Scicluna confident of 2.1% deficit target, warns 2015 set to be ‘financially challenging’

The government’s target to end 2014 with a 2.1% deficit was on track even though the shortfall by end September amounted to €74 million.

Addressing the last pre-budget meeting with the Malta Council of Economic and Social Development (MCESD), Finance Minister Edward Scicluna warned that next year is set to be “financially challenging”.

“Next year is going to be financially challenging, although not impossible to overcome,” he said, referring to the final €40 million cash injection to Air Malta, Enemalta’s debt and the public transport reform.

Scicluna said the €40 million was a considerable amount paid from taxpayers’ monies and it should be appreciated by tourism operators who repeatedly call on government to reduce their tax burden.

“Traffic congestion is also a major challenge, result of a number of factors including a failed public transport reform and a number of infrastructural works going on across the island,” he said.

Pointing out that other countries such as Singapore applied high taxes on private cars, the finance minister said the government had to find ways to incentivise the use of public transport.

Although the shortfall of government funds was of €74 million by end September, Scicluna said the government is set to meet its 2.1% deficit target.

“The ultimate goal of our budget is to ensure that we are decreasing our deficit sustainably and in credible manner. This will in turn will lead to a reduction in debt,” he said.

Debt currently stands at 69.8% of GDP.

Scicluna said Enemalta owed the government around €65 million in excise duties, an amount which will be settled once the agreement with Shanghai Electric Power and its acquisition of the 33% shareholding in Enemalta is completed.

Recurrent income during the first nine months of 2014 was around €16 million less than expected while expenditure was €58 million more than expected. According to figures given by Scicluna, one of the highest contributors to this was a €23 million increase in personal emoluments. Social security contributions increased by €12 million.

Scicluna said the government didn’t go off track its targets but there were commitments, such as a €60 million contribution to the ESF and ESM funds, that had to be honoured.

He said, that the government will continue honouring a previous administration’s pledge to reduce tax for middle income earners. Since its implementation in 2013, a 35% tax paid by middle income on part of their salaries has been gradually going down. A 29% cut was announced in Budget 2014 and the final reduction to 25%, costing €20 million, will be announced in next week’s Budget.

The finance minister said that the projected collection of €24 million in indirect taxes next year was mainly down to increase in excise duty on fuels and cigarettes, among others. He said that increases in excise duty were inevitable.

Turning to the MCESD members, Scicluna said it was up to the partners to discuss whether they wanted to implement any changes to the cost of living adjustment mechanism.

He said, that the COLA mechanism was highly objected to by the employers as usually it resulted in an increase to the wages that the employers had to pay.

The other extreme was a marginal increase that negatively impacted workers, especially those on the lower end of the income spectrum.

“Low-income households depend on the COLA rise to say an increase in their wages. The Prime Minister has promised to help these people through other measures,” Scicluna said.