Clyde Caruana on excessive deficit procedure: ‘I am not surprised’

Finance Minister Clyde Caruana said government expected excessive deficit procedure, saying he was not surprised by the announcement.

“I was involved in framework reform discussions earlier this year, and I knew it would happen, but there is nothing to worry about, we are on the right track,” Caruana told the House on Wednesday.

Caruana was referring to a reform of the bloc's economic governance framework carried out earlier this year. The reform aims to slash debt ratios and deficits while maintaining investment in strategic areas such as digital, green, social or defense.

The minister explained how governments whose debt exceeds the limit of 60% of gross domestic product, or where the government deficit exceeds 3% of the GDP, will receive a "reference trajectory" - formerly known as a technical trajectory - from the Commission charting out a path to achieve "prudent" debt levels within four years. Governments will be allowed to request an extension of the four-year adjustment period to a maximum of seven years, if they carry out certain reforms and investments.

Clyde Caruana’s speech comes after it was announced Malta is set to face an excessive deficit procedure after the European Commission recommended action against seven EU member states.

“Because I know the rules of the game, I was not surprised,” he said. “In the coming four years, as promised by government, deficit will be lowered to under 3%.”

He said in the coming years, through government policy which will continue to bolster economic growth, the debt compared to the GPD will remain at around 50%.

“I have no pressure exerted on me by Brussels. If I did, I would not be coming here saying that our promises of economic growth and a reduction in taxes, would be fulfilled,” he said.

Turning his sights towards the Opposition, he said those who are “drooling at the mouth” that excessive deficit procedure would spell bad news for government “will be proved wrong.”

“I am not inventing anything because I was present in the negotiations, and people should remain serene,” he said. “But I must ask the Opposition: How would they be reducing deficit? Would it mean a shock to the system? If the rules allow it, why not give the economy a soft landing?”

READ ALSO: Malta set to face Brussels’ deficit procedure. Is it something to worry about?

He also drew comparisons to excessive deficit procedures under the Gonzi administration, saying the rules have changed.

“12 years ago, there was no pandemic, no war and no sharp inflation in energy prices, and the debt was 20% higher,” he said.

He also pointed out that despite “what happened in the past three years”, credit rating agencies did not change their outlook. “Nothing happened, and nothing will happen.”

READ ALSO: Malta’s national debt in numbers

Tax-refund cheques for foreigners

Caruana concluded his speech by replying to concerns raised by Nationalist MP Graham Bencini on Tuesday, who in parliament, questioned why tax-refund cheques were being handed out to foreign workers.

The minister slammed Bencini’s statements, pointing out that foreigners contribute heavily to the country’s economy.

“Let’s be careful how we speak here [parliament], our words hold more weight,” he said. “They are people who contribute to the economy, and giving our country a service.”

Caruana said he spoke about the challenges posed by foreign workers “a number of times”, and understands concerns, “but we must be careful how we approach the subject.”