Finance Minister Tonio Fenech yesterday stopped short of ruling out income tax cuts in the upcoming budget, an electoral promise many were eagerly anticipating.

"It is too early to rule it out but, clearly, with every passing day it becomes harder to make this choice because the growth projections around us are not positive," he said, when questioned by the media.

In the past days, the Prime Minister has been cautioning the public to "bite the bullet" saying "it will hurt a little". So should the country be expecting a budget of austerity?

"I cannot say we're planning an austerity budget but expectations have to be tailored to the reality surrounding us," Mr Fenech stressed at a press conference to launch the pre-budget consultation process.

"Basically, we have to be cautious not to take decisions that put us in a straitjacket and that not only derail the objectives we have but also throw us into more specific problems."

The optimistic mood in the run-up to the election has now been clouded by global challenges of economic instability and the upcoming budget had to reflect these realities. The fact that the European Commission had revised downwards its growth rate must also be borne in mind..

It was pointed out that, last year, before the election, the International Monetary Fund had raised alarm bells. However, Mr Fenech defended his position saying the IMF had not lowered growth projections for Malta alone but for all of Europe and then reviewed it upwards towards the end of last year.

"When we carried out our assessments in our electoral programme the growth projections were the same and there was no revision downwards," he added.

This year, the country's growth rate has been reviewed down to three per cent from the four per cent forecast in the last budget and Mr Fenech believed the last quarter should not derail the government from its projections, even though he admitted there had been "slippage" in expenditure.

"It is still too early to say what our growth rate will be for 2009. We have to see how this storm will settle in the whole of Europe."

The deficit was also a challenge, which grew as a result of subsidies on food and cereals and collective agreements made post-budget, especially in the health sector.

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

At the moment, the ministry was holding detailed meetings with other ministries to nail down government expenditure, before finalising its decision on the upcoming budget.

Mr Fenech was hoping the budget will be presented towards the end of October. However, the date could be determined by emerging global circumstances affecting the island's economic situation.

"There is the consideration of possibly postponing the budget. We have not established the date yet. However, we do not wish to go beyond October," he said.

With regard to the impact that the collapse of Lehman Brothers, the fourth largest bank in the US, had on Malta, Mr Fenech said this was minimal.

The Central Bank of Malta and the Malta Financial Services Authority had carried out an evaluation to establish what impact this would have on the assets of local financial institutions.

"Although the evaluations show there is an impact, it is minimal. When looking at the portfolio we have in terms of bank assets it's a small percentage," he said, adding that the impact was not being downplayed and the chairmen of both institutions had allayed his fears.

Meanwhile, Mr Fenech announced that the government will be distributing a booklet to all households in the coming days explaining the key budget proposals and encouraging feedback until October 12.

The constituted bodies and unions have until September 30 to submit their formal proposals.

The ministry will be holding four meeting with the theme Towards A Sustainable Future in the coming days.

The public can call on 2599 8888, post recommendations or drop an e-mail to budget2009@gov.mt.