Deficit could be as high as 3.5% - Prime Minister

Prime Minister Joseph Muscat today revealed that the government's deficit had surpassed the 3% of gross domestic product, putting paid to claims by the previous administration that it would take the deficit down to 2.3%.

"The public finances are not as they have been described, but they are how we expected them to be," Muscat said in a presentation on the budget, which he will take to the House on Monday after it was voted down in December 2012.

As Opposition leader Muscat voted against the budget even though he said his government will keep the budget's contents, including tax cuts for the 35% tier that will fall to 25% within three years' time.

"We will still be able to carry out our electoral programme. We won't complain. But our goal is to say how we will be moving forward," Muscat said, adding that Labour's electoral programme was based on EU and IMF projections.

"It is clear that political instability in 2012, that was finally resolved by the election, had an impact on government income with a corresponding increase, seeing the deficit surpassing the 3% mark. The final figure in hand includes accruals. We are expecting a deficit of anything up to 3.5% of GDP."

Muscat said he will retain the budget but aim for a deficit that goes below the 3% mark as demanded for eurozone members.

However this might still open Malta to the risk of an excessive deficit procedure.

The government's revenue was €157 million or 4.3% than what was expected for 2012, with forecasts for 2013 to increase revenue by €300 million now looking all the more difficult to achieve.

It will be finance minister Edward Scicluna who will present his plan on Monday to see how revenue and expenditure will be adjusted, even though the Budget will not be amended save for the tax cuts that previously would have eaten into the minimum wage.

"I am convinced that Scicluna's clear plan will enable us to reach our target. For example, we are talking to all heads of government entities and committees to understand their clear function," Muscat said, hinting at public expenditure cuts.

He also said that MEPA's former chairman was paid some €100,000 with a chief executive assisting him. "We told the new chairman to forget such a package, and that he would be remunerated at €17,000," Muscat said of Vince Cassar, who succeeded Austin Walker as chairman of the planning authority. "We're not tightening our belt, but being rational."

Muscat also said that with social services expenditure set to increase over the next months, there was a clear plan to increase utility bills. "Our energy plan will be on time with no repercussions on public finances," the prime minister said.

"Our challenge is the creation of jobs. We're starting consulting the private sector for their contribution, and next Monday we will invite both public and private sectors for their proposals, including infrastructural.

"We won't take political advantage of this situation, even though it was created by the previous administration. We have worked hard these four weeks towards financial consolidation, and we have to create jobs and address the upward trend of unemployment."

On other matters, Muscat defended the nomination of John Bencini to MCESD chairman. He said the council had a history of chairpersons mainly picked from the world of employers and that he wanted to see a rotation of chairpersons from unions, employers and civil society. "The MCESD is nobody's monopoly. Bencini will prove himself."

Muscat also told the press there was a clear distinction between the robustness of Malta's banking system and the fraught conditions of the Cypriot financial sector. "I urge the media to exercise prudence... much as the government of Luxembourg is saying, comparisons between our countries in this sense is not good."