Prime Minister Lawrence Gonzi said on Sunday that he sometimes worried that Maltese families do not understand the importance for Malta to reduce the deficit in government’s finances. There must at least be two reasons for this.
The first is that the government has taken long, far too long, to start explaining well enough to the people the implications involved if the country were to continue to ignore the need to put its finances in order.
The second, which is more to the point and easily understandable, is that the government has not always been giving a good example of how to be careful with its finances.
Speak to the man in the street about the deficit and the likelihood is that the first thing that comes to mind is the award of the rise that the ministers gave to themselves in a manner that has drawn widespread criticism. So, on this point, it is the government’s own fault if the people do not understand well enough the importance of bringing the deficit down.
Again, the Prime Minister shot himself in the foot when he said that the economic problems faced by Greece were brought about precisely because it did not take care of its deficit. The Greeks, he said, were spending more than they were earning.
That is very true, though there were other inbuilt shortcomings that brought that country to the terrible financial state it is in today.
The people have been told that spending more than the country earns is something the government has to guard against. But is not this what had led to the rise in the deficit in the first place? If the Prime Minister and his government want the people to fully understand the implications involved in running a high deficit, then they would need to act prudently all the time. Ironically enough, this is one of the messages the Administration is now trying to put across in the Budget for next year.
Like the rest of member states that have overshot the EU deficit threshold, Malta would now have to pull back and retrace the road to prudent financing, again if, as the Prime Minister said, the island wants to have a stable financial situation and be considered trustworthy, which is one of the key factors that help in the effort to attract foreign investment. This is what the government is doing now and, according to its projections, it expects to bring the deficit down to 2.8 per cent of gross domestic product, that is, below the three per cent threshold established by the EU.
The forecast for next year is even more ambitious because the government expects to reduce the deficit to 2.3 per cent.
The government is sticking to these projections even though the European Commission expressed a different opinion just days before the government presented its financial estimates for 2012. In fact, Malta is among four countries that have been given an early warning over the Budget deficit. The other three are Belgium, Hungary, and Cyprus. These have been asked to send to the Commission convincing evidence of “sufficient and permanent fiscal measures to rein in their structural deficits in a sustainable manner”.
The European Commission has apparently changed its original opinion and is now saying that the government’s commitment to bring down the deficit is encouraging. The country will be in a position to judge on this when the books are finally closed.