Malta will face a formal procedure for the second time for failing to keep the deficit below the EU limit.

It appears that the decision to keep the previous Budget, but change the projected deficit from 1.7 per cent to 2.7 per cent was not well received

The European Commission has still to make an announcement but the imposition of what is known as an Excessive Deficit Procedure was finalised over the last couple of days following meetings with European Commissioner for Economic and Monetary Affairs Olli Rehn.

Prime Minister Joseph Muscat, who was attending a summit in Brussels yesterday, said whether the Commission would go ahead with the procedure was now a “matter of semantics”.

However, he said the meetings with the Commission had been “realistic and positive”, adding he was confident that with the Government’s plan, Malta’s deficit would be brought back down to below the threshold (three per cent of GDP) by the end of this year.

The Government had previously said that it was negotiating with Brussels to avoid the procedures, which will mean enhanced scrutiny of Malta’s finances.

Questioned about this, Dr Muscat said he was confident the Government had managed to convince the Commission that it would be able to rein in the deficit without the need for more cuts than those contemplated in the Budget.

He pointed out the action had been taken in relation to overshooting the projected deficit in 2012, which went up to 3.3 per cent.

In its spring economic forecast Brussels predicted Malta would end 2013 with a deficit of 3.7 per cent while the Government is putting it at 2.7 per cent.

Although the Commission expects economic activity to pick up, it said higher tax revenues as a result of more growth would only partly make up for the disappearance of one-off revenues registered last year.

But tax revenue will also be stunted, at least in the short term, by the decision to lower the top income tax rate for those earning up to €60,000, the Commission argued.

On Tuesday, Finance Minister Edward Scicluna said he had had a telephone conversation with Commissioner Rehn and complained that the Government was finding it difficult to convince the EU not to issue new procedures.

Brussels, he said, had lost trust in Malta after the previous administration failed to keep its word to slash €40 million off its 2012 budget.

The Nationalist Party yesterday accused the Labour government of “undermining Malta’s financial credibility”. It recalled that Prof. Scicluna had expressed confidence in his April Budget speech that Malta would manage to convince the Commission not to start excessive deficit procedures, because the new administration had demonstrated that it would be reining in the deficit by the end of the year.

“It now appears that the Government’s decision to keep the framework of the previous Budget presented by a Nationalist administration, but at the same time change the projected deficit from 1.7 per cent to 2.7 per cent without announcing any concrete corrective measures, was not well received by the commission,” the statement said.

This is the second time that the country is facing an EPD, after similar procedures were lifted in November. That measure only lasted six months, however.

The Prime Minister yesterday alleged a member of the former administration had incited representatives of the IMF against Malta in a meeting he had with them.

He said this person told the IMF there were problems when only three months ago he had told them there weren’t any.

“The IMF itself told us this,” he said, adding when asked for a name: “I think you can ask around.”

mmicallef@timesofmalta.com