Further cuts in government subsidies expected in Budget

The government will continue to cut subsidies when it presents its budget later this year, Finance Minister Tonio Fenech told The Times Business.

"Let's continue cutting subsidies because these come from taxpayers' money and they can be made to better use," Mr Fenech said in an interview.

Mr Fenech said it be very dangerous for an economy if it had to become dependent on government subsidies, adding that government funds should be there for investing in the country "in order to create the best environment for business to operate".

"There is a number of areas which we constantly subsidise. Today we subsidise transport, the agricultural sector and tourism. We need to make sure we are getting the value of these subsidies and to consider whether the government should continue with these high levels of subsidies, or how we are to recoup some of them," he said.

Mr Fenech said the government subsidises tourism by €33 million a year, pointing out that low-cost airlines cost the country about €5 to €6 million a year. "This is taxpayers' money. We need to get the tourists here but at the end of the day there has to be a value. The government has to recoup back in order to re-invest. No industry can expect the public to subsidise it indefinitely."

In the interview Mr Fenech said he believed the worst was over for the manufacturing sector and that the government will soon be in a position to announce significant new investments into Malta which will create a number of jobs.

Mr Fenech said the manufacturing companies recently helped by the government will probably create about 250 new jobs in 2010. "That means we have not only saved over 2,000 jobs but we've actually created new jobs through these packages," he said.

He said that the recession had certainly taken its toll on public finances and in the first six months of this year public revenue from income tax and VAT declined by over €60 million.

Regarding the European Commission's end 2010 deadline for Malta to regularise its deficit which last year stood at 4.7 per cent of GDP, Mr Fenech said Malta's deficit in 2010 will be close to the three per cent limit, "but still above, at around 3.3 per cent".

"The government will try and reach the three per cent target by 2010, but this will not be done at the expense of creating more problems for the economy," he said, adding that "in these difficult times economic growth and job creation exceed strict disciplinary deficit rules".

Asked if the COLA mechanism would one day be abolished, Mr Fenech said he believed this system has actually made Malta more competitive.

He said: "One has to examine the alternative: Do we leave the negotiations purely between unions and employers? I don't think that would give us the industrial stability that we have enjoyed for quite some time which is so good for investment. Investors find our labour skills attractive and they also like our industrial stability which COLA plays a part in. Do we want to see strikes talking place in every factory over wage demands?"

Mr Fenech said that at some point a decision will have to be taken to fully privatise Bank of Valletta but added: "We have no intention of selling the bank at a point in time when the market does not give us the right returns."

He also hinted that the Malta Stock Exchange will be privatised saying that as a long-term strategy "there is no reason why the Malta Stock Exchange should be government-owned".

Mr Fenech said he hoped the privatisation of the shipyards could be concluded by the end of the year.