Update 2 | National debt up by ‘€766 per capita’ • Scicluna confident about reaching target

The Government’s finances are on track and are in line with the projections laid down in the 2014 budget, the Ministry for Finance insisted today.

According to the ministry, the data published today by the National Statistics Office showed that both government revenue and expenditure are in line with the 2014 Budget projections.

The statement follows comments by shadow finance minister Tonio Fenech who insisted that Malta’s deficit and debt levels have continued to spiral out control in the first seven months of the year.

During the first seven months recurrent revenue registered an increase of €87.3 million, offset by higher expenditure of €137.8 million when compared to the corresponding period last year, thereby widening the shortfall between recurrent revenue and total expenditure by €50.5 million.

On the revenue side, Government finances increased by as much as €38.8 million beyond what was forecasted.

“The cash flow shortfall in excise duty due by Enemalta will be made up fully before the end of this year and accrued accordingly. There is therefore no effective increase in the central government deficit over last year,” the finance ministry said.

Furthermore, both income tax and social security contributions recorded an increase when compared to projections.

“In fact, revenue from income tax increased by €24.6 million while revenue from social security contributions recorded an increase of €14.2 million.”

According to the ministry, this reflected the sustained generation of employment driven by a strong employment growth rate that is among the highest in the European Union.

Revenue from other non-tax revenue sources were also broadly in line with projections.

On the expenditure side, the total expenditure for the period was marginally below what was projected for the 2014 budget.

This positive performance on the expenditure side was mainly driven by lower-than projected expenditure on programmes and initiatives, operations and maintenance.

“The NSO’s figures continue to confirm that Government finances are in line with the budget estimates and Government is confident that we are on track with regards to reaching the deficit target for this year,” said Finance Minister Edward Scicluna said.

The Opposition’s reading of the national statistics was not as bright as the government’s with the former finance minister insisting that the deficit and debt levels have now spiraled out of control.

“The data published by the NSO shows deficit figures which indicate that Malta will be above the 3% mark by the end of the year with the deficit going up by €309 million, which is substantially higher than what should have been achieved at this point of the year. At this point the deficit last year was €51 million less. As a result, the Labour Government has now increased Malta’s debt by €400 million, that’s almost €1,000 per head,” Fenech said.
“This is a result of a drastic increase in Government expenditure – which, excluding the areas of social security and education, shows an increase of no less than €100 million. Worryingly, while Government is saving costs by cutting on democracy (removing elections) and support to investment (as happened with the non-continuation of a number of funds aimed at businesses), it had no difficulty spending close to €60 million more in salaries and operational expenditure.”

Malta’s national debt as at July 2014 amounted to €5,267 million up from €4,944 million registered in March 2013. The increase is of €322.7 million and not of €400 million, a government spokesman explained.

The spokesman denied that the increase in national debt was of €1,000 per capita, but of €766 per head. He added that during the last five years of the Nationalist administration, national debt per capita increased by €4,000.
Fenech said the latest NSO data on finance confirmed the evident difficulties afflicting the private sector: although income tax revenues have increased in 2014 over 2013, this increase is over 50% lower when compared to the increase registered last year.
“Unfortunately for the job prospects of Maltese and Gozitan workers, Government has sought to recoup its excesses on salaries and cost of operations, by cutting off €18 million in productive investment,” he said.
“This data point towards one simple conclusion – a Government which is clearly off-track in its financial goals. The PN urgently calls on Government to review its expenditure, particularly in terms of increased expenses in the public sector, and, not to resort to cutting off crucial expenditure items on which the livelihood and quality of life of Maltese families depend.”

But Scicluna insisted it was “ironic” for Fenech to undermine the economic and fiscal successes of the Labour government. He went on to point out that Malta entered into Excessive Deficit Procedure (EDP) twice in the space of a few years and his financial leadership.

“The Opposition’s wilful misinterpretation of published figures, coupled with its refusal to even recognise its shambolic legacy, far less accept responsibility for it, confirms that the Opposition has not yet learned from its gross economic and fiscal mismanagement, and lacks all credibility on economic and fiscal issues,” Scicluna said.

Increase in recurrent revenue

According to the data release by the NSO, recurrent revenue was recorded at €1,631.1 million, up by 5.7 per cent over last year. The main contributors to this increase were Social Security Contributions (€33.7 million), Income Tax (€30.2 million) and Value Added Tax (€27.0 million). Conversely, Customs and Excise Duties registered a decline of €22.4 million.

Recurrent expenditure increased by €108.7 million, mainly as a result of higher spending on Programmes and Initiatives (€51.8 million). The major increases registered in the Programmes and Initiatives category were recorded in the social security state contribution, which also feature as revenue (€10.1 million), public service obligations (€9.9 million), medicines and surgical materials (€7.7 million), EU own resources (€3.8 million), the contribution to church schools (€3.6 million) and the ex-gratia grant scheme for motor vehicles (€3.2 million), among others. In addition, Personal Emoluments and Contributions to Government Entities increased by €28.1 million and €25.0 million respectively. Operational and Maintenance Expenditure went up by €3.9 million.

The interest component of the public debt servicing costs for the period under review amounted to €131.9 million, an increase of €1.3 million from last year .

Expenditure on Government’s capital projects amounted to €226.2 million. The increase of €27.8 million was mainly brought about by higher outlays on EU funded capital projects which were partially outweighed by a lower equity injection to the national air carrier.

At the end of July, Central Government debt stood at €5,267.4 million, up by €283.5 million over the corresponding period last year. This was the result of higher Long-term and Short- term Borrowing, which added €140.9 million and €126.9 million respectively. On the other hand, foreign borrowing went down by €10.6 million. As a result of consolidation, lower holdings by government funds in MGSs brought about an increase in debt of €21.1 million. The euro coins issued in the name of the Maltese Treasury went up by €5.2 million when compared to the coin stock as at the end of July 2013, and totalled €58.4 million.