Deficit cut main aim of next Budget

The government will be shaving off some €50 million in expenditure next year, targeting a deficit just below the three per cent mark, according to Finance Minister Tonio Fenech.

In the wake of the eurozone crisis sparked by the collapse of the Greek economy, "fiscal consolidation" will be a mainstay of the forthcoming Budget, Mr Fenech said yesterday when he launched the pre-budget document.

From a deficit of 3.9 per cent of gross domestic product this year, the government is projecting a fiscal imbalance of 2.9 per cent in 2011 but even this target may not be aggressive enough to make up for the rising debt, according to the same document.

In order to bring debt levels down towards the 60 per cent threshold - the national debt currently stands at almost 70 per cent of GDP - the document says that the fiscal imbalance has to be addressed "as soon as possible".

An "immediate reduction" of around 1.7 percentage points in the deficit is necessary, the document adds, if the country is to reach the 60 per cent debt level required by the Maastricht criteria by 2020.

"Unless this level of fiscal consolidation is achieved by 2011, the degree of fiscal consolidation needed would be greater in each subsequent year," the document says, underlining the government's commitment to achieve a sustainable debt level.

However, while aiming for a deficit-reducing budget, Mr Fenech yesterday insisted that the right balance had to be found so as not to harm economic recovery with overzealous spending cuts.

The pre-budget document says that the one per cent decline in deficit to GDP ratio for 2011 will largely reflect the phasing out of stimulus measures, the positive impact of economic recovery and consolidation of the expenditure side.

Mr Fenech said the government would have to be more judicious in the way it spent money and announced "a critical assessment" of the practice by departments of presenting supplementary estimates towards the end of the year through which they asked for additional funds. This means that departments may have to learn how to stick to fixed budgets.

The document, an orange A-4 size booklet, is not likely to find itself a favourite reader on the book shelves at Buġibba's perched beach. The 162 pages subdivided in 12 chapters make for an academic analysis, even if less technical than last year's, of the economic sectors the government intends to focus on in the years to come.

There is very little in terms of concrete proposals with the document living up to its name: Ideas, Vision, Discussion. It proposes broad ideas without entering into details. Some are new, others less inspiring and yet some that have been on the government's wish list for years on end.

Of particular note is the emphasis the document places on the creative economy and green jobs. However, the two separate chapters dealing with both subjects make it clear that not enough data is available to quantify the contribution they make to the economy.

On the creative economy the document simply outlines a vision of how this sector could create jobs but it points out that statistics are still being collected and proposals would only come about after a working group concludes its studies.

The document also admits there is no formal recognition yet of the green economy even if there are industries and services that can be classified as such.

However, this section does contain the only reference to taxation, underlining the notion of shifting taxes from labour and production to pollution. It vaguely talks of a carbon tax on fuel and electricity production to encourage people and businesses to change their lifestyle and behaviour.

Mr Fenech has already ruled out an income tax cut since the intention to reduce the deficit did not give him the flexibility to forego income at this stage.

The pre-budget document will provide the basis for consultation with the social partners before the formulation of the Budget that will be delivered later on this year.

Budget proposals

Employment
The community working scheme introduced in Budget 2010 for those who have been unemployed for more than five years will be extended to those who have been registering for more than six months. Participation will be mandatory and people will work for 30 hours a week with an unemployment benefit that reaches 75 per cent of the minimum wage.

Higher speed limits
The document says that speed camera limits in non-residential zones should increase to 80 kilometres per hour, which results in higher fuel efficiency and lower emissions.

Scholarships
The EU-funded Steps scheme, which offered scholarships to students, will end next year and the document proposes that the government invest more funds in the Malta Government Scholarships Scheme to maintain the same momentum and encourage more students to take up post-graduate degrees, particularly post-doctoral degrees.

Single means test
Budget 2010 had proposed the setting up of a single means testing mechanism for government services and benefits. After the working group entrusted with the job concludes its work, the government aims to set up a Single Means Testing Unit next year to implement the mechanism. The unit will check on the veracity of claims made by people seeking means-tested benefits.

Review of single-parent benefits
Social security entitlements for single parents will be reviewed and carefully analysed. An intra-ministerial working group shall be set up to carry out an in-depth analysis, primarily in terms of social changes, demographic projections and socio-economic and financial implications.

Students and pensioners
The pro-rata social security contribution system for part-time workers will be extended to cover certain categories of self-employed persons such as students and pensioners.

Restructuring of Health Ministry
The ministry will consolidate its financial and management accounting systems to be able to manage its finances in a timely and accurate fashion. The ministry will buy and contract services to the public sector as well as private and the non-governmental sectors.

Health centres
Government will explore the possibility of replacing the Gżira health centre in the coming years. Plans are currently in hand to refurbish the Mosta and Rabat centres while the document says there is also scope for developing a new site in Paola.

Healthcare cover information
Government intends to create the necessary legal and administrative framework that provides clarity for all current and prospective residents with regard to their healthcare cover and entitlement.

Medicines review
A thorough review of the government formulary for medicines to ensure high-cost new medicines can be covered through the public health mechanism. The document says that a modern, transparent and sustainable system to regulate entitlement to medicines is also necessary.

Creative clusters
When talking about the creative economy the document says the government has to develop creative clusters as zones for creative entrepreneurs in newly restored buildings, industrial zones or newly built high-tech centres.

Energy efficient tenders
All government contracts should include, among their eligibility criteria, minimum energy-efficiency thresholds that the tendering entities should abide by. Audits on winning bidders should be carried out to verify adherence to such criteria.

Shifting taxation
The document proposes a shift in taxes from economic "goods" to economic "bads". The shift would see lower taxes on labour and production and higher taxes on fuels and commercial electricity, which would be a rudimentary form of carbon taxation.

Cleaner cars
The document acknowledges that the use of cleaner private cars has not been prolific enough. It says that the reasons for such a poor take-up are currently being assessed and government will be seeking to address them in the forthcoming budget.

Traffic congestion
Traffic congestion leads to higher emissions and government is committing itself to study the impact of opening and closing times of schools and offices on traffic congestion, in a bid to ease the problem at certain times of the day and the year.

Idling engine clampdown
A fine is being proposed for car owners who keep their engines running while waiting in a bid to curb transport emissions.

Eco-Gozo
The emphasis on Gozo is linked to sustainable job creation and the document highlights three particular areas where development would not be counter to the sustainability principle. The agro-cultural sector, tourism and the knowledge-based industry are three areas slated for government support and policy development.