Upcoming budget to focus on 'fiscal consolidation' and 'enhancing competitiveness'

Finance Minister Tonio Fenech was delivering his pre budget speech prior to a period of consultation during which, he said, government would be considering the options laid out before it.

Throughout his speech, Fenech underlined the need for caution and for government to establish long-term plans and always keep an eye on its spending.

”The fashioning of the budget needs to be based on sustainability,” he said, “or else the chickens will come home to roost.”

“We need to keep our feet on the ground in the context of the reality around us,” Fenech said. “Faced with positive indicators, it is easy when to think that the storm is past us, and that government can open its hands in benevolence.”

He insisted that “we cannot take for granted what is happening abroad,” and added that the financial uncertainty sweeping the Eurozone is placing greater responsibility of caution on other governments.

Fenech also insisted on the importance of Malta sending out a clear message that it is addressing financial stability and avoid being perceived as a financially weak or unstable country on an international level, to avoid scaring off investment at a time when EU-wide worries are already widespread.

“If we do not send out this message on intentional levels, we can easily lose all that we’ve gained,” Fenech said. “If markets, investors, and credit rating agencies begin to perceive that Malta is a country with problems, instead a country that is addressing its challenges, investment will not come.”

Fenech also linked government’s current fiscal caution with the sovereign debt crisis that other European countries are falling victim to, insisting that no government is immune to the financial instability sweeping the Eurozone.

He said that Malta’s Gross Domestic Product for the first quarter of 2011 was up by 2.3%, which is slightly above EU and Eurozone averages. He said that the factors that contributed to this were government’s assistance to certain factories, local projects, and tourism incentives.

Speaking about government’s targets for the upcoming budget, Fenech said government will focus on concentrate on consolidating government finances and nurturing growth through enhanced competitiveness.

He said that the key areas identified to achieve economic growth are consolidating the successes of the financial services industry, sustaining the tourism industry, investing in research, innovation and development, incentivising business industries, and paying specific attention to Gozo as an ecological island.

Asked about the governments’ pre electoral promises regarding tax cuts, Fenech was non-committal: “Tax considerations will be evaluated. We will see what the country is capable of sustaining.”

He also disagreed that government had not lived up to its electoral promises in this regard.

He said that in the first budget following the 2008 election, government had modified income tax bands, adding however that since then “ongoing crisises required government’s attention and reaction.”

Asked about whether Air Malta’s uncertain fate would influence the budget, Fenech was cautious, saying that a lot depends on what the Commission’s final decision would be.

He said that government's indicators are pointing to a decision later on this year, possibly as late as December, adding that if this is the case, it would be a concern that would be closer to the next budget.

Asked about the cost of living increase, and whether government intended to remove it as the European Commission had recommended, Fenech said that the Commission had not recommended that the COLA be removed, but rather that the system be reviewed.

He said that COLA’s fate would be determined by whether the review finds that it had affected Malta’s competitiveness negatively, adding that in his opinion, it did not.

He also referred to a report issued by a German Think-Tank group which found that in past five years, Germany and Malta were the only two countries to sustain a growing economy.

“For the past five years, COLA was around,” Fenech added.