The government is targeting finish this year with a deficit of 2.1 per cent, which would be a 0.7 per cent decrease on last year, Finance Minister Edward Scicluna said that this morning.
Addressing a business breakfast for the business community, he said that last year the deficit was brought down from 3.3 per cent to 2.8 per cent, which was just 0.1 per cent off target.
This year the target was for the deficit to go down to 2.1 per cent, and next year to 1.6 per cent, the minister said. Prof. Scicluna remarked that this would pose serious challenges as economic growth would have to compensate for the reduction in government expenditure and borrowing.
In terms of tax revenue, he said that between January and June, recurrent revenue decreased by some €12 million mostly from excise tax and duty.
On the other hand expenditure was up by €35 million above the budget estimate. This led to an overall shortfall of €47 million for the first half of the year.
However, the finance minister pointed out that Enemalta owed the government some €42 million, and so argued that the government was still on track to reach its target for this year.
Touching on the economy, he said than the potential growth was higher than EU commission estimates. Prof. Scicluna said that the construction industry was showing signs of recovery for the first time since 2009.
Exports for the manufacturing sector suffered a decline due to a lower demand from the European markets, but things started to improve.
Regarding inflation, he said that even though this fell below zero and fuelled concerns of a possible deflation which is never a good sign for the economy, this was only due to the lowering of utility bills in March. As a matter of fact inflation is on the way up, the minister said.
Touching on the rate of employment, he said that Malta was finally catching up with the rest of Europe. However, more measures were needed to make work pay and encourage the unemployed to seek employment.
Regarding the free childcare services, the minister said this was a bold measure, that would mean a windfall of revenue for working parents.
Replying to questions from the floor, he said that the issue of Sicilian imports and unfair competition raised by the GRTU was a complex one, and had to be tackled within the parameters of the liberalised EU market.
Regarding traffic congestion, Prof. Scicluna acknowledged that this was becoming a major concern.
"We need to think outside of the box and come up with innovative solutions," the minister said.
Alternattiva Demokratika deputy chairman Carmel Cacopardo expressed concern that the budget did not address ecological deficits.
"It does not make sense to build a flood relief project and channel all rainwater to the sea," he said.
Mary Gaerty from the National Council of Women also noted that the environment did not feature at all in the pre-budget document.
In his reply, the minister admitted that the environment had been left out in this document.
Commenting on pensions sustainability, he said that the model drafted some years ago turned out to be highly unrealistic as the population was still on the rise and economic growth was much higher than it had been expected. So the situation was not as critical as it had been forecast, the minister said.
Regarding the proposed tunnel to Gozo, he said that from an environmental aspect this was the preferred option but it would come at an extra cost.
"However, we need to consider whether we could achieve more if we had to use these funds on alternative projects for Gozo," he said.