Finance Minister Tonio Fenech this afternoon admitted slippage in the government's deficit and GDP projections for this year and said no decision has been taken yet on whether income tax cuts will be announced at the forthcomign budget.

Mr Fenech was replying to questions when he launched the Budget consultation process, including a document which would be sent to all households.

He said that GDP growth for the whole year had been reviewed to 3% from the projected 4%. He said a growth rate of 3% had been achieved in the first half of the year but admitted that the second half was tougher, although he did not think it was enough to derail the revised projection. It was too early to project GDP for next year, given the international scenario.

On the deficit, he admitted that there had been challenges which had affected the government, including subsidies on food and cereal and collective agreements reached after the last Budget was presented.

"We are trying to manage the situation as best we can, but there will be some slippage," he admitted.

He however, did not believe that the goal of a surplus by 2010 was unattainable, but said much depended on decisions in the forthcoming budget.

Asked whether the forthcoming budget would feature income tax cuts, Mr Fenech said decisions had not been taken yet. The government was still calculating its projected revenue and expenditure for next year. This year had been characterised by high oil prices which had had a major impact on government finances. The government could not give subsidies permanently and an evaluation of the current state of affairs was being made.

The two cut cuts made in recent years had led to stronger economic growth which also boosted government revenue. It was on that basis that further tax cuts were promised, although oil prices were not so high at the time, he said.

"It is too early for me to rule it out, but the current situation does not make it easy to go for such a choice because the growth projections around us are not positive. The EU has revised its economic projections downwards and Malta depends on the performance of the European economy."

Mr Fenech said he also expected inflation to start going down in the coming months.

Mr Fenech said the impact on Malta of the collapse of Lehmen Brothers in the US was expected to be minimal.