29 AUGUST 2001
MUCH HAS BEEN SAID OF LATE ABOUT THE SHORTFALL BETWEEN GOVERNMENT EXPENDITURE AND REVENUE, WITH MALTA'S CONSTITUTED BODIES HITTING OUT AT GOVERNMENTAL POLICY, WHILE THE GOVERNMENT, ON ITS PART, REITERATES THAT THE ECONOMY IS ON TRACK AND THAT IT WILL REDUCE THE NATIONAL DEFICIT TO LM85 MILLION BY BUDGET DAY.
IS THE GOVERNMENT SPENDING BEYOND ITS MEANS?
THE MALTA FINANCIAL AND BUSINESS TIMES LAYS OUT THE FACTS.
Last week the National Statistics Office reported that the shortfall between government ordinary revenue and total expenditure over this year's first seven months of this year tallied up at Lm68.9 million - up from a comparable shortfall of Lm61.5 million reported during the same period last year.
However, with total government revenue accounting for only 54 per cent of government revenue and government expenditure to date accounting for 58.3 per cent of estimates Finance Minister John Dalli still has some two and a half months to meet his target of reducing the budgetary deficit from the Lm150 million he had started the legislature with to the reduced deficit of Lm85 million he intends to wrap the budgetary year off with.
Mr Dalli stated earlier this week that the government's plans to reach the target are on track. However, if the government does manage to accomplish its goal, it would have effectively brought the national deficit down from 12 per cent five per cent of gross domestic product. Mr Dalli also expects to register a four per cent overall growth rate for the economy for the whole of the year.
Deficit, the EU and GDP
EU finance ministers are expected next month to debate how to respond to the economic slowdown without violating rules on budget discipline underpinning the euro single currency, an EU Commission spokesman stated earlier this week.
However, The euro-zone's two powerhouses, Germany and France, have both questioned the pact's budget deficit targets in recent days because of slower than expected growth in Europe.
The 1997 so-called Stability and Growth Pact requires euro-zone countries to aim for budgets in balance or surplus in the medium term through annual targets.
Commission spokesman Gerassimos Thomas said finance ministers will discuss the pact during an upcoming informal meeting 21-23 September in Liege, Belgium.
"This is the first time we face the situation," of an economic slowdown, Mr Thomas said.
However, he reiterated that member nations and the Commission remain committed to the objectives of the pact, which also seeks to ensure that the deficit of euro-zone members doesn't exceed three percent of gross domestic product.
Countries that have brought their budgets "close to or in surplus" since joining the monetary union have greater flexibility in an economic slowdown, he said.
But the Commission has told Germany, France, Italy and Portugal to refrain from using automatic budgetary stabilisers, which are built-in changes in government spending and taxation that tend to damp the business cycle.
Malta's social partners
A joint statement released by the Malta Federation of Industry, Malta Chamber of Commerce, Malta Employers Association, Malta Hotels and Restaurants Association and the GRTU Association of General Retailers and Traders, stressed that the situation is worrying because governments spending requirements can only maintain their present momentum by further taxation.
It adds, "Industry and business in general, and even the workers are already being taxed at high rates. If these increase further they will only serve as a disincentive for investment by employers and can only be expected to reduce the will to work on the part of our workforce. It is evident that the situation is leading the country to a lower level of competitiveness on the international market. Our enterprises are finding it increasingly difficult to compete with the costs they can manage for their manufactured goods and services.
The statement reminded the government that, in this situation, the associations would have expected urgent action by government to benchmark its expenditure levels and to start a programme of eliminating waste, generally reducing inefficiency, and trimming down, rather than increasing, employment in the public sector. The country simply cannot afford to carry on ignoring the problem of spending beyond its means and expecting the taxpayer to solve the problem through more taxation. This is unacceptable and will only serve to depress the economy further rather than stimulating the creation of wealth.
It adds, "It is pertinent to note that in its latest report on Malta published earlier this month, the International Monetary Fund stated that 'Fiscal deficit reduction would best be achieved through expenditure reform rather than through further increases in tax burden.'
"In this scenario the five organisations call for a concerted effort to be made by the countrys social partners to responsibly put a halt to any unjustified wastage of funds on public projects and to any improvements in wages and/or conditions of employment which cannot be justified by increases in productivity levels particularly in the public sector and state-owned enterprises.
"Otherwise, this situation will require more money which can only be obtained through higher taxes and charges mainly subsidised by the private sector. Employees paid directly or indirectly by the State cannot demand any more benefits from the taxpayer without themselves contributing more to solve the current financial problems. This must be the quid pro quo value for money contributed by the public sector. The general improvement in working conditions in the public sector can only be maintained if the private sector of the economy manages to retain its competitiveness through stable costings through an increase in efficiency, output and profitability.
Ordinary revenue - +5.6%
Compared to the first seven months of last year, ordinary revenue, up or 5.6 per cent, and amounted to a total of Lm359.8 million.
Among the main protagonists in the rise are revenue from Consumption Taxes (VAT) -up by Lm6 million or 10.1 per cent - income tax and social security - up by Lm5.4 million and Lm6.7 million respectively - profits on lotteries - up by Lm1 million - while customs and excise revenue declined by Lm2.8 million or 8.6 per cent.
With some 10 weeks left until budget time, total ordinary revenue only accounts for 54 per cent of this years original budgeted revenue forecast.
However, it must also be noted that during the comparative period last year, the government had also received Lm12 million through proceeds from the sale of assets and of Lm6 million in the form of grants. Meanwhile, this year the government saw no revenue from asset sales, while revenue from grants amounted to less than Lm0.5 million.
Expenditure - +6.4%
Wage increases - +Lm13.9m
Programmes and initiatives - +3.1%
Meanwhile, contributions to the government entities category this year registered a comparative increase of Lm2 million, on account of this years contribution to the University of Malta and the Junior College.
Operational and maintenance expenses - (-Lm3.5m)
Public debt interest - +Lm0.7m
Capital expenditure - +17.1%
Meanwhile, additional capital outlays of Lm1.5 million and Lm2.2 million were reported for, respectively, road works and the acquisition of property. Mainly due to Malta Freeport's debt servicing costs, capital expenditure by the Economic Services Ministry showed a comparative increase of Lm4 million, which were partially offset by a decrease of Lm1.2 million in payments on projects of the Education Ministry.
Government debt - +10.8%
Additionally, at the end of July government debt was Lm68.8 million higher when compared with the end of last year. Compared to data for the end of June, this debt was up by Lm19.6 million.
They exclude Multilateral Investment Guarantee Agency (MIGA) and International Bank for Reconstruction and Development (IBRD) positions, as well as government guarantees on foreign loans taken by the Central Bank on behalf of the Malta Government as these loans already feature in the calculation of Government foreign debt.
The aggregate figure of Lm434.7 million was arrived at by adding the
amount withdrawn (being an overdraft or loan), with the interest charged
during the period under review. If this figure exceeds the limit, the
latter is then reported as being the total balance guaranteed by government.
Within this context it is interesting to note that the amount of Government
Guaranteed debt has been declining over the last few years. In fact,
the June figure is almost Lm35 million lower than the Lm469.7 million
guaranteed at the end of last year.