In EU aftermath, state finances reveal Malta’s economic burden

Concern was expressed to The Malta Financial and Business Times yesterday over the state of Government’s finances for 2002, which have revealed yet more shortcomings in the administration’s performance for the last year with figures harking back to the darker days of the pre-1998 economy.
Public expenditure has now grown exponentially as a percentage of the gross domestic product, another reminder of the untenable forces within the Malta’s economy.
Total expenditure registered Lm819.3 million, an increase in Lm52.7 million since last year. Recurrent revenue amounted to Lm719.8 million.
The structural deficit is increasing at a faster rate than in previous years. The shortfall has increased to Lm87.7 from 2001’s Lm85.3 million. While between 2000 and 2001 the increase in the deficit was of Lm113,000 only, this year’s deficit registered an increase of Lm2.4 million.
GRTU Director-General Vince Farrugia yesterday voiced his concerns that the state of the economy would be degenerating unless the country increases its productivity:
"We can now see an economy unable to grow at a rate faster than that of our expenditure. Worse still, we are moving backwards. There was a time when we were lowering the ratio of public expenditure to GDP. It has now gone up to a very dangerous 63.9 per cent of GDP."
Farrugia said expenditure had been greater in the case of the public labour force, which has a strong and organised union presence, and also many social forces asking for more public service investment and capital expenditure:
"Unless the economy is pushed and steered into greater growth, we shall be in trouble. Economically we are in a cul de sac, and we have seen this coming from one set of figures to the other.
"We have reached the end of the road economically, having squeezed as much as we can from tourism. Tourism is the springboard we need, and we have to do our utmost within such consultation models such as the MCESD to push productivity and competitiveness upwards.
"What the business community fears is that the Finance Ministry would be thrown into panic, and that it would start to issue more payments and fines to the business community."
Leo Brincat, expressing his personal opinion as an economist, said Government’s predictions on the country’s finances were never justified and that the state of the structural deficit had now gone beyond government projections.

"Public debt servicing does not compare justifiably with the level of expenditure for social services or education. Government’s expenditure is just not being applied productively in areas where it is really needed.
"The problem is however recurrent expenditure. Government does not have any cost-control, waste-control measures to instil a certain discipline within its departments and entities.
"Of course, this was the problem when Labour was in government as well. Everybody used to pass the buck. Basically, we need a culture change. The private sector operates a proper and disciplined form of cost-cutting which does not necessarily mean job shedding. It looks for the fat in the operation and deals with the problem. But Government does not seem to be doing this very well."
Recurrent expenditure amounted to Lm646 million for 2002, up by Lm31.4 million since last year’s.
Personal emoluments, which form part of this expenditure, increased by only Lm1.5 million since last year, where wages stood at Lm196.5 million. Operational and maintenance expenses reduced their outlay by Lm2.1 million to Lm43.2 million. Special expenditure also decreased by 16.9 per cent over last year’s Lm700,000.
Increases in expenditure were registered in the outlays in social security benefits (Lm6.3 million), social security state grant (Lm600,000), pensions (Lm1.5 million), implementation of the EU acquis (Lm4 million), the Agriculture Support Scheme (Lm1.7 million) and e-Government initiatives (Lm700,000).
Capital expenditure increase by Lm17 million to Lm97.7 million. The bulk of the expenditure was carried out on such projects such as the Mater Dei hospital in Tal-Qroqq, where expenditure increased by Lm10.6 million, on roads, with an increase of Lm2.4 million in expenditure and the Shipyards voluntary retirement schemes (Lm5.2 million).
Government debt increased by Lm64.3 million to a total of Lm1,077 million. Public debt servicing has increased to Lm76 million, up from 2001’s Lm71 million.
Treasury bills and Malta Government stock accounted for Lm218.8 million and Lm813 million respectively. The remaining Lm45.1 million was made up of foreign debt, which includes a Lm10.7 million loan for the new hospital taken from the Council of Europe Development Bank.
Recurrent revenue amounted to Lm720 million, increasing by Lm51 million since 2001. The sale of Malta International Airport government shares yielded Lm21 million in capital gains tax, duty on documents and dividends.
Government’s receipt of Lm27.3 million from the sale of the MIA shares have not been included in the calculation of the structural deficit since these are not recurrent forms of revenue.