Is Government on track in reducing deficit?

The official finance statistics may be the same, but to say that Government and Opposition have contrasting interpretations of them is an understatement.

Tonio Fenech, Parliamentary Secretary in the Finance Ministry, said the June figures relating to government finances published by the National Statistics Office on Friday were a good indication that the government would meet its budgetary projections.

But the Labour Opposition's finance spokesman Notary Charles Mangion poured cold water on the statistics, saying they proved that the government's supposed belt-tightening exercise was failing miserably.

The government's outstanding debt at the end of June stood at Lm1.3 billion, representing an increase of 12.3 per cent at the end of June last year.

Recurrent revenue in the first half of this year amounted to Lm335.9 million, an increase of Lm16.9 million over the same period last year.

The structural deficit between recurrent revenue and total expenditure was capped at Lm97.4 million, compared with a shortfall of Lm113.7 million reported for January-June 2003.

Mr Fenech said that the NSO figures were in line with the Convergence Programme that the government presented to the EU, in which it provided a framework for the consolidation of its fiscal imbalances.

He said it was evident that government debt would keep mounting unless the deficit was reined in. This year's total includes Lm41.8 million in debts of the former Malta Drydocks and Malta Shipbuilding which have been assumed by the government.

Mr Fenech dismissed criticism that the government was netting more revenue simply because it had introduced new taxes and increased VAT from 15 per cent to 18 per cent. Suffice it to say that the official statistics only take into consideration the VAT collected between October and December (when the rate stood at 15 per cent) and for the first three months this year.

Besides, as from May 1, VAT was no longer collected at the importation stage, which meant that this would be reflected in the financial accounts later in the year.

Asked about the increase of Lm700,000 in expenditure over the same period last year, Mr Fenech said that the government still had to provide for certain "necessities", like salaries.

The cost of living increase has dented the government's finances this year by some Lm6 million. The health budget for medicines will cost the government some Lm20 million, up from Lm17 million last year.

"The government has to shoulder social responsibilities and simply cannot strike off such costs," Mr Fenech said.

"Let's stop fooling ourselves into believing that the government is on some spending spree and that it was permitting wastage."

Turning to the recently announced eco-tax, the implementation of which the government has temporarily shelved, Mr Fenech said that the country now had to abide by strict environmental rules but nobody seemed to be aware that there was a cost tagged to this.

Dr Mangion clearly disagreed with Mr Fenech's analysis.

The Labour spokesman said the statistics confirmed that the economy was not growing and that any increase in revenue was not a reflection of an increase in consumption but because of an increase in taxes.

One had to keep in mind, he said, that as from May 1, some 400 previously untaxed items were being charged a VAT rate of five per cent.

The comparative increase of Lm16.9 million in recurrent revenue was mainly brought about by higher revenue under income tax (+Lm5.2 million) and VAT (+Lm7.7 million).

Though, at first glance, the deficit figure was down, one had to take into account that revenue figures this year includes items such as the privatisation of the Lotto Department and the one-off registration concession for yacht owners.

One also had to keep in mind that the statistics do not take into account the debts accrued to the government's corporations, he said.

Dr Mangion said it was worrying to note that there was a revenue reduction from the Central Bank (-Lm6.5 million), social security contributions (-Lm2 million), and from customs and excise duties (-Lm2.4 million).

"If we don't realise that competitiveness is being undermined, we are not going to attract investment. Even tourism revenue is down. This could spell disaster!" he warned.

The Labour spokesman asked where the controversial Lm9 million purchase of the Brussels embassy would be reflected in future accounts.

"The government has to lead by example, and it should first and foremost control its own expenditure," he said.