31 August 2005


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GDP shrinks whilst government’s recurrent expenditure increases

Michaela Muscat

Malta’s Gross Domestic Product has decreased by 0.5 per cent in real terms, bursting the government’s bubble - following the ceaseless issue of verbose economic strategy documents.
The shrinking of the Maltese economy is yet accompanied by an increase in the recurrent expenditure of 5.5 per cent. Recurrent expenditure alone represents more than 56 per cent of the approved budget for this year. Yet it does not even include public debt servicing which has also increased, by 5.96 per cent.
The GDP includes the income attributable to the one-off payment of the Investment Repatriation Scheme but excludes the Lm nine million in debt owed to medicinal firms.
It is doubtful that the government’s projected deficit target of Lm 76 million will be reached by the end of 2005. Government has already stated its intention to join the Euro zone by 2008 however the actual deficit figure falls Lm23.2 million short of the budget projection.
The syncing of the Maltese economy to the already standardised European economy is imperative to enable Malta to join the Euro.
The Maastricht criteria which must be adhered to in order to join the Euro Zone, state that deficit must be less than four per cent.
The government’s performance in the economic sector cut no ice with Malta Labour Party’s deputy leader Charles Mangion either. Referring to the National Statistics Office’s Government Finance report, Mangion commented that “the increase in taxation and other financial burdens is resulting in less consumption and an economic slowdown.”
Government revenue in the form of income tax and social security contributions has barely budged, instead increasing due to the spiralling VAT rates and EU grants. An increase of more than Lm16 million and Lm18.6 million were respectively registered.
Mangion who is also MLP’s spokesperson for Finance and Economic Affairs berates the government for maintaining its income through an increase in taxes and tariffs. He added that “not only have taxes increased by 20 per cent, the inflation of 2.8 per cent is resulting in another increase in government income due to the VAT being tied to commodity prices.”
The predicted increase in oil price, circa $100 per barrel by Christmas and hurricane Katrina’s devastation will only serve to increase supply side inflation and deepen the recession or the so-called stagflation. Oil companies throughout the Gulf of Mexico have had to evacuate their employees, cutting oil production by 92 per cent.
Saudi King Fahd’s death and the closure of oil refineries in Illinois and Texas, in the same week had already inflated oil prices around a month ago.

michaelam@newsworksltd.com



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