Tonio Fenech insists €40 million budget cuts are only precautionary

Finance Minister Tonio Fenech said the government will wait until June 2012 to implement €40 million in spending cuts, if it sees it necessary to implement.

Fenech announced he will implement the cuts if targets to reduce the deficit by the middle of the year is not reached, however government departments will still be expected to propose expenditure cuts in the coming weeks.

"The cuts were not imposed by the European Commission, which gave the Budget the thumbs-up, but it was a precautionary measure which government decided to implement in case the deficit-reduction targets are not reached," Fenech said.

The finance minister said a detailed plan had yet to be compiled and published.

Fenech has already announced that €10 million of the €40 million will come from salaries and wages, by not replacing one out of every two who retire when they reach retirement age, and cutting on overtime. He has insisted that health, education and other essential services will not

Fenech was reacting to a press conference by Labour MP Helena Dalli, in which the MP attacked the budgetary cuts that were announced months after Budget 2012 was announced. He described Dalli's comments as "unacceptable". 

"Government has managed to stay on track for its deficit-reduction targets, also thanks to its membership in the single European currency. Government's programme is reaping results, and it is in that spirit that we took the important step to entrench the obligation of a balanced budget in the Constitution."

Fenech quoted a recent report by the International Monetary Fund that states that Malta's effective action to correct its excessive deficit had restored confidence in its public finances.

The deficit is estimated to have narrowed to 3 percent of GDP and the primary balance turned into surplus for the first time since 2007. Following the additional expenditure measures in January, the fiscal deficit is expected to fall further this year.

The IMF report however says the composition of this adjustment remains suboptimal, "relying excessively on one-off and revenue measures."

Fenech also quoted Eurostat data that found Malta was the EU member state with the greatest cut in government debt between the third quarter and second quarter of 2011. Malta cut debt by 1.6% by October 2011, down to 70.3% of gross domestic product from 71.9%. Government debt stands at €4.47 billion. Compared to the same quarter in 2010, debt is down by 0.1%.

Prime Minister Lawrence Gonzi announced his ministers would be forfeiting their parliamentary honoraria as part of the €40 million in budgetary cuts on 6 January, when announcing a cabinet reshuffle.

The 0.59% cut in government spending, after  European Commissioner Olli Rehn informed the Maltese government on 11 November - three days before the last Budget - that Malta will have to meet its target for a deficit that is lower than 3% of gross domestic product.

The finance ministry said the budgetary cuts will comprise of reducing €6.85 million in new recruitment; €2.75 million in overtime; €4.68 million in operations and maintenance; and a massive €14 million in programmes and initiatives and €11.4 million taken away from public sector entities.