Expenditure outstrips recurrent revenue in first 11 months of 2002

Government expenditure for the January to November 2002 period was higher than recurrent revenue, pushing up the structural deficit to Lm109.6 million compared with a deficit of Lm96.2 million a year ago.

Provisional statistics supplied by the Central Bank of Malta report that government debt outstanding at the end of November stood at Lm1,047.8 million, up by Lm1.1 million, or 0.1 per cent, from Lm1,046.7 million outstanding at the end of November last year. Compared to one month earlier, government debt increased by Lm12.5 million.

The figures were described as a "nightmare" by Labour's shadow finance minister Leo Brincat, who said the deficit now represented 6.5 per cent of the Gross Domestic Product.

Figures released yesterday by the National Statistics Office show that recurrent revenue for the first 11 months of 2002 increased by 5.5 per cent and amounted to Lm613.1 million.

The part-privatisation of Malta International Airport yielded Lm21 million in capital gains tax, duty on documents and dividends.

At the same time, total expenditure amounted to Lm729.3 million, an increase of 5.7 per cent, over the Lm690.3 million expended in the same period in 2001.

The shortfall (structural deficit) between recurrent revenue and total expenditure (less contribution to the sinking fund in respect of local and foreign loans as well as less direct repayment of loans) during the period under review amounted to Lm109.6 million, up by Lm13.4 million from a shortfall of Lm96.2 million for the same period one year ago.

The increase in recurrent revenue during 2002 was mainly due to an increase of Lm12.3 million recorded under the Licences, Taxes and Fines head of revenue, due to receipts from oil rental fees and duty on documents, as well as receipts previously shown under the lotteries head of revenue. There was an increase of Lm10.5 million in income tax collected in this period. An increase of Lm9.8 million was recorded under dividends on investments, mainly due to the part-privatisation process of MIA.

Revenue under the fees of office head of revenue added Lm6.2 million, mainly through proceeds from the foreign investment scheme registration tax. Consumption tax increased by Lm1.1 million, while revenue from social security contributions increased by Lm2 million.

During the period under review, the government received Lm19 million from the sale of shares in MIA. The government also received Lm11.1 million in the form of sinking funds of converted loans.

These revenues are considered as non-recurrent transactions and are excluded from the calculation of the structural deficit.

When compared to the same period in 2001, recurrent expenditure, excluding public debt servicing, amounted to Lm580.9 million, from Lm535.3 million expended last year, an increase of 8.5 per cent.

Personal emoluments to date amounted to Lm178.3 million. Last year's outlay for this category amounted to Lm177 million.

The operational and maintenance expenditure category increased by 5.4 per cent, and amounted to Lm42.1 million, up from last year's figure of Lm39.9 million.

In 2002, there was more settlement of bills related to the materials and supplies item of expenditure (Lm18.6 million compared to last year's Lm17 million) mainly on account of the health division's medical and surgical expenditure.

The special expenditure category stood at Lm0.536 million representing a marginal decline of two per cent over the expenditure effected last year (Lm0.546 million).

The expenditure incurred on the programmes and initiatives category last year amounted to Lm283.7 million.

The increase, in absolute terms, of Lm12.9 million this year is mainly due to increases in social security benefits (+Lm6 million), Treasury pensions (+Lm3.2 million) and NPAA-related initiatives, mainly those undertaken by the Customs department and the Ministry of Education. The latter element was last year implemented during December.

The outlay on the contributions to government entities category this year increased by Lm29.1 million, and amounted to Lm63.2 million.

This increase includes Lm27.8 million which during 2001 was accounted for under capital expenditure as operational and debt servicing costs (of entities like Malta Drydocks, Malta Freeport Corporation and MGI/MIMCOL), or withdrawn from the treasury clearance fund instead of from the consolidated fund.

Furthermore, expenditure in respect of entities like the Malta Statistics Authority and the Roads and Licensing and Testing Directorates, which this year is accounted for under this category, was last year featuring in the form of a normal vote.

Last year, the reclassification of expenditure items of a recurrent nature from capital to recurrent was effected en bloc at the end of the year.

The interest portion of public debt-servicing costs this year increased by Lm4.5 million or 8.2 per cent, from Lm55.4 million last year to Lm60 million this year. This increase was mainly the result of loans borrowed during 2001.

Capital expenditure during the period under review decreased by 5.6 per cent and amounted to Lm81.9 million. As pointed out, this year capital expenditure excludes Lm27.8 million representing outlays in respect of entities, which are being reported under recurrent expenditure. On the other hand there has been more expenditure this year than last year by way of expenditure related to sundry roads projects (+Lm2.4 million), on the new hospital project (+Lm3.3 million), and the shipyards' voluntary retirement schemes (Lm6.5 million).

Treasury bills and Malta government stock accounted for Lm199 million or 19 per cent, and Lm813 million or 77.6 per cent respectively. The remaining share of Lm35.8 million or 3.4 per cent was made up of foreign borrowing.

Mr Brincat, in his reaction to the figures, said he had expected to see a substantial improvement in the financial situation, based on Finance Minister John Dalli's budget forecast that targets would be met.

"Instead the deficit exploded to Lm110 million, a figure which represents nothing less than 6.5 per cent of the GDP. This shows that Mr Dalli is Lm30 million - or 40 per cent - off his own targets, in spite of the fact that he continues to show the Lm21 million generated by the partial privatisation of Malta International Airport as ordinary revenue," he said.

Mr Brincat also pointed out that Mr Dalli was also off the mark with his revenue and had only brought in 40 per cent of the projected amount.

"Consumption remained so low that consumption tax only increased by 0.2 per cent while the cost of living at the end of October had risen by 2.8 per cent," he said.