[WATCH] Caruana plans spending cuts as energy hike raises deficit concerns

Caruana plans spending cuts as energy hike raises deficit concerns

A government spending review is underway to mitigate the impact of energy subsidies on public finances, Finance Minister Clyde Caruana has confirmed.

The review comes as government remains committed to keeping energy and fuel prices stable in the wake of rising international oil and gas prices.

Caruana told MaltaToday keeping water and electricity rates unchanged was important not to burden consumers and the economy. But keeping the deficit in check was also a priority, he added.

“I stand by with what I said in the past and with the commitment given by Energy Minister Miriam Dalli that government will keep water and electricity rates static because if we were to change them now it would have significant negative impacts on consumers and the economy,” Caruana said.

Burdening consumers with the exorbitant prices would lead to economic slowdown, the minister said, adding that this will in turn create problems for public finances.

However, he insisted the government was also keeping an eye on the deficit. “I want to put everyone’s mind at rest that I am giving priority to the deficit just as I am utility bills.”

Caruana said last year’s deficit at 8% was less than the previous year and was forecasted to go down further this year. “I want to ascertain that the rhythm we picked up [of cutting the deficit] continues in the years ahead.”

Asked whether the additional outlay on energy subsidies will be balanced out with cuts in government expenditure, Caruana said a review is underway.

He said the economy was expected to continue growing although projections have been revised downward and this will yield more income for the government. “But I have started an exercise by which I am looking more deeply into government expenditure to see where we can be more judicious so that unnecessary expenses are cut.”

Eurostat figures released a fortnight ago show that Malta registered a deficit of 8% last year, the highest in the EU but less than what Caruana had been forecasting.

The EU suspended its excessive deficit rules during the pandemic to allow countries to bolster public spending on health and economic support. The rules remain suspended so far but last week Central Bank of Malta Governor Edward Scicluna said the government should, as early as possible, draw up a strategy to start gradually reducing the deficit.

“It’s important to protect the consumer as much as possible, every government wants to do that… The question is, can you afford it?” Scicluna told sister newspaper BusinessToday.

He said consumers had to accept the reality that some resources (such as gas and wheat) are scarce as a result of the war and the higher price serves as a warning to consumers to adjust their behaviour and use them more economically.

“I am sure the minister is already looking at, on the one hand, trying to protect the consumer as much as possible, but at the same time keeping an eye on the deficit and its future reduction,” Scicluna said. “The later we address this problem, the bigger the challenge will be.”

Caruana had set aside €200 million to cushion the impact of rising energy prices when presenting this year’s budget. However, this was before the Russian invasion of Ukraine that has caused energy and food prices to spike.

Enemalta’s fixed price agreement with Electrogas came to an end in April at a time when gas prices are soaring. Additionally, the price of other commodities such as wheat have also shot up, prompting government to support Maltese wheat importers with an outlay of €6 million.

Food prices sky-rocketed in March, pushing the overall annual inflation rate up to 4.5%, according to the Harmonised Index of Consumer Prices (HICP) released by the National Statistics Office.

The HICP showed that the annual inflation rate for food stood at 8.7%.