The system for granting certain benefits should be reviewed to prevent abuse, especially in the case of invalidity pensions. This will also help to retain older workers in the labour market. It is furthermore essential to speed up a review of the unemployment benefit system to transform it into an effective instrument of employment creation rather than of social dependence. Finally, the range of services offered by the public health system should be critically assessed in the light of budget constraints. Beneficiaries should be required to shoulder part of the costs involved. Free medicines and free medical services induce waste and abuse. So far we have seen that outlays on wages and salaries and on social security benefits together account for fully two-thirds of government spending. A further tenth is absorbed by the interest on the public debt. Here it is well to recall that this cost is currently restrained by the prevailing low level of interest rates. With a global recovery under way, however, this favourable interest rate scenario is unlikely to last much longer. And since a one percentage point rise in the rate of interest is estimated to increase debt-servicing costs by some Lm3 million, it is clear that slowing down the pace of debt accumulation should be a priority. Any receipts from the privatisation programme should be used for this purpose.
Michael C Bonello: Fiscal reform - an imperative for sustainable growth and development Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Institute of Financial Services Annual Dinner, St Julians, 11 November 2004. *  *  *  I should first of all like to thank you, Mr. President, for inviting me to your annual dinner and for the opportunity to share my thoughts once again with such a distinguished audience. I must also congratulate you on your recent election as President of IFS - Malta and wish you and your Committee every success in your endeavours to ensure that the Institute’s educational programmes remain relevant in today’s complex financial services environment. As you rightly pointed out in your first message to your members, in a situation which is rapidly evolving, “we must be prepared to embrace change.” I have a similar message to convey tonight. Inspired by the words of George Washington that “There is no practice more dangerous than that of borrowing money”, mine is essentially an appeal to the country to leave behind its spendthrift ways and to learn to live within its means. I shall therefore make a case for fiscal reform. Now some might wonder why a central bank governor should be so concerned about the state of the country’s public finances. Put simply, the reason is that a persistent excessive deficit situation represents a potential threat both to price and financial stability, which are key objectives of most central banks today.