The government could end with a shortfall of up to €185 million - some €117 million off projections, according to economist Edward Scicluna.
Figures released by the National Office of Statistics last Friday show that the structural deficit is again ballooning. Statistics for the first seven months of the year indicate a 36 per cent jump on the deficit figures registered in the same period last year.
The gap grew from €209 million between January and July in 2007 to around €283 million during the same period this year.
When contacted yesterday, Prof. Scicluna said the "outcome is not surprising", but rather predictable, and the root cause could be found in the expenditure programme set in the last Budget.
He said that unless the government intervened with a significant cut in capital expenditure or an increase in revenue - meaning an increase in taxes - the result could be a deficit that was widely off target by the end of the year.
"With a very unsophisticated model I predict that we are in for an increase of our deficit ranging between €60 million (2.3% of GDP) to €73 million (2.8% of GDP)," he said.
The increase, which would amount to a deficit ranging between €170 and €180 million, means that the government would be ending roughly €100 to €110 million off the mark over the projected €68 million target.
Earlier this month, Finance Minister Tonio Fenech had said he was expecting to be "slightly off target" by the end of the year. On Friday, the ministry would not say how the NSO figures compared with the government's half-yearly projections but insisted that it was still sticking to its overall estimate.
"To be able to comment about the whole picture, we must wait until the end of the year to have annual figures...", a spokesman for the ministry said.
Prof. Scicluna, however, said that the trend was clear and could be linked to the tax cuts and overly optimistic revenue projections in the last Budget.
In his reaction to the Budget last October, Prof. Scicluna had pointed out that the government was trying to square a circle, by cutting taxes and promising to reduce the deficit while the gross domestic product, according to the EU, the International Monetary Fund and the Central Bank, was not expected to grow significantly.
"The government has estimated a highly optimistic scenario of its intake from income tax next year, basing it on two vital assumptions," Prof. Scicluna had said last year, forecasting that based on the IMF's projected real GDP, the final projected intake from income in 2008 would push the deficit up by a further €60 million. Following Friday's NSO statistics, he is sticking by that prediction and insists that while there are signs of the government already trying to rein in expenditure further, the underlying problem is revenue projection.
Fellow economist and former Bank of Valletta chairman Joseph F.X. Zahra - and the only other economist from those contacted to comment - was more upbeat in his forecast and pinned the present problem to growing expenses coming from the global economy as well as one-off costs coming from the conversion to the euro and the election.
Mr Zahra said: "Revenue increases were a direct result of real economic growth during the first six months of the year together with improved employment figures, a strong performance in tourism and a buoyant business services sector. The expenditure side was hit by increased oil prices (at an all time record high during the period), increased interest rates over last year pushing up loan financing costs, the expenditure on the euro changeover project as well as the direct and indirect costs ensuing during a general election year," he said.
His prediction for the next six months is more optimistic. He said that traditionally, the rest of the year saw an improvement in public finances.
"The extent of this improvement can be higher this year as most of the factors that negatively hit expenditure during the first seven months will either not be repeated, or else will impact costs in a gentler manner: Oil prices have also plummeted from the heights of July," he said.
On the other hand, while the economy seems to be holding itself well, albeit at an expected lower growth rate, tourism is keeping strong, and this against a backdrop of depressed purchasing power in Malta's tourism markets, he said.
"Capital expenditure will also be lower than last year as the Mater Dei Hospital capital outlays, which peaked during 2007, will not be repeated, while the government's revenue improves as the financial institutions declare their profits, with resulting income tax revenues and from the financial institution and its dividends," he said.