Eyeing the Maastricht criteria: Deficit below three per cent

The government is projecting a deficit of 2.8 per cent next year as it keeps a tight hold on expenditure and opts for a moderate increase in taxation to reduce the imbalance in public finances by some €100 million.

The deficit for 2011 is projected to reach €196 million, down from €297 million this year and below the three per cent benchmark required by the Maastricht criteria.

The government’s target was to cut the deficit in “a prudent way” without derailing the economy, Finance Minister Tonio Fenech said yesterday.

“If year in, year out we register a high deficit, finally our country will reap debt, which will bring us to our knees,” he said.

In fact, at 68.8 per cent of GDP, next year, debt will remain well above the 60 per cent benchmark dictated by the Maastricht criteria although it represents a slight reduction from the 69.1 per cent expected by the end of this year.

Projections for subsequent years show that debt will only reach 66.2 per cent in 2013 when the deficit is targeted to be 1.4 per cent.

Next year, expenditure is expected to increase to €3 billion, up from €2.9 billion in 2010. Recurrent expenditure will grow by some €23 million and capital expenditure will go up by €57 million.

On the other hand, Mr Fenech is projecting revenue of €2.8 billion in 2011, an increase from this year’s €2.6 billion.

Economic growth next year, estimated at three per cent, is expected to yield more in social security contributions and income tax.

The government expects to rake in €821 million from income tax, an increase of €11 million over this year, and €586 million in social security contributions, an increase of €36 million.

From excise duty, the government is projecting an income of €208 million, an increase of €17 million, which is primarily driven by the higher excise tax on fuel products and a new excise tax on cement.

However, the largest projected increase in income is from VAT. The government is expecting consumption to pick up, yielding €538 million in VAT, an increase of €60 million of which €6 million will come from the higher tax rate on hotel accommodation.

In contrast to most European economies, Malta is expected to register growth of 3.4 per cent this year while inflation is earmarked at 1.4 per cent.

For next year, the government is projecting growth at three per cent and a moderate increase in inflation to 1.8 per cent.

Mr Fenech said the Budget confirmed the reforms carried out over the past few years have put the country “on solid foundations”.

“The storms have hit us too. However, up to now, thanks to the prudence we have all exercised, our country has managed to ride the waves and is still moving in the direction we would like it to – one which generates work,” Mr Fenech said.