9 September 2011

Who's Moody, Lawrence or Joseph? (Part 2)

Joseph Muscat announced his take on Moody's report at a press conference this week.

The head table chairs were occupied by men who worked with all the party leaders since the 1950s: Karmenu Vella (Dom Mintoff, Karmenu Mifsud Bonnici), Charles Mangion (Alfred Sant) and Edward Scicluna (Joseph Muscat).

In other words, the event brought to the table the entire wealth of financial and economic knowledge that the Partit Laburista accumulated over more than half a century. What did these four men come up with?

Muscat started off by claiming that Moody's revealed the financial truth that the PM has been "hiding". I don't get it. As EU and Eurozone members, we can no longer 'hide' economic and financial data as we used to in the old days. In addition, foreign and local investors are not idiots. They are not going invest their money in a country unless they know exactly what the state of it's finances is.

Now what did Joseph Muscat, the prospective prime minister, actually say? Putting aside the run of the mill rhetoric, he makes two concrete proposals - that the water and electricity rates should have been lowered and that ministerial salaries should not have been increased.

Let us start with the latter. Fact: in the general scheme of things, ministerial salary increases had no effect on the state of the economy. It was an ill-timed decision but that's it. Fact: Joseph Muscat is still not saying whether he will bring the salaries down to the former levels if he becomes prime minister. So what's the point? The grey, clinical men and women of Moody's would not have been impressed.

We are therefore left with one proposal: that water and electricity rates should be reduced. The only time Joseph Muscat said by how much was after much pressing on Bondiplus - 10% he had said sheepishly. This is certainly not what the people clapping for him at the kazini think they are going to get. Joseph Muscat has led them to believe that they can ignore international oil prices with wild abandon. And that is what they will expecting from him if he's elected.

But the key point is not this. Decreasing water and electricity rates would have increased our deficit and as a result our Moody's rating would have been instantly been brought down by more notches.

In other words, the single, solitary proposal that the Labour leader made at a press conference intended to use Moody's report to bash government actually amounts to doing the opposite of what Moody's said. While Moody's want more austerity measures, Joseph Muscat wants less. So what side is the Labour leader on, Moody's or his kazini crowd?

Now Moody's rate a government's performance, not the opposition's. They only measure what a prime minister achieves. What the opposition leader says is totally irrelevant to them because he has no power to do anything. Moody's grey and clinical people do not care about the Labour leader's Sunday speeches at his kazini. But I do.

Here is Joseph Muscat's financial recipe for dealing with the financial crisis. These are the measures he proposed between 2009 -11 and how much each would have cost the country. (Incidentally, I cordially invite any of the four men at the PL press conference to correct a single figure.)


Measure proposed by Joseph Muscat
Cost
(€ millions)
Income tax reduction, 2009-11
140
Decreasing VAT by 1%, 2010-11
52
Decreasing VAT charged by restaurants 18% ► 5%, 2010-11
52
No increase on VAT paid by hotels                  
6
No increase in MEPA rates
7
No water and electricity rates increases, 2010-11
170
Keeping the Drydocks open, 2010-11
80
VAT refund on cars
50
Total over 3 years
557
Total (+4% interest)
579


Quite simply, if Joseph Muscat had been prime minister during the last three years he would have spent €579 million more of taxpayers' money. Where he would have got it from is anyone's guess. 

I am almost tempted to send these figures to Moody's grey and clinical people. They would start running round their New York offices wearing GonziPN T-shirts and singing Sbejha patria wliedek ahna, tal-Partit Nazzjonalista ...

33 comments:

Dave said...

"I don't get it. As EU and Eurozone members, we can no longer 'hide' economic and financial data as we used to in the old days."

This is a common misconception - how can the EU counter check the figures given to it by local authorities? It's impossible - it practically has to take their word for it.

If you do not believe me answer this: How did Greece manage to get away with such awful economic performances for so long - until it was too late?

I am not saying that people from the NSO will be 'lying'. But there are ways and means to present economic data to make it look better or worse. While it may be misleading it may technically still be correct but certainly overoptimistic.

The only way one can be caught out would be by giving projections that prove to be incorrect after a few years. In fact Moody's pointed out that our growth figures were not what they were expected to be.

GS said...

Its obvious Labour doesnt have a clue on how to run the country, but they want power at any cost, and they wont get it by saying oh yes the debt level is too high, so lets increase taxes to get it at a sustainable level.

I wonder what they will do if they get elected: how will they deal with debt if they want to decrease water and electricity rates? Where will the money come from? New taxes? Cuts to services?

Dave said...

...and its Edward Scicluna not Edward Zammit.

While I am doubtful on how technical Charlie Mangion and Karmenu Vella are, I am sure Professor Scicluna can mince the figures with sufficient knowledge. After all he has been a professor of economics at the University of Malta for some years and has been on countless advisory committees set by the Nationalist party.

BondiBlog said...

Dave, thanks for pointing out my Zammit / Scicluna mistake. Cheers.

Christian said...

I fully agree with Dave. In this post and the previous an impression was given that figures are facts. This is simply false.

Anonymous said...

@Christian

No one has ever discredited the figures that were the subject of a programme on BondiPlus. If you disagree please point out which figures are wrong - anyone? Please?

silvio said...

What I expected to read,in your above article, is Not what Muscat,proposed doing,or what he will do when elected.
I expected to read what our Present Govt.is going to do to fix matters. After all no beating around the bush,and trying to blame others will change what, and who, brought this situation on us.

Gonzi was warned many times that things were not as his minister Fenech was making us believe.. He was either hiding the truth or Fenech has been proven to be more more imcompetent than I had thought

david said...

what's surprising seeing my ex-professor involved in all this deceit. Profs Scicluna position is so similar to Lino's back in 1996.

Dave said...

Well - here is what I remember about your lies, damned lies and statistics:

http://www.timesofmalta.com/articles/view/20101207/local/broadcasting-watchdog-raps-bondiplus-over-deficit-episode.339665

Christian said...

Well said Silvio!! Also what one would have expected as a defence for PN is not an attack on PL, but an investigation on Moody's credibility.

Check this out, for example: http://www.washingtonpost.com/wp-dyn/articles/A8032-2004Nov23.html

BondiBlog said...

Dave, did you read the last para of The Times report? I suggest you do.

Stephen said...

i agree on all your points.also agree that muscat et al only address the kazini crowd

Anonymous said...

I find some of these comments quite disturbing. What precisely do you expect Gonzi to do to address the problem? Moody's have downgraded Malta's rating and given it a negative outlook because of factors outside of Malta's control.

Sure they can increase taxes (as the PL will have to do to pay for the promises they made) and wreck the economy but the simple facts are that our unemployment is at an 'acceptable' stable level; our budget is on track to be balanced within a couple of years but still well within the Euro parameters unlike most of our EU friends, our tourism is at a record high and our economic growth has outstripped that of our EU friends.

Whilst outside factors can affect us negatively there is absolutely no doubt that the economic management of our country has been spot on - we have jobs, we have good incomes, we have growth, we have a great quality of life and we don't have any of the problems facing most of our EU friends.

Now I repeat - because it is getting quite tiresome asking questions of the anti Govt brigade - What precisely do you expect in terms of results from our Government?

When you answer that explain what you expect from the Labour Party in power.

Orlando Ellul Micallef said...

He proposed the living wage as well!

Anonymous said...

Lou, Charles Mangion is about the same age as you. Edward Scicluna and Karmenu Vella are not much older, having been born in the late 1940s or early 1950s.
How these were 'working' with MLP leaders in the 1950s beats me.

silvio said...

@Anonymous ( I find some of these
coments quite diasturbing....)

Do you really expect us common citizens to tell the Govt what to do to get the country out of this mess?
That is exactly why we have elections,to elect those persons,who we think are capable of leading our country,and those w think can take the right decisions when needed.Unfortunatly sometimes, it happens that not the right persons are given the job...The first thing they do when faced with problems is turn on us and ask us what they shoud do,like you are doing. It is the duty of any Govt.to come up with remedies,when needed,and if it so happens that the person who is supposed to deal with these matters,is not capable,he should be changed before more damaged is done( Tonio Fenech must go).
These ,of course,are hard decisions and calls for leadership.

BondiBlog said...

A quick response to some genuine (and not so genuine) queries regarding the figures cited in my post: they have been in the public domain for almost a year now and they have not been refuted.

BondiBlog said...

A person in the know who wished to remain anonymous because of his position sent in this comment. I suggest that you pay attention: "Joseph Muscat is wrong about the electricity Bills for other reasons too....as a consumer I hate having to pay more like everybody, but I know that I must. Dates back from 2004, when we first got the surcharge of 17%. The only way that Govt can ‘subsidize’ is through social ‘protection’ measures as even Enemalta needs to comply with EU rules. Ergo, not even PL can subsidise consumption beyond social, even if national budgets allowed, and, or rate of return (WACC) reduced since this was/is monitored by its lending banks. Enemalta’s credit rating is lower than that of Malta’s!"

silvio said...

I think we should be fair with Labour, even though we might not be on their side

Just give me one quote of when Labour said that in the event of being elected,they intend to subsidize electricity?

What they always said is,they will look into the operations of EneMalta,and cut down on wastages,stealing,and all unnecesary expenses.

This is exactly what Govt is doing with AirMalta. They did not increase the fares of flying to make up for the losses. (EneMalta did) but they are doing exactly what EneMalta should have done.

Just a last question.
Does anyone know how much Arms Ltd is costing us ?

Anonymous said...

@Bondiblog

But the whole point Muscat brings forward on the electricity bills, is not refuting the raw material costs to produce electricity, but rather he alleges that Enemalta's operational inefficiencies are the reason for the high bills.

In other words fixing Enemalta would be part of the solution for the cost bill reduction. On the other hand the Nationalist party tends to see inefficiencies in public sector organisations as a given and rather than attempting to correct such a situation, either privatises companies or puts the extra cost of production to the consumers.

So rather than subsidisation - which I never heared Muscat suggest - it is reducing inefficiencies that he is saying.

Regarding your figures not being refuted,didn't the Times article say:

"The authority concluded that even Mr Bondì’s method of calculating how the measures would affect the deficit was incorrect and two economists on the next edition of Bondiplus pointed this out themselves."

So correct me if I am wrong but I guess they were refuted?

Regards
A

BondiBlog said...

@ Silvio & anonymous: What are 'Enemalta's 'inefficiencies'? Quite simply, way too many people on it's payroll. It's total payroll is about €1 million a month. If say 40% of them are fired, gov't would save 400,000 a month which is peanuts compared to what we pay to buy oil. Conclusion: removing inefficiencies is a good thing but it will have no effect on water & electricity bills. Incidentally, Joseph Muscat has never, as far as I know, advocated the downsizing of Enemalta.

Anonymous said...

@anonymous

"In other words fixing Enemalta would be part of the solution for the cost bill reduction. On the other hand the Nationalist party tends to see inefficiencies in public sector organisations as a given and rather than attempting to correct such a situation, either privatises companies or puts the extra cost of production to the consumers."

Wouldn't such 'fixing of Enemalta' require investment? I am sure it does, and it runs in tens of millions of Euros which makes me understand why Enemalta's credit rating, access to credit and its cost (interest) must be important. The operational efficiences that are needed are not in man power (although these count) and other lesser cost items which would impact Enemalta's bottom line even if only marginally, but systemic ones like replacing old boilers - and the whole of Marsa Power station's capacity for that matter.
I sinceely doubt, and agree with Bondiblog, whether PL can really make significant enough cost cuts that would affect our bills without investemnts of the degree necessary that will undoubtedly increase financing costs to an extent that are more likely to increase costs rather than decrease them.... even if on differnt lines of Enemalta's accounts.
When would Joseph Muscat or his wise men and women tell us how they will do it, and yet remain in compliance with all the relevant laws, not least environmental, make the necessary investment and finance it. Goverment cannot subsidise investments either- unless it is legal state aid.
This is too important to be served only with such empty rhetoric, amd simpleton's arguments for the masses.

Anonymous said...

@Silvio

Can you explain where you used this 'mess'? I am asking what you expect from the PN Govt simply because you make allegations like saying our finances are a mess - but then you don't substantiate why the fin aces are in a mess. I have full condense in the PN Govt and feel that they have managed the country's economy excellently. All you need to do is look at the quality of life, the infrastructure, the tourism, the economic growth, the deficit and the unemployment rate for the results of that excellent management.

So prey tell us - what do you expect to be different and why do you think the PL will do better?

Anonymous said...

What do you mean no one disputed your figures?!!

You are getting old lou.

Gordon Cordina and Karm Farrugia made a mockery out of your figures on your same show.

And Labour humiliated you: http://youtu.be/fazVA-sXiTc

Din bhal qatt ma nstabt hati ta' zbilanc.

Go tell it to the marines.

BondiBlog said...

@ anonymous. No they did nor. As economists they were non-committal. Here's a promise. I will write an entire post on the PL propaganda link you sent. Then we'll talk.

silvio said...

@anonymous(where you used this"mess)

Let me first make it clear that I never said The P.L.will do better, It is obviously too early to say and as they say the proof of the pudding is in the eating.

You were very rush in saying that the P.N.IS NEARLY PERFECT evrything is running (as we say in Maltese) fuq ir-rubini,than how do you explain the downgrading by Moodys?

Anonymous said...

Our young JOE knows everything.Even the rest of the not so young people around him kno everything,no wonder they are stuck in oppositon for all these years and hopefully they stay there.

Antoine Vella said...

Perhaps Silvio or some anonymous contributor could tell us what was Moody's rating for Malta when Alfred Sant, Lino Spiteri and Leo Brincat were in charge of our economy and government's finances.

Ian Abela said...

The figures you came up with are not really fair. You have failed to account for what is known as 'price elasticity'. Just to briefly explain what I mean, let's take the VAT on restaurants. Prima facie, it seems as though, yes, if they decreased VAT on restaurants then less revenue would have been raked in.

Yet one must consider that when VAt falls, price falls. And when price falls, demand goes up. So restaurants will sell more meals, and will make more money. this will be taxed and will go to government.

Thus the net effect depends on the price elasticity of demand for meals at restaurants. If demand increases by a larger % than the tax (read price) reduction, then government will earn more, not less.

Elasticity has to be considered when talking about revenue and prices. What you have done is an accounting exercise and not an economic one.

That said, for this particular proposal, I'm quite sure the elasticity is lower than 1, i.e. a (example) 10% fall in price will result in less than a 10% rise in demand, meaning the government did a good thing in not reducing this tax.

BondiBlog said...

Ian, thanks for your comment. France reduced VAT on restaurants as Joseph Muscat proposed and the UK reduced VAT across the board by 1%. Both policies bombed big time and were rescinded.

Anonymous said...

A tax decrease can be seen as a strategy to stimulate the economy and increase the level of disposable income.

I do not think that it is fair to look at the proposals solely through a political angle.

BondiBlog said...

@ Anonymous, please see my comment above in response to Ian's.

BondiBlog said...

@ Anonymous, please see my comment above in response to Ian's.