Finance Minister Tonio Fenech’s tax relief measures will not dent the deficit’s downward trajectory next year, according to Budget estimates.
The Government is projecting a deficit of €95 million, down to 1.7 per cent of GDP in 2013. The reduction is equivalent to 0.5 points over this year’s deficit.
This ensures that government finances will be in line with EU targets to reduce the deficit gradually until a balanced Budget is achieved.
The €10 million shortfall in government revenue from a reduction in the top income tax rate to 32 per cent for those who earn up to €60,000 will be compensated by increases in excise taxes on cigarettes, fuel and cement.
According to the financial estimates presented with the Budget speech, the deficit is projected to reach 0.6 per cent of GDP by 2015.
Mr Fenech said 2012 will close with a deficit of €180 million or 2.3 per cent of GDP.
This represents a reduction over last year’s 2.7 per cent but more than was initially projected when the Budget was delivered.
The Government justified this deviation from projections on the basis of a €25 million subsidy it gave Enemalta halfway through the year to mitigate higher oil prices. The subsidy will be retained next year.
A historical trend of the deficit shows the Government has for the past four years overshot its targets but still managed to go below the EU level of three per cent over the past two years.
The economy is expected to grow 1.2 per cent by the end of December, which is above the EU average. Economic growth in the eurozone this year is slated to recede by 0.4 per cent.
Inflation moderated to 2.3 per cent in September, which triggered a weekly statutory wage increase of €4.08. This will start to be paid in January.
Mr Fenech said unemployment reached 6.5 per cent, almost half the eurozone average, reiterating that 20,000 jobs were created since the beginning of this legislature.
This puts Malta on the lowest rungs of unemployment in the EU.
The Government is projecting revenues of €3.1 billion next year and an expenditure of €3.2 billion. Malta will spend €235 million in interest on debt.
Mr Fenech said debt would reach €4.8 billion by the end of this year, rising to 71 per cent of GDP and way above the EU benchmark of 60 per cent. It is forecast to drop slightly to 70 per cent next year and 69 per cent in 2014.
The projections show that debt will drop to 67 per cent in 2015.