PM claims ‘economic miracle’ as Malta registers first surplus since 1981
Prime Minister Joseph Muscat yesterday expressed his pride with this Government’s ability to turn a budget deficit of €362 million from the year 2012 to a registered surplus of €8.9 million. The new figures were released by the National Statistics Office yesterday.
Dr Muscat said that Malta had been humiliated for reaching excessive deficit in 2003, 2008 and again in 2012, after the EU had warned it to tread carefully with Malta’s deficit.
A surplus refers to overall income surpassing overall expenditure, with the Prime Minister saying that this government has broken out of a 34-year-long trend of registering a deficit year after year. “We will no longer allow future generations to inherit debt,” he said. Recurrent expenditure grew by some €200 million, which was explained by both Dr Muscat and Finance Minister Edward Scicluna as being linked with the growing economy.
Recurrent expenditure refers to payments made by governments or organizations for all purposes except capital costs.
It includes payments made on goods and services as well as interest and subsidies.
Therefore, Dr Muscat said that as the economy and population both grow, private and public consumption continue to increase.
We have made this achievement without being cruel to the people
He said that the government’s decision to increase social services and give back to the public meant that such expenses would be on the increase.
The relatively low capital expenditure was explained due to the closing off of EU cohesion policy periods.
Dr Muscat said the news of a surplus in Malta’s consolidated fund as calculated by the NSO does not include 70 per cent of revenue from the controversial Individual Investment Programme, where 30 per cent is rolled back and 70 per cent is put into a separate fund. This fund had not yet been touched, while Dr Muscat flouted the idea of using the money for an investment bank in Malta. The idea would be to have a separate investment fund that can “make good”, meaning financially back major projects in Malta.
Achievements without austerity
Dr Muscat also said that it would have been easier for the government to register such a positive statistic by cutting free childcare, cutting government-funded medicine stocks, cutting pensions and increasing tax.
He said that the EU had encouraged austerity measures, a fiscal strategy that seeks to cut government spending and increase taxes in order to get public finances in line. That translates into cutting expenditure on infrastructure, social services, pensions and benefits in order to help balance the public coffers.
“We didn’t do it this way, which is why I’m calling the current situation an economic miracle. Taxes have been reduced for all, while we have worked on increasing tapering benefits and increasing the income of the lowest earners. We have made this achievement without being cruel to the people”.
He cautioned against a laissezfaire attitude of over spending, and in order to foster sustainable development.
“The priorities are to continue delivering on the electoral manifesto, meeting Malta’s needs and addressing the crumbling infrastructure. The next step is to embark on major infrastructural projects which the country so badly needs,” said Dr Muscat.
“These are not just statistics, these are difference in the lives of the people. A surplus means less pressure to increase taxes, less pressure to cut social services. With the current figures we can focus on projects such as innovative mass transportation,” he added.
The NSO stressed that the figures relate to the Government’s Consolidated Fund, and that the overall public finances must still be calculated on an accruals basis, and approved by the Eurostat, the EU supranational statistics agency.
Calculating on the basis of a consolidated fund refers to calculations made on an income and expenditure basis, where income is evaluated based on what is deposited in the bank, and expenditure taken from what is actually withdrawn from the bank within a specific financial period.
Standard accounting practices encourages the accruals method, where if an expense has been incurred but payment is to be made in a subsequent financial period, that expense is still expected to show up in the financial year in question.
Finance Minister Edward Scicluna said that based on government trends, it is expecting a surplus to be registered after finances are calculated on an accruals basis.
Deputy Prime Minister Louis Grech also addressed the press conference, where he spoke of the generation of a balance between economic competitiveness, growth and developing a solid safety net. He reiterated Prof Scicluna’s remarks about poverty, adding that the government will continue to seriously address the issue of poverty in Malta.