Update 2 | Never mind the surplus, here is the deficit: Government €70 million in the red

An extraordinary increase in capital expenditure last year pushed central government finances into a deficit of €70 million, reversing the surplus achieved in 2017

Finance Minister Edward Scicluna had projected a surplus for 2018 when delivering the Budget speech last year
Finance Minister Edward Scicluna had projected a surplus for 2018 when delivering the Budget speech last year

Updated at 1pm with government reaction

Central government finances registered a deficit of €70.2 million last year, reversing a surplus of €183 million registered in 2017.

Figures released by the National Statistics Office on Friday show that total expenditure shot up by €521 million, outstripping the increase of €269 million in government revenue.

The NSO said total recurrent revenue stood at €4.6 billion in 2018.

Income from VAT increased by €106.8 million, followed by an increase of €92.8 million in social security contributions. Income tax proceeds increased by €75.7 million.

Expenditure stood at more than €4.6 billion, driven by an increase in recurrent expenditure of €278 million and a 73% increase in capital expenditure of €255 million.

This means that central government registered a deficit of €70.2 million by the end of 2018. When delivering Budget 2019 last October, Finance Minister Edward Scicluna projected a surplus of €16.6 million in the consolidated fund - the central government.

Government outlay on programmes and initiatives increased by €114.7 million. Higher expenditure was also recorded on contributions to government entities (+€81.7 million) and wages (+€60.1 million).

Capital expenditure in 2018 totalled €605 million with the higher outlay coming from expenditures due on EU-funded projects.

The interest component of public debt servicing amounted to €203.6 million, a drop of €11.5 million over 2017.

Public debt dropped by €52.8 million in 2018.

Government justifies reversal of fortunes

The shift from surplus to deficit in the consolidated fund was a result of the “record” expenditure on capital projects in 2018, Finance Minister Edward Scicluna said.

Reacting to the financial results released by the NSO, Scicluna said for every €2 invested in capital projects in the last year of a Nationalist administration in 2012, government invested €5 last year in capital projects.

“This strong investment in capital projects is testament to government’s vision to build the Malta of tomorrow by strengthening the country’s infrastructure,” Scicluna said.

He explained that if government kept capital expenditure to the same level as that of 2017, the consolidated fund would have registered an even higher surplus of €185 million in 2018.

Scicluna said the higher income registered in 2018 made up for the higher recurrent expenditure in the same year.

“Government’s diligent management of public finances has led to a reduction in the expenditure on interest payments on public debt and for the second year running, an absolute reduction in debt,” Scicluna said.

Cost of running government bloated bloated by corrupt practices - PN

In a statement, the Nationalist Party stressed that, according to the statistics, between 2017 and 2018, the government’s consolidated fund had ended lost €253 million.

It said that as evidenced by a series of reports by the Auditor General, the government had repeatedly acted against the principles of good governance and value for money.

“In its latest report, the Auditor General reported how the Ministry of Health employed personnel on the eve of an election at an annual cost of €2 million,” the PN’s finance spokesperson Mario de Marco said. “This was not an isolated case. In 2017, the public sector headcount shop up by over 1,500.”

He said the bill for such corrupt practices was ultimately going to be borne by the taxpayers. “Whilst government was dishing out jobs to curry political favour, it neglected to provide for key areas,” he said.

De Marco also said that recent NSO statistics for January and February this year showed that the “trend of deficits which started in October of last year is persisting also into the current year”.

“The government has bloated the daily cost of running government, costs that were being financed by one-off revenue streams, as confirmed by the European Commission in the Malta Country Report 2019,” de Marco said.

“Those streams are running dry and now government and the Maltese tax-payer are being faced with the problem of how to sustain the reckless spending of Government.”  

The PN said it was calling on the finance ministry, which it said had “failed in nearly all of its obligations”, to explain how it intended to solve the “serious shortfall” in government finances.

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