Malta's deficit in 2013 is expected to widen to 3.7 per cent, according to the European Commission's Spring Forecast.

The forecast says that total current primary expenditure is forecast to increase marginally by 0.1 percentage points of GDP, as the increase in intermediate consumption is offset by less dynamic social transfers due to the impact of the 2006 pension reforms.

Net capital expenditure, comprising the planned additional equity injection into Air Malta, isexpected to stabilise.

The increase in tax revenue, related to the pick-up in economic activity, only partly compensated for the disappearance of the one-off revenues registered in 2012.

The forecast says that income taxes are projected to decelerate on the back of measures to gradually reduce the overall income tax burden in 2013-2015.

As a result, current revenues areprojected to decline marginally with the deficit reaching 3.6 per cent of GDP in 20134.

The dept to GDP ratio is projected to continue to increase over the forecast horizon, as the primary deficit is expected to continue to expand.

But a statement referring to the forecast, Finance Minister Edward Scicluna said the government remained committed to keep its deficit below the three per cent threshold and to honour its pledge to end 2013 with a deficit of 2.7 per cent.

He said in a statement the Government noted the European Commission’s concern that Malta’s approved 2013 Budget "is expansionary" and as a consequence, "the deficit in 2013 is expected to widen to 3.7 per cent of GDP".

Prof. Scicluna said: "it must be recalled that the 2013 approved Budget is the same Budget which was submitted by the previous Government in November last year and which forecast a deficit of 1.7 per cent. The Nationalist government had then stated that the Budget for 2013 was evaluated and endorsed by the European Commission.

"The only addition to the 2013 Budget was the inclusion of a number of collective agreements and other firm commitments undertaken by the previous Government at the beginning of this year prior to the elections, and for which no financial provision was made in the budget estimates.

 “Government is committed to honour collective and other agreements entered into by the previous administration prior to the elections," he added.

Prof Scicluna noted that estimates carried out by his ministry indicated that the deficit for 2013 would end in the region of 2.7 per cent.

 “Despite the Commission’s disappointing forecast, this Government remains committed to closing 2013 with a deficit of 2.7 per cent, as was originally pledged in the 2013 Budget speech, and is confident that this can be achieved.

 “Government also notes that this further confirms how unrealistic the previous administration’s budget projection of 1.7 per cent truly was and that Government was correct in revising it upwards when it presented the 2013 Budget in April.”

Prof. Scicluna said Government intended to determine on what grounds the Commission reached its conclusion and is now forecasting a deficit of 3.7 per cent, which was one percentage point higher than the Government’s own revision.

Opposition appeals to government to curb expenditure

In a statement, the Opposition said the European Commission was confirming its warning to the government in Parliament.

The revisions made in the government’s expenditure for this year, particularly the impact of a bigger government with a record number of ministers and parliamentary secretaries and a bigger expenditure than had been proposed in the budget for this year, would explode the deficit 3.7 per cent of the GPD.

It was clear that the government had not only lost hope of keeping to the previous government’s target to end the year with a deficit of 1.7 per cent, but the Commission was not even accepting the government’s estimates.

The Opposition said it expected the government to shoulder its responsibility for this situation. The present government was responsible for the expenditure of nine months of this year and could not blame its predecessor for the situation.

The government, the Opposition said, would be taking Malta into the excessive deficit procedure, increasing the country’s debt burden in the coming years to even more than its forecast.

It appealed to the government to make an effort and curb its expenditure and ensure that the taxes due were collected for the sake of employment.

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