way this government tackled the 2008 crises by actively pursuing financial backing to large companies which were facing an economic downturn. This avoided closures and workers being made redundant. This government boost is being appreciated today since these companies are now facing better prospects and employing individuals

Active participation in public projects is another boost to the economy which by the way, also exhibits Keynesian principles in situations of economic downturn . This enables all sectors of the economy to work and participate in delicate economic situations thereby maintaining stability

In conclusion this bumpy legislature from a political point of view should be seen as a masterpiece in the economic history of the country  . It is a success story .If one sheds the political cover one immediately appreciates the forward looking ,detailed analysis ,planning required to reach such a stage and with this budget, project a growth in 2013 where others are either contemplating austerity measures or planing for a recession (Germany)

One last taught . This is not an austerity budget .Economist are arguing which is the best way to continue going  forward but not how to overcome a recession or rising unemployment or lack of investments or failing tourism . Simply because in Malta they do not exist .