Edward Scicluna’s strategy pays off

Not many finance ministers across Europe have the luxury of presenting budgets that turn up a fiscal surplus while being generous at the same time.

But Edward Scicluna is exactly in that position after four years of carefully planned economic management that has turned the country around.

After years of running annual deficits that had to be sustained through public debt, Scicluna’s run as finance minister ditched the runaway expenditures. 

He kept an annual €25 million cap on new measures, each time targeting specific groups. He also used the money to introduce measures that stimulated economic growth and encouraged employment.

Scicluna cut direct taxes and balanced out the higher expenditure by cranking up excise taxes on a wide range of products.

The strategy worked. Malta has experienced phenomenal economic growth fuelled by domestic demand and foreign investment. This resulted in virtually full employment that has necessitated the importation of labour.

Growth also contributed to higher than expected revenues, which saw the country register a general government surplus in 2016 for the first time in decades. The feat will be repeated this year even though the finance minister did not plan for it.

But now, Scicluna is actually forecasting a surplus for 2018, an achievement that was last seen in 1981.

And this will come on the back of a budget that will not increase taxes but rather introduce a host of measures that will benefit various categories. The minister has actually increased the expenditure cap to €35 million, reflecting Labour’s much vaunted ‘best of our times’.

However, the finance minister has failed to explain why his financial estimates have recorded a regression in the consolidated fund. While the general government accounts, which also include the income from the Individual Investor Programme, show a surplus of €54 million in 2018, the consolidated fund (ordinary revenue and expenditure) shows a deficit of €21.4 million. The consolidated fund deficit is a regression on the €8 million surplus of 2016.

There is a social slant to the budget in that it tries to mitigate the impact of a revving economy on the more vulnerable families.

Pensioners will get an across the board increase of €2 per week and low wage earners will see the in-work benefit increase, among other measures.

Whether these will be enough still has to be seen but the emphasis has to do with the criticism the government has been receiving that wealth has not reached everyone. The provisions to introduce some form of control on rents may not fully satisfy the demands of anti-poverty campaigners and the government will have to monitor the situation carefully to ensure the measures will deliver the intended impact.

The introduction of a day’s leave in the absence of an agreement with employers on the best way forward on the compensation of public holidays falling on a weekend, shows the government’s resolve to fulfil its electoral pledge. While employers are unlikely to applaud this move, the government has treaded carefully not to adopt a big-bang approach.

In many ways it reflects the prudent approach Scicluna has adopted over the past four years.

While Budget 2018 has an overall positive outlook and may represent an early Christmas, it does not splash out unnecessarily. It is evident that Scicluna wants to stay the course and maintain a general surplus over the medium term.

It would have been better had the surplus also been maintained in government’s ordinary income and expenditure.