Malta cannot afford to slip on deficit – Finance Minister

The next budget has to strike a balance between fiscal consolidation and economic growth, paying particular attention to those people who are feeling the pressure, Finance Minister Tonio Fenech said yesterday.

In view of the economic scenario affecting neighbouring countries, Malta could not afford to “slip” or fail to reach the target to reduce the deficit by six percentage points, from 2.8 per cent this year to 2.2 per cent next year, with the ultimate aim being to achieve a balanced budget.

“It would be a mistake if we took our sights off this target,” Mr Fenech warned businessmen at the first business breakfast organised as part of the Budget 2012 consultation process. He said Malta could not risk being perceived as other EU states in the eurozone if it wanted to continue attracting foreign investment.

He said that Malta’s primary goal was to reduce Malta’s debt – which currently stood at 68 per cent of the gross domestic product – while not losing sight of economic growth.

“At 68 per cent, Malta’s debt levels are still significantly lower than the EU average which stands at 85 per cent,” he said, adding that this did not mean that the country did not have to tackle this problem.

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 mean 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 this year, 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, would be job creation.

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 the key areas on which the Budget intended to focus included consolidating the successes of the financial services industry, sustaining the tourism industry, investing in research and development, education and innovation, and incentivising business and industries.

On Air Malta, Mr Fenech said that any assistance that had to be given to the airline had to be budgeted for and included in the budget.

The business breakfast was also addressed by economist and former Air Malta chairman Lawrence Zammit, who stressed on the need of an economic rather than financial budget.

He said the government should produce a return of investment on public spending. He suggested that each government department and entity, once given its budget, should 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.

Mr Zammit insisted that public services should be efficient and the present system risked ending up with the creation of a “dictatorship out of bureaucracy which would take over the society.”

In comments from the floor, Vince Farrugia, the director general of the Chamber of Small and Medium Enterprises (GRTU) warned the minister not to continue allocating funds to “non-productive sectors” and to ensure that “mistakes” such as the millions spent on the dockyard and public transport were not repeated.

Malta Employers’ Association director-general Joe Farrugia stressed that employers were to be given due credit for the way Malta weathered the crisis and the low rate of unemployment.

“Maltese employers do not have the hire and fire culture. Despite the lack of work during the recession and the Libyan crisis, employers still held on to their employees. People seem to ignore this social dimension,” he said.

He warned that Malta should not “spend irresponsibly” like other countries did, simply to match people’s expectations.

Publius Grech lambasted Mr Fenech and his government for “lacking the will” to address and eliminate the service pensions saga. The issue dates back to 1979, when a Labour government imposed a ceiling so former British workers would not be entitled to two different pensions.

In the last Budget, the government announced it would be dedicating €1.3 million in 2011 to make a further adjustment to the social security system so that the pension capping for ex-British servicemen be altered and they could receive an extra €200 a year. This was the third capping adjustment introduced by the government – in 2008 and in 2009 the threshold ceiling for ex-British servicemen was increased by €665.87.

Mr Fenech replied that the government would do its best to continue altering the capping but warned his that this was no easy task. He 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.