Finance Minister Tonio Fenech insisted in Parliament on Wednesday that Malta’s public debt stood at 70 per cent of the country’s GDP as measured by Eurostat under European procedures.
Mr Fenech was reacting to remarks by Labour MP Alfred Sant that the International Monetary Fund report published last March had included data that Malta had an exposure of 18 per cent on this debt through government guarantees and other obligations.
Resuming the debate on the scrutiny of the clauses in the ratified EU Stability and Governance Treaty, Dr Sant said that, while the internet gaming and financial services sectors were flourishing, the construction and manufacturing sectors were stagnant while tourism retained its average levels.
It was absurd to boast of gross growth in job creation and not on the net growth, as is the practice even under international standards.
People’s income in real terms had decreased with the exception of those involved in the financial sector. The Government’s complacency was dangerous.
Minister Fenech reiterated that public debt stood at 70 per cent of GDP and included debts and guarantees on debt of entities that were dependent on the Government. Debt of entities not dependent on the Government was not included.
Those claiming that public debt stood at 90 per cent were alarmists. Manufacturing was on the increase while jobs in the productive sector increased with the public sector decreasing its workforce.
Dr Sant told the minister that, if this was the situation, he should send an explanation to the IMF to correct their report.
Turning to the Budget, Dr Sant pointed out that the principle of the treaty was that the aim of reaching a balanced Budget should be entrenched in the Constitution. Contrary to what the minister claimed, nowhere did the treaty state that Parliament would have a say on the Budget presented by the Government at the time.
It only said that the European Court of Justice (ECJ) would be in a position to intervene in case of a Budget which did not fit within the Commission’s parameters. This changed the way our Parliament worked, he said.
Mr Fenech pointed out that one had to wait and see what the Commission would be proposing, but said that the idea was to have a legal framework with a constitutional backing.
Although he admitted that the ECJ would be in a position to intervene, as had been agreed by the Council of Ministers, ultimately one had to wait. Nothing would stop a country from devising its own structure for checks and balances.
The treaty did not mean a minority in Parliament could impede the Budget, but if a government persisted in increasing debt, the ECJ was in a position to intervene.
Dr Sant said that this “solution” did not make sense and would only serve to create problems. The Government was ignoring the implications, he said.
The ECJ could impose fines if member states did not fall in line with what the Commission suggested. The criteria by which penalties are established could change.
Mr Fenech explained this clause would not be implemented until the European Commission explained in writing how it would be implemented and the Council of Ministers agreed on it. The treaty was not introducing something new, but simply a more effective vigilance mechanism.
The minister said that, before presenting the Budget, the Government must send a presentation to the EC for evaluation.
The forecast obtained would be pre-Budget. If a country insisted it would keep the deficit under three per cent but the commission was not convinced it could make the state revert to correcting its measures or else pay a penalty.
He said the Government could no longer ignore the commission on deficit issues.
The commission could issue “embarrassing letters” to defaulting member states, which would be extremely damaging in the current economic scenario.
It was, however, true that the deficit procedure mechanism could only be triggered by an actual breach of the three per cent deficit rule.
He said the treaty provided for a period of 20 years within which a state having more than 60 per cent of the GDP in national debts had to resort to measures which diminished the higher amount to the desired 60 per cent.