Malta cannot afford to slip and not stick to its target of reducing deficit which at the moment stands at nearly three per cent to bring it down to nearly two per cent by the end of next year, Finance Minister Tonio Fenech said this morning.
Speaking during a breakfast with businesses as part of the next budget's consultation process, the minister said the budget could not ignore the fact that Malta was an EU member state and part of the Eurozone and the perception of countries around Malta would affect the country.
"So Malta cannot let go of its primary objective of achieving fiscal consolidation by balancing this out with economic growth.
"This is the biggest challenge."
Mr Fenech said the indications were good with 2.2 per cent economic growth in the first quarter and 2.8 per cent growth in the second. This did not meant that the country could afford to sit on its laurels.
Labour productivity in the first quarter, he said, increased by 2.4 per cent while the average in the EU was 1.1 per cent.
In the first six months, exports increased by a staggering 54 per cent because production did not stop during the crisis.
Malta was also still seeing interest in investment and it was important to keep the momentum going.
By July, the minister said, Malta Enterprise had approved 23 projects with a collective investment of €50 million.
The biggest priority for this budget, he said, will be the creation of jobs.
Mr Fenech said that in the last 12 months, the government created 6,000 new jobs. Unemployment went down by 1,000 and 2,000 people retired.
He said that one had to continue investing in education and in becoming a knowledge based economy.
The minister acknowledged that there were sectors of society which were feeling the pressure, including the elderly.
"We have to pay particular attention to these people," he said.
The breakfast was also addressed by economist Lawrence Zammit who said that the budget had to address the economic, rather than financial dimension.
Fiscal prudence had to be retained and one had to continue targeting a balanced budget. However, one could not look at fiscal consolidation without looking at economic growth.
Malta had a window of opportunity through the upcoming budget to remove pockets of rigidity from the economy.
"We do not need to increase expenditure but to look at the return of investment on this expenditure."
Mr Zammit suggested that each government department and entity, once given its budget, prepare a plan of how this was to be allocated so that after a year one would be able to measure whether aims were being reached.
"The economy has to be there for the common good and every decision brings along with it an ethical choice so we have to balance out economic policies with the social and economic wellbeing of the common good," he said.
Addressing a question about service pensions, Mr Fenech said the government acknowledged that there was this anomaly but said that it is not manageable to solve overnight.
"We will try to again increase the ceiling to eliminate this anomaly," he said.