A government announcement made last Friday that it would be cutting the public sector budget by 0.59 per cent of GDP was obscured by news of a Cabinet reshuffle and the subsequent political crisis it provoked.
But the reduction, which comes less than two months after the government’s 2012 Budget, will mean shaving between €30 million and €40 off public expenditure.
The budgetary haircut will affect all government ministries, departments and entities. Savings will be made in recruitment (0.1 per cent of GDP), overtime (0.04 per cent of GDP), operational and maintenance expenditure (0.07 per cent of GDP), programmes and initiatives (0.21 per cent of GDP) and expenses incurred by government entities (0.17 per cent of GDP).
In all, reductions in recurrent budgetary allocations would amount to just under 0.6 per cent of GDP.
In making the announcement, the government said that ministers would be “leading by example” by giving up their €500-a-week pay raise for 2012 and 2013.
It also made reference to the ongoing malaise within the international economic system, saying that despite efforts at both European and individual member state levels, the turbulence “showed no signs of subsiding”.
Prime Minister Lawrence Gonzi touched upon the subject briefly yesterday, saying that the European Commission had told Malta it needed to make a better effort to consolidate its financial position.
It remains unclear what exactly the Commission has told the government, with questions sent to the Office of the Prime Minister and Finance Ministry yesterday remaining unanswered.
Last Friday, British newspaper The Guardian reported that Malta, together with four other EU member states, was expected to overshoot EU deficit limits for 2012.
The newspaper also quoted a Commission spokesman as saying that although it had yet to decide what steps to take against the errant states, “we will do it very soon”.
Opposition leader Joseph Muscat has also waded into the issue, calling on the government to “come clean”, share the Commission’s concerns with the public and explain the budgetary cuts further.
“What do the amended allocations mean in practice? What exactly will be cut? Will cuts be across the board, or will specific initiatives be targeted?” Dr Muscat asked.
“The budget is only eight weeks old. Back then, we had warned the government that their figures simply didn’t add up.”
Now, Dr Muscat said, the EU had told the government the exact same thing: “Either increase taxes, or reduce expenditure.”
In the months leading up to the Budget, Finance Minister Tonio Fenech reiterated the government’s intention to trim Malta’s deficit to 2.3 per cent by the end of 2012.
Countries which fall foul of the EU’s three per cent deficit threshold automatically become liable for excessive deficit proceedings, which may include financial sanctions.
Last November, Economic Commissioner Olli Rehn had warned five member states, including Malta, that they were in danger of missing their budgetary targets for 2012. At the time, the Commission had said it expected Malta’s deficit to rise to 3.5 per cent by the end of 2012.
But the government had stuck by its guns, and in early December the Commission had said that it was “encouraged” by announcements made in the government’s budget.
There is as yet no indication whether the situation has changed again since then.