More than simple budget blues
analyses the targets set out in last years budget
When Finance Minister John Dalli tonight stands up in Parliament to
deliver his budget speech stakeholders eyes will be fixed on the
financial figures he will give.
In last years budget Mr Dalli produced some ambitious projections
to stabilise government finances and reduce the recurrent deficit. The
blueprint laid out in front of Parliament established 2004 as the date
by which government would have reached its target of reducing the structural
deficit to 3% of the Gross Domestic Product.
Last year government managed to reduce the structural deficit to 6%
and the projection for this year is to bring it down to 5%. Judging
from the January-September figures released by the National Statistics
Office government seems to be well on track to achieve the projection
and it could possibly even go further below than that.
The same holds water for the recurrent balance, which last year registered
a surplus of more than Lm2 million. This was the first surplus registered
in five years.
Mr Dallis projection for this year is that government will end
up with a recurrent surplus of Lm12 million. The actual figure might
even be higher.
Over recent weeks both Mr Dalli and the Prime Minister have spoken about
a positive feeling without giving much information. Finance ministry
officials reveal rather secretively that the actual results obtained
may well be beyond what was projected in last years budget. There
seems to be an expectation that government has managed to curb the structural
deficit and cap it at 3%, three years earlier then expected.
The recurrent surplus may also be higher than what was projected. Until
September the surplus was almost a Lm100 million higher then the end
of year projection. However, one must keep in mind that the last quarter
of this year is a very crucial one, especially after the 11 September
attacks and the continued international slowdown in the high tech industry.
Looking at the other projected indicators, one can see that registered
unemployment is still relatively too high for governments 4% target.
The same can be said for public sector employment. Although last year
Mr Dalli did not give any projections on governments intended
figure to reduce public service employment, the expectation is that
it should stand at between 25% and 30% of gainfully occupied workers.
The most recent figure puts public sector employment at 35%, nothing
near the expected figures. This evening private sector leaders would
expect Mr Dalli to announce target dates for reducing public sector
employment to more manageable figures.
It must not be forgotten that after social services, public sector wages
are the second heftiest expenditure bill for government. Last years
collective agreement increased the wage bill by almost Lm50 million.
Another collective agreement has to be signed by years end. This
evening unions will be all ears waiting for government to announce its
intentions on the forthcoming collective agreement. Mr Dalli himself
has already expressed his views that government wants to see no change
in wage structures discussed in last years collective agreement.
In other words he is clamouring for a wage freeze for the next three
years. Mr Dallis argument is that the current public sector wages
adequately reflect the work done.
Turning on to revenue this current year has seen a record amount of
tax revenue from increased enforcement rather then new taxes. The same
is expected for the next year, more so after launching the Tax Compliance
Unit, strategically on the eve of budget day. The Unit is expected to
rake in an additional Lm40 million from increased enforcement over the
next five years.
Although the inflation rate has been on the increase since June, the
latest September figure is well within the budget projection of 2.5%.
When asked by The Malta Financial and Business Times to qualify his
"the worst is over" statement, Mr Dalli said that the foundation
was set and the economy was moving in the right direction. He added
that the statistics show that government has reached its goals and possibly
This does not mean that we can now all turn to relax mode. In the months
to come EU negotiations will centre on tough chapters, which require
a certain amount of spending. However, according to Mr Dalli we are
on the right track. "I am positive about the outcome," he
told this newspaper.
Will this be a good budget that meets the business and financial
sectors expectations? We all have to wait and see what the finance
minister has to propose this evening.