The country does not need new taxes but must cut unnecessary expenditure, Finance Minister Tonio Fenech said yesterday.

Speaking about the budget during an interview on Radio 101 he said the government had to stop subsidising people, or sectors, which did not require subsidies and the decisions on the water and electricity rate had kept this principle in mind.

"Rather than taxation, we should be courageous enough to stop spending where it is not justified. Those are the decisions that have to be made in this budget in order to generate jobs and maintain sustainability."

He said targeted assistance made more sense than blanket measures because the recession had affected different companies in different ways and not everyone was hit negatively.

Since the deficit was expected to rise to about four per cent it would be "very difficult" for the government to pitch in half the cost of living allowance (COLA) of the private sector, as the Malta Employers' Association had proposed, he added, describing this as a blanket measure that would also help those that did not require help.

While a deficit of four per cent was better than the situation in other countries such as the UK and Ireland, which had run up deficits of 14 and 11 per cent respectively, the money borrowed would eventually have to be repaid, he warned. Mr Fenech stressed, however, that the government's financial situation was secondary to jobs.