How RCC got it all wrong

It is evident that the outing by the usually reclusive Richard Cachia Caruana in The Times (March 3) was more intended as part of a promotional campaign to justify his nomination as Malta's next European Commissioner than to shed light on the government's poor performance in tapping EU funds in 2007 and 2008.

Indeed, if anything, the claims made in the article were a late and lame reaction to what Labour leader Joseph Muscat has been saying since last November, namely that the government registered such a dismal performance regarding EU funds over the past two years that the public coffers reported higher contributions to, than inflows from, Brussels.

Over the past few months, when Labour put forward its criticism, the Finance Ministry's stock reply was that the initial projections quoted in the financial estimates always include the full amount of EU funds allocated to Malta for that particular year. Thus, it follows that all EU funds to be tapped by the government are to be recorded in the Consolidated Fund. Indeed, when one looks at the general government debt and deficit statistics under the Maastricht Treaty reporting, the official general government deficit is made up of the balance on the Consolidated Fund and several adjustments, which, according to the National Statistics Office's explanatory notes, do not feature any adjustments related to EU funds.

Labour's claim that in 2007 and 2008 Malta was a net contributor to the EU to the tune of about €12.6 million is based exclusively on the financial estimates presented by the government in Parliament in November 2008 and the claim in a report in The Times (February 5) that in 2008 Malta recorded €50 million receipts. It is worth reminding everyone that the financial estimates officially record all transactions of revenue and expenditure effected by the government.

Thus, before even starting to analyse the figures presented by Mr Cachia Caruana, there is a crucial question that needs to be answered by the government, in particular the Finance Minister. Let us, for argument's sake, take Mr Cachia Caruana's figures to be correct. This would mean that Tonio Fenech would have to explain why the financial statements presented and approved by Parliament - the country's highest institution - reproduced by the National Statistics Office, verified and approved by Eurostat and based on strict accounting principles and standards differ from those presented by the government's Permanent Representative in Brussels.

Are we talking about a government within another government here? What is the source of this discrepancy?

Is it an issue that the so-farunknown guidelines adopted by the Permanent Representative in Brussels are not in conformity with the accounting principles adopted by the Ministry of Finance and those of the NSO? Whom are we to trust: the Permanent Representative and his table or the NSO and Eurostat?

The Times report also claims that the figures presented by Malta's Permanent Representative in Brussels were "checked" - a loosely used term - by the European Commission. Can the government state how, when and through which process this verification exercise has been made?

There are further questions the government must answer.

On February 5, a report by the same journalist who interviewed Mr Cachia Caruana held that "Last year, Malta received about €50 million from EU coffers for various ongoing projects covering budgetary periods 2000-2006 and 2007-2013."Nevertheless, the table presented by the Permanent Representative now reports that the sum for 2008 was €66 million.

A 30 per cent discrepancy cannot go unnoticed. It is thus very surprising that the government did not issue a statement to correct the report that appeared on February 5.

Actually, it was only Dr Muscat who commented on this figure when he declared that official statistics showed that inflow of EU funds until November was half the claimed €50 million. Thus, he said, it was surprising, to say the least, to read that about €25 million were expected to be netted during the last 31 days of the year.

While we are still awaiting official statistics for December 2008 to confirm the February 5 report, those for this January have been released by the NSO. These show a miserly €0.3 million in inflows from the EU.

Let us again assume that Mr Cachia Caruana's figures are correct in order to point out a further argument. In his table, it is noticeable how he claims that, over the past two years (2007 and 2008), Malta netted an average of €13 million per annum, with inflows embarking on a steadily downward path. This confirms the fact that, until 2006, money flowed in simply because 82 per cent of the funds took the form of a cash compensation, which required minimal efforts by the government.

The lack of competence to tap a significant portion of Malta's allocation of EU funds has left Malta relatively worse off when compared to the Fifth Financial Protocol with Italy, initially negotiated by the Labour government. This protocol provided the country with an average of €25 million per annum, which is double the amount being claimed by Mr Cachia Caruana for 2007 and 2008.

Now let us move on to analyse the figures supplied by the Permanent Representative and focus on one particularly significant entry in the table he puts forward, namely the Structural and Cohesion Funds for 2007-2013. Mr Cachia Caruana claims that Malta got some €18 million (2007) and €28 million (2008) through this source.

Only the more attentive readers might have noticed that a footnote accompanies this entry. Footnote 4 reads: "These amounts are not included in the revenue of the Malta budget but are considered as cash inflow to the Central Bank". Obscure wording of the kind that elicits deeper analysis, especially when it is these entries that basically make up for the difference between the official figures we quoted from the financial estimates and Mr Cachia Caruana's freshly-baked offering.

Readers might be interested to learn that these amounts, which the Permanent Representative is adding up as some sort of revenue (even though he is admitting that they do not end up in the budget), are actually funds held by the European Commission in an account at the Central Bank of Malta. Basically, these funds are "parked" there by the Commission and are used to pay for projects once the documentation is approved. By no stretch of the imagination can these amounts be considered as revenue for the Maltese government since they are neither in its name nor can they be utilised by it.

If one follows Mr Cachia Caruana's ludicrous logic, it would be as if the government considered all the money deposited by private commercial banks in their account held at the Central Bank as its property!

The incorrectness of the Permanent Representative's interpretation is further confirmed by the fact that there is no indication of these "funds" being transferred to the government in the Central Bank annual report. Furthermore, there is absolutely no sign of them in the Consolidated Fund which, unless Mr Cachia Caruana intends to launch his own brand of accounting standards, is where all the government revenue is accounted for.

If we reduce the amounts of the shady footnote 4 from the grand totals of 2007 and 2008, one would see that we end up net contributors to the EU budget by €19.85 million. This more than proves the argument that Labour has been putting forward over the past four months.

Now, the usual detractors will jump out of their seats and say that these figures have been "checked" (whatever that might mean) by the Commission. May I remind them again that, contrary to any table published in any newspaper - with all due respect to this eminent publication - the financial estimates are published by the NSO, officially verified and approved by Eurostat.

Having blasted just one of the assumptions that the Permanent Representative wants us common mortals to buy means that the figures Labour is quoting from the financial estimates are spot-on.

Dr Mangion is shadow minister of finance.