Government finances may be 'slightly off target' this year

The country may not reach its financial targets this year, although it will not be far off the mark, Finance Minister Tonio Fenech admitted yesterday.

However, the government predicts it will remain well on track to achieve the 2010 target of a balanced budget, he maintained.

Mr Fenech was speaking at a business breakfast held to launch the consultation period on the second phase of the National Reform Programme (NRP) which he said will guide Malta's strategic development for growth and jobs between 2008 and 2010.

In 2005, EU leaders had decided to re-launch the Lisbon Strategy aimed to make the bloc more dynamic and competitive.

To this end, the European Commission adopted measures to improve the governance of the strategy through national reform programmes renewed every three years.

Asked about the financial targets set by the government for this year, Mr Fenech said that while it was true that the first six months were off target, one should not speculate about finances in the middle of the financial year when these targets had to be seen over the whole 12-month period. The opposition recently went on the attack after the publication of official six-month figures.

The Minister said there were a number of one-time payments in the first half of this year that will not be repeated in the second half.

Moreover, the biggest impact on government finances was the assistance to Enemalta which had increased by €30 million in order to keep the surcharge lower than it should have been. At the end of June, the government raised the surcharge on water and electricity from 50 to 95 per cent. This should have been set at 115 per cent but the 20 per cent difference is being absorbed by the government.

"We may be off target slightly but not significantly and our target of a balanced budget is still a possibility," he said, later using more positive and stronger terms to characterise the government's optimism on achieving this target.

Replying to a question on the 2010 target of a balanced budget in the face of the price of oil and energy, Mr Fenech said: "If you expect the government to pay the bills then you can forget the target. Otherwise, if everyone pays for what he consumes, the target will be met. This target is important because it sends out the message internationally that Malta is a financially stable country and this would continue to attract investment."

Asked whether the government's increased revenue was due to the changes in tax bands, Mr Fenech said this was not a direct result but more due to international business and foreign direct investment.

Speaking about the NRP, Mr Fenech said the second phase of the NRP will build on the success achieved in the first programme which covered the period 2005-2008. This had proposed 53 measures to improve Malta's economic growth and employment opportunities under five main thrusts -sustainability of public finances, competitiveness, em-ployment, education and training and the environment.

Mentioning key achievements, Mr Fenech highlighted the meeting of fiscal targets which permitted the adoption of the euro, the reduction in unemployment and investment growth.

Through the new programme, Mr Fenech said, the government was hoping to sustain fiscal consolidation with a view to achieving a balanced budget by 2010, as well as to continue with pension reform, carry on with the development of sustainable health care and improve efficiency in the public sector, among other drives.

Mr Fenech said a lot had already been achieved to cut red tape and bureaucracy faced by small and medium enterprises so as to "allow businesses to do business, rather than simply meet regulations".

With regard to investment in knowledge and innovation, he said that improving the capabilities of the Maltese remained a priority for the government, as evidenced by the investment being made in educational institutions such as the university, the Malta College of Arts, Science and Technology, the Junior College and primary and secondary schools.

Mr Fenech said the government would also like to see a reduction in the dependence on fossil fuels through the growth of alternative sources and reduced energy consumption.

In the employment sector, the government would work to increase the participation rate of women and older workers and encourage more students to follow science and technology subjects while investing more in childcare facilities to support working parents.

Replying to a comment on the brain drain, with several university students deciding to further their studies abroad, Mr Fenech said this was not as negative as is made out to be. The fact that students went abroad was good for the country because the experience gained abroad was important. The country needed to debate whether the investment it was making in these students, such as with the stipend system, was being returned, he said.

Comments on the new programme may be submitted on nrp.meu@gov.mt by August 22.