Cassola says reducing deficit difficult with tax cuts

Green party chairperson Arnold Cassola has welcomed a promise of fiscal responsibility and pro-growth reforms to open up the labour market in the pre-budget document for 2014.

But Cassola said Alternattiva Demokratika was sceptical about the forecast GDP increase and inflation decline for the next two years. "The continuous Eurozone recession and the imminent conflict in Syria could easily disrupt the fairly resilient Maltese economy," Prof. Cassola said.

Cassola said that as at June 2013, the government stood short of its projected revenue from duties, licences, tax and VAT.

"This is a concern and surely indicates a decline in domestic expenditure. In reaction to finance minister Edward Scicluna's statement about cutting the 'dead wood' in the public sector, we recall the fate of European countries who have followed the path of cutting spending and are now finding themselves in a downward spiral: cutting spending on a large scale means laying off people, which means less demand for good and services, which means the economy shrinks, which - ironically - means even lower tax revenues and thus even larger budget deficits."

Cassola questioned the ability of the Maltese economy to adhere to the 3% deficit threshold in the light of the reduction of the top-end income tax rates. "Such a measure was ill-timed in this economic atmosphere and it is no surprise that the EU Commission reopened Excessive Deficit Procedure for Malta in June."