By the end of last year it was obvious that Malta would not achieve its targeted 2012 Budget deficit. In an article entitled The Political Choice Is Ours (Times of Malta, January 15), I asked “Will the present Finance Minister be retained even though the fiscal deficit for 2012 will be well above the set target?”

It is Busuttil who has failed to do his homework properly, and preferred to parrot what his shadow minister for finance tells him

The writing was on the wall. Eventually Eurostat confirmed the 2012 deficit at 3.3 per cent of GDP; a full one per cent over the Government’s target. Simon Busuttil recently wrote that “And I am reliably informed that until a few days before the election these projections were still on course to being achieved” (June 5). As new PN leader, committed to restoring his party’s credibility, Busuttil should be more careful in checking the reliability of his sources.

That Malta has a new Minister of Finance is the choice of the Maltese people, and not Busuttil. Addressing the last PN general council, he stated that “36,000 people cannot be wrong”. Once again, it is he who got his numbers wrong, because the number of voters who were right is 167,533 and not just 36,000.

GonziPN is dead, long live TeamPN!

It is still early days, but it seems that the PN has had cosmetic surgery rather than a change in mind-set. Instead of breaking away from the failed rhetoric of the past, the new PN leader gives the impression that he is captive to the same power circle. Not surprisingly, the PN’s election report cleared him of any blame for his party’s trashing in the last general election. The PN thanked Lawrence Gonzi for his service but burdened him with all the responsibility for the defeat.

In his article, Busuttil told us that the excessive deficit procedure (EDP) could have been avoided “if only the Government had done its homework well”. He then goes on to compare the EU Commission’s decision to the two previous EDPs against Malta under Nationalist administrations in 2004 and 2009.

Busuttil stated that “The second time happened in July 2009 in the wake of the worst financial and economic crisis to hit Europe and the entire world in the century”. Once again, it is Busuttil who has failed to do his homework properly, and preferred to parrot what his shadow minister for finance tells him.

In its recommendation for a Council Decision (doc SEC (2009) 849 final), the EU Commission stated that there were no special circumstances warranting a departure from the standard procedure. It explicitly stated that the excessive deficit was due to “specific developments on the expenditure side rather than the impact of the economic downturn which was only starting in 2008”.

The fiscal deficit in 2008 rocketed to 4.7 per cent of GDP. With regard to the second core criterion of the Stability and Growth Pact, the Commission noted that “general government gross debt has been above the 60 per cent of GDP reference value since 2001 and stood at 64.1 per cent of GDP in 2008 and projected to follow an upward trend”.

The 2009 EDP deadline was extended by a year due to “unexpected adverse economic events with major unfavourable consequences for government finances”.

Given that the 2011 deficit fell to 2.7 per cent, and the Commission forecast a deficit of 2.6 per cent for 2012 and 2.6 per cent for 2014, the EDP procedure was eventually abrogated in November 2012. (The deficit for 2012 was revised upwards to 2.9 per cent by the Commission after Budget 2013)

As it happens there are many similarities between 2008 and 2012: it was election time, national debt kept rising and the PN was in government.

Following the presentation of Budget 2012 in Parliament, the EU Commission, in the effort to oblige our country to meet its 2.6 per cent deficit target, demanded that government reduce its expenditure by €40m. It is to the merit of the PL that, despite potential political repercussions, it realised the sensitivity of the situation and committed itself to keep Budget 2013 as presented by the PN government.

Busuttil is right in stating that the 2012 deficit is “close to threshold”, but the EU Commission deemed that, given that its instructions for government to cut expenditure had been ignored, the deficit could not be considered as being “exceptional”. Moreover, the Commission is forecasting that Malta’s fiscal deficit will be 3.7 per cent and 3.6 per cent in 2013 and 2014 respectively and is not ‘temporary’. In 2012, our national debt stood at 72.1 per cent of GDP and the PN government failed to comply with the debt reduction benchmark for 2012 set by the Commission. Conveniently, Busuttil fails to mention anything about this.

The Commission now has no option but to start EDP procedures against Malta. Our government has up to 2014 to take effective corrective action and bring the deficit to below three per cent. Failure to do so could lead to financial sanctions or the suspension of cohesion funds (as per Treaty on Stability, Co-ordination and Governance). A lot will depend on the Government’s action plan to be presented in October and the general performance of our economy.

The PL government is committed to rebuild Malta’s fiscal credibility. The least that the Opposition can do to repair the damage done when in office, is to start acting in the national interest.

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