Some areas, however, remain susceptible to further efficiency gains, particularly the services sector. … but the public sector still lags behind. At the meso or sectoral level, some important measures were announced in the Budget for 2006, including the decision to intensify efforts to improve efficiency in the public service. Hopefully this will also involve the adoption of output-, rather than input-oriented management practices. The recentlysigned collective agreement for the public service, moreover, is an example of what a responsible social dialogue aimed at balancing competing interests can achieve. There remains, nevertheless, ample room for further progress. The country needs to undergo a culture change so as to realise the fallacy inherent in the perception of unlimited government power to levy taxes, which leads to the assumption of jobs for life regardless of performance or need, and of universal and free welfare services irrespective of their sustainability and of equity considerations. Such thinking is incompatible with an ethic based on efficiency and accountability, and with the need to reduce the burden of taxation, foster initiative and encourage investment. Social dialogue can, and should play a crucial role in promoting acceptance of the policies necessary to bring about this change. The attainment of greater efficiency in the public sector is a key objective because it provides vital support services to the productive sectors of the economy. It must, therefore, become better geared to ensure that the intentions of policy-makers are implemented rapidly and effectively.

The way forward towards faster growth lies in the first instance in striving to maintain the competitive advantage of traditional sectors – which typically rely heavily on cost advantage and where market share is being lost -, while promoting the development of new activities that exploit the potential offered by Malta’s strategic assets. These include EU membership, a modern technological  2  BIS Review 84/2005  infrastructure and a skilled and flexible labour force. The current, encouraging expansion in new activities such as financial services, software development and pharmaceuticals attests to the competitive edge which our economy indeed enjoys in these areas. This advantage must, however, also be supported by a stable operating environment that is responsive to changing market conditions. Elements of a coherent policy framework Such an environment requires a coherent policy framework on three levels: the first is the macroeconomic level, where a sound financial system and prudent fiscal and monetary policies should combine to provide favourable conditions for the restructuring of the productive base. At the microeconomic level, resources must be more efficiently allocated and managed by enterprises so as to obtain the maximum possible degree of cost-effectiveness and market penetration. The third involves what may be termed as meso-level policies, involving specific sectors. Policy at this level should primarily avoid distorting the mechanisms that facilitate economic activity. Supportive macroeconomic policies are already in place … At the macroeconomic level, the recent track record has been largely positive. Fiscal consolidation is progressing in line with the projections of the convergence programme.