DEFICIT €79.1m

During the first eight months of 2016, recurrent revenue increased by €100.2 million and reached a total of €2,322.6 million. The share of government revenue from taxes stood at its highest for the past four years, at 91.2 per cent of total recurrent revenue. Revenue from taxes increased by €200.5 million and reached €2,119.0 million.

Indirect taxes

Revenue from indirect taxes registered an increase of €74.6 million and reached €855.7 million. The increase in indirect tax revenue reflected higher revenue from Value Added Tax, in line with developments in private consumption and tourism earnings, as well as higher proceeds from licences, taxes and fines. Higher revenue was also registered from custom and excise duties over the same comparable period last year.

VAT revenue increased by €34.0 million to €474.6 million during the period. Alongside a more pronounced consumption pattern in the Maltese economy, these developments partially reflect higher expenditure by foreign tourists in Malta during the period under review.

Revenue from licenses, taxes and fines increased by €30.2 million, reaching €210.5 million, reflecting higher proceeds from duty on documents while receipts from customs and excise duties increased by €10.4 million to €170.6 million, mainly due to higher revenue from excise duty on petroleum and cement, as well as measures in the 2016 Budget to partially offset the loss in revenue from the phasing out of the eco-contribution system.

Direct taxes

A robust performance of direct tax revenue saw an increase of €125.9 million, reaching €1,263.3 million in 2016 from €1,137.4 million in 2015. The increase in direct tax revenue was due to higher revenue from both income tax and from social security contributions, as both revenue categories increased by around 11 per cent when compared to the corresponding

period of the previous year. These in turn reflected the robust economic developments, as well as enhanced efficiency in revenue collection.

Social security

Revenue from social security contributions increased by €48.7 million to €492.1 million. The positive developments in social security contributions were supported by the developments in the domestic labour market, confirming the success in the social security reform that aimed to increase labour participation particularly among women.

Non-tax revenue

Non-tax revenue, which mainly comprises grants, fees of office and the transfer of profits generated by the Central Bank of Malta, decreased by €100.3 million and reached €203.7 million. The decrease was mainly underpinned by a significant decrease in revenue from EU grants, reflecting the switch-over to the new Multiannual Financial Frameworks (MFF), which had a large impact on the patterns of EU-funded investments. When compared to the first eight months of 2015, revenue from grants declined by €100.4 million.

Meanwhile, during the first eight months of 2016, lower miscellaneous receipts were offset by higher fees of office (mainly as a result of proceeds from the Individual Investor Programme), and dividends on investments received from the Identity Malta Agency. Higher reimbursements and revenue from rents were also recorded during this period, although to a lesser extent. During January to August 2016, total government expenditure, including recurrent and capital expenditure, as well as interest payments on public debt, increased by €38.4 million to reach €2,401.8 million. This increase was the result of an increase in recurrent expenditure which in part was offset by lower capital expenditure. Recurrent expenditure amounted to €2,063.7 million, an increase of €124.4 million, while capital expenditure decreased by €83.1 million to €188.3 million. Lower capital expenditure reflects the transfer to the new MFF, which has a large impact on the patterns of EU-funded investments, as also reflected in lower revenue from EU grants. Over the same period, interest on public debt decreased by €2.9 million to €149.8 million.

Programmes and Initiatives

This category of expenditure increased by €44.9 million to €1,234.1 million, mainly on account of higher outlays on social security benefits, in particular retirement pensions, and towards the State Contribution in terms of the Social Security Act (Cap 318). Higher outlays were also recorded in respect of the upcoming Presidency of the Council of the EU, as well as the hosting of international conventions, and transport.

Government entities

Contributions towards Government Entities reached €239.4 million during the period under review, representing an increase of €41.6 million when compared to the same period a year earlier.

Developments in this category mainly reflected higher outlays towards JobsPlus and the University of Malta, and the subventions towards the Water Services Corporation and the Engineering Resources Co Ltd.

Higher allocations were also registered towards the Valletta European Capital City of Culture 2018 initiative as well as to the Sapport and Appoġġ agencies.

Salaries

In the period under review, this category of expenditure increased by €25.9 million to €476.1 million when compared to the corresponding period of the previous year. Higher personal emoluments were mainly recorded in

respect of salaries and wages in the health, education, and the elderly and community care sectors.

During the first eight months of 2016, Operational and Maintenance expenditure which includes payments for utilities, contractual services, materials and supplies, transport and rent, increased by €11.9 million over the same period in 2015, to €114.0 million, mainly due to higher outlays in respect of contractual services for health and elderly care.

Social Security benefits

This area represents the major category within recurrent expenditure and makes up 28.7 per cent of Government’s total recurrent expenditure.

During the first eight months of 2016, social security payments reached €591.4 million, as contributory benefits increased by €28.1 million, mainly reflecting increases in outlays towards retirement pensions.

Non-contributory benefits decreased by €5.7 million. These expenditures are highly influenced by developments in compensation of employees, inflation, as well as demographic changes apart from a number of structural reforms undertaken with respect to pensions and social benefits.

Expenditure by the Department of Social Security relating to the state contribution, which also features as revenue, increased by €14.0 million to €146.9 million during the first eight months of 2016.