Brussels trying to bully us, ex-Finance Minister says

The European Commission should be picking on the bigger countries, which have deficits far worse than Malta's, former Nationalist Finance Minister George Bonello Dupuis said yesterday.

By insisting on the 2010 deadline for Malta to scale down its deficit to under three per cent of GDP, the Commission was trying to "bully" the country, he insisted.

"They should pick on British Prime Minister Gordon Brown first for the high deficit he is running. But his is deemed to be an investment and ours a deficit," Dr Bonello Dupuis said. He did recognise the need for the country to restrain its deficit so as not to have runaway debt, which would prevent the government from investing in capital projects.

Brussels has given Malta until the beginning of January to spell out the measures it will be taking to comply with its recommendations. But while Finance Minister Tonio Fenech said he would work towards the target, he would not give any assurances.

Given the state of finances and the government's admission that revenue has taken a bad hit by the recession, one would expect predictions of hefty increases in taxes come next budget. But two economists from different political backgrounds said they did not believe the Commission's deficit deadline should mean the imposition of taxes in the next budget.

Despite the Commission urging the government to take "consolidation measures", Lawrence Zammit insisted that consolidation did not necessarily mean higher or newer taxes. Mr Zammit, known to be close to the Nationalist Party, said the prevailing situation in public finances was getting worse because employers night have withheld income tax and national insurance payments due to the government.

The one-off expenditure on retirement schemes for shipyard workers last year and the heavy subsidy on water and electricity would not be repeated this year, Mr Zammit pointed out.

However, he argued that the country needed to take a collective decision to tackle tax evasion and curb abuse of government services, which would mean sounder public finances without the need to raise taxes.

The Commission's stand did not worry him given the wider European context where other countries were running much higher deficits.

He added that the one-year period given by Brussels for Malta to come in line was relatively short and this showed that the Commission felt Malta's deficit was manageable.

"Having said this, we are in a deep international recession and nobody knows how long it will last. The 2010 deadline should not be cast in stone," he warned.

Another economist, Joe Vella Bonnici, who unsuccessfully ran for the Labour Party's secretary general post last year, said the Commission was in a difficult situation: "On one hand it understands the difficulty governments have in sticking to the Maastricht criteria given the international recession but at the same time it does not want to give the impression that the criteria could be thrown out of the window".

He insisted that the deadline led him to believe Brussels was "playing for time" because nobody knew what could happen in the months ahead.

The word "consolidation" mentioned by the European Commission could only mean one of two things for Mr Vella Bonnici: either the government raises more income or cuts expenditure.

"I don't see where the government can increase taxes. People have reached the limit. The only road is for the government to cut expenditure but this is difficult at a time when everybody is spending more because of the recession. The situation is a difficult one indeed," he said.

Malta last year had a deficit of 4.7 per cent of GDP when EU rules say the deficit should not exceed three per cent.

The Commission has called on Malta to end the excessive deficit situation by 2010 in a credible and sustainable manner by rigorously implementing the budgetary measures planned for 2009 while avoiding any further deterioration in public finances.

"For 2010, new consolidation measures are called for," the Commission said.

ksansone@timesofmalta.com