Updated | Fenech: EC forecast makes Labour pledge to reduce bills impossible

Finance minister Tonio Fenech has hit back at criticism from Labour's spokesperson on finance Karmenu Vella, saying the European Commission's latest forecast spells an end to Joseph Muscat's pledge to reduce electricity bills.

"While Muscat tries hard to believe the challenge from the international price of oil does not exist, the EC's analysis shows Muscat's pledge to reduce energy bills is not possible," Fenech said.

The EC forecast points out the challenges of the international price of oil on the government's attempts to control expenditure, while noting that the subsidies to Enemalta ensures energy bills do not rise any further. "We have passed on €25 million to Enemalta not raise the tariffs this year, despite the rising price of oil. This is our policy," Fenech said.

Fenech said government had invested in a new plant - the Delimara extension currently the subject of renewed controversy after its turbines had to undergo repairs during a mishap at testing phase - for greater efficiency and replace the old Marsa power station.

Labour MP and spokesperson for finance Karmenu Vella said the European Commission's autumn forecast, which says Malta's deficit is expected to widen in 2013, was not based on information from the budget's forthcoming measures and is contradicting claims by finance minister Tonio Fenech that Budget 2013 was already vetted by the EC.

"The EC's fiscal forecasts were made without information concerning the budget for 2013, contrary to what the Minister is claiming," Vella said in a statement today of projections for Malta's deficit to widen yet again in the coming year.

"The minister seems relieved [the deficit] will not exceed 3% as otherwise the EC would oblige the Maltese government to make budgetary expenditure cuts to bring the deficit below 3%. This goes to show that in fact, contrary to what Fenech claimed in earlier statements, the Commission did in fact impose the €40 million expenditure cuts last year as it had then forecast a deficit of 3.5% of GDP for 2012."

Vella is maintaining that yet more increase in energy prices will take plac, on the strength of the EC forecast's claim that energy inflation will "strengthen under the assumption of an increase in electricity prices."

"If Tonio Fenech claims such forecasts are made within the framework for Budget 2013, then the government has led the Commission to believe that a future Nationalist government would continue to raise electricity rates," Vella said.

The Labour MP also said the EC's information that Enemalta will need additional subsidies was a U-turn on the government's declared policy of full-cost recovery. "It is now clear that such a policy could swing with the electoral cycle."

The expenditure cuts were announced by Prime Minister Lawrence Gonzi on 6 January 2012, on the day of a cabinet reshuffle that promoted his parliamentary secretaries and split the justice and home affairs minister.

The EC has also forecast an economic growth figure of 1% for 2012, which contradicts previous optimistic forecasts of 2.3% growth.

"On more than one occasion Fenech rubbished the more realistic 1% growth forecast by the European Commission, the IMF, the Central Bank of Malta, various credit rating agencies, and the PL... even the 1% forecast may seem optimistic in view of the contraction of the Maltese economy by 0.1% in the first half of the year," Vella said.

According to the EC's forecast, Malta's economic recovery in 2010 had lost steam and saw Malta entering a period of recession during late 2011 and early 2012.

But Vella warned that Fenech should be concerned by the EC's projection of a fall in real investment by 0.5% in 2012 following a 14.6% drop in 2011.

"Tonio Fenech's statement of welcoming the EC's economic forecasts is also surprising because these also contradict the finance minister's frequent claims of rising investment," Vella  said, referring to the forecast's indication that capital investment as a percentage of GDP will be low.

The EC's forecast expects Malta's deficit for 2012 to stay below 3%, driven in part by lower capital expenditure and one-off €40 million revenue from the lottery concession fee. National debt is projected to rise at 72.3% in 2012, three points higher than government's original estimate.