Ambitious projection in tax collection of €2.7 billion for 2013

Finance Minister Tonio Fenech's budget speech yesterday set the deficit target for end-2012 at 2.3%, a positive conclusion to the year in which the European Commission told the government to cut spending by €40 million.

At €2.8 billion revenue collected in 2012 will be 3.14% less than what was approved in last year's budget, while expenditure at €2.6 billion was 1.65% more than approved resulting in a €143,101 million recurrent shortfall.

In 2012 the revised estimates for income were lower from tax and other income; yet for 2013 the government is expecting€258 million more.  Expectations for such a growth in the economy may turn out to be too optimistic.

A substantial part of this increase is coming from EU contributions and the rest from tax and related activities as a result of the projected growth in the economy.

On the other hand the value for expenditure for 2013 appear to be more realistic.The amount expected from national insurance contributions projected for next year of €51 million more appears to be over-ambitious, unless this is justified by an increment in the labour workforce.

A close look at collected tax shows that in 2012, the government collected €2.515 billion against €2.541 billion projected. The projected target for 2013 is €2.710 billion.

Capital expenditure drastically fell in 2012 by 24% to €322 million, than what was originally approved in 2012.The first observations for 2013 in terms of revenue appear to be an ambitious 26% increase in capital expenditure over that of 2012.

The final deficit for the consolidated fund projected for 2012 will be €179 million, 23.7% over the original estimate of €145 million.

Fenech said the deficit will be further cut down to 1.7% in 2013, 1.1% in 2014 and 0.6% in 2015 according to the financial projections he presented.

Government debt grew from 70.89% in 2011 to 71.55% of GDP in 2012, and is expected to be trimmed down to 66.99% by 2015.

Fenech said yesterday that he predicted economic growth to be of 1.2% in real terms, while inflation would have reached 2.3%

Fenech told the House yesterday that the economic crisis that rattled the rest of the world had still not ended since it emerged in 2008, but said Malta had managed to stay safe in the waves hitting its shores.

"We have managed to increase the number of job placements, because year after year we addressed the most important aspects for our families and workers - work, education and health," Fenech said.

Fenech said that in the shadow of the debt problems afflicting such countries like Greece and other eurozone states, the Maltese government had managed to safeguard its own financial position to such an extent that it emerged from the Commission's excessive deficit procedure.

"This gave us the confidence necessary to prepare a Budget that includes a series of initiative that will continue to foster economic growth and job creation," Fenech said.

Malta's unemployment rate was 6.5% in 2012 compared to 11.4% in the eurozone.

Back in September, Fenech aid the government is will be revising its 2.2% deficit target for 2012 slightly, but said this would remain well below the 3% of GDP threshold set by the EU's Maastricht criteria.

Coming a day after Moody's credit rating agency said it expected Malta's deficit to rise to 2.9% by the end of 2012, it was the first time Fenech had suggested the government will not be able to reach the deficit target it set itself.

GDP declined marginally by 0.1 per cent in real terms during the first two quarters of 2012 when compared with the same period of 2011.

This reflects a decline of 1.2 per cent registered in the first quarter followed by a positive growth rate of 0.9 per cent in the subsequent quarter. In nominal terms, the growth rate registered during the Survey period stood at 2.0 per cent down from a growth rate of 5.7 per cent registered in the same period of 2011.

The contraction in real GDP recorded in the first half of 2012 was driven mainly by domestic demand that contributed to a negative 1.2 percentage points with private consumption acting as the main drag towards growth alongside gross fixed capital formation.

On the other hand, the external sector continued with its positive performance as net exports contributed 6.4 percentage points towards growth in the first half of 2012. On the other hand, changes in inventories contributed negatively to growth.