Malta will end the year with a deficit of between three and 3.5 per cent of GDP, missing its projections for this year and placing the country above the EU threshold, Prime Minister Joseph Muscat said yesterday.
The official target was for the year to end with a deficit of 2.3 per cent of the GDP, although the previous Administration had moved slightly from that estimate towards the end of the year.
“The state of finances is not as they told us but we expected this”
The shortfall is the result of increased spending in the health, energy and social services, coupled with lower revenue, Dr Muscat said, cautioning that there “is no cause for alarm”.
“The state of finances is not as they told us but we expected this.
“The good news, therefore, is that we won’t be complaining about the situation but will say how we’ll move forward,” Dr Muscat said.
The figures are provisional and, as yet, unpublished, but represent the latest estimates given by the National Statistics Office to the Government, ahead of final official data that should be released shortly.
On Monday, Finance Minister Edward Scicluna would be charting out a plan to move back to below the three per cent threshold by the end of the year during the Budget speech, Dr Muscat said.
However, he excluded raising any new taxes though he indicated the Government was looking at areas where it could shave some expenditure.
He also announced that the Finance Minister would be announcing the first initiatives for public-private partnerships that are intended to boost economic growth.
In an initial reaction, former Finance Minister Tonio Fenech said that the projections he had before he left office on March 9 put the deficit closer to the 2012 projections.
“I don’t have the official figures in hand, so I cannot yet tell whether this increase is the result of some accrual (provided for spend) that the ministry had not been made aware of.
“However, what I can say is that the latest figures we had in hand were in the region of 2.5 to 2.7 per cent of the GDP.”
Nonetheless, he argued that even if the deficit were in the range announced by the Prime Minister yesterday, it would still mean that the previous Administration left the country’s finances in good condition.
He suggested that the Government could be moving some revenue from last year to this year’s books to “provide a cushion” for the months ahead.
He warned that this would be a mistake because the situation could still trigger an excessive deficit procedure against Malta by the EU.
Dr Muscat said the Government had already had meetings with the European Commission in which it made the case that it would manage to bring the deficit back in line within the year.
Asked if there were indications that the Commission would open fresh proceedings, he said people should not rush to conclusions.
“We spoke to the Commission and the plan to reduce the deficit is in line with the economic plans we unveiled during electoral campaign,” he said.
Only last year, the EU dropped similar procedures over a ballooning deficit in 2008 after the Government reined in the shortfall over the previous three years.
Malta has ratified the fiscal pact, which binds it to stricter oversight and to seek to balance its Budget.
Dr Muscat held back from saying why the targets were missed, arguing that the information given to the Government by the NSO did not allow for a detailed analysis at this point.
However, he said the indications given by the experts were that the slump in revenue was the result of the political uncertainty of the past year or so.
Figures for the first six months of last year had indicated that, at €333 million, the deficit stood at more than double the projected shortfall for the end of the year.
Mr Fenech had argued that the Government would make up for the shortfall in the latter part of the year, primarily as more revenue was traditionally raked in during the second half.