‘No new or higher taxes,’ Clyde Caruana pledges as deficit soars on back of pandemic

Finance Minister Clyde Caruana says the deficit for this year has been revised upwards to 12% but government will not increase taxes to make good for COVID-19 impact

Finance Minister Clyde Caruana
Finance Minister Clyde Caruana

No new taxes will be introduced and no tax increases will take place in the foreseeable future, Clyde Caruana has pledged despite a rising deficit.

The Finance Minister insisted this afternoon that public finances were still sustainable in a reaction to the latest figures released by the National Statistics Office.

“The biggest mistake now would be to introduce new taxes or increase existing ones. The economy needs support and certainty and the government still has firepower to continue doing so since the debt-to-GDP ratio in the pandemic is less than what it was before 2013,” Caruana said.

He insisted the deficit will be reined in through economic growth and by ensuring that government collects all that is due to it.

“Businesses need peace of mind and this is why I am reiterating the commitment not to increase or introduce new taxes,” Caruana said.

Coronavirus led to additional expenditure of €5m per day

The NSO said public finances registered a deficit of 10.1% last year as government expenditure shot up to cushion the impact of the coronavirus pandemic.

The pandemic has resulted in an additional expenditure of €5 million per day, Caruana said, adding the government has revised upwards its deficit forecast for this year to 12%.

The revision is a result of the continued pressure caused by the pandemic. The Budget deficit forecast for 2021 stood at 5.9%.

The upward revision, he said, was the result of government’s commitment to continue financing the wage support scheme until the end of the year and the State aid that will be given to Air Malta if approved by the European Commission.

The Finance Minister said the deficit would climb down to 5.6% next year and drop below the Eurozone’s 3% threshold in 2024.

“We have continued to support the job market, which will ensure that the economy will grow at the fastest pace in the EU next year,” he said.

Caruana noted that Malta’s jobless rate remained among the lowest in the EU.

“This does not mean workers have not felt the pinch of receiving less income as a result of the economic situation but the wage support scheme has preserved jobs and this will ensure we are best placed to benefit from a post-COVID recovery,” Caruana said.

The tourism industry last year saw tourists spend €455 million, a sheer drop from the €2.2 billion they spent in 2019. This is the principle reason for the large economic impact Malta sustained from the pandemic, which reflected itself in public finances, the minister added.

NSO figures

The NSO figures showed that the deficit stood at €1.3 billion last year, a reversal of the previous year’s surplus of more than €50 million.

Expenditure in 2020 increased by almost €1 billion, while revenue decreased by almost €400 million.

Government debt shot up to €6.9 billion, or 54.3% of GDP in 2020 and is expected to climb to 65% in 2021.

The figures released today are part of the first reporting for 2021 under the Maastricht criteria.

“The fiscal results for 2020 were largely impacted by the COVID-19 pandemic and subsequent government measures to mitigate the economic, social and health risks associated with the pandemic,” the NSO said.

Projected deficits and debt

Year Deficit Debt
2021 12% 65%
2022 5.6% 66%
2023 3.9% 66.5%
2024 2.9% 65.9%