Deficit in 2021 set to reach 12.1%, but no tax hikes expected in the near future

The deficit that Malta is expecting for the year 2021 is forecasted at 12.1%, but the Government expects the GDP growth to be the highest in the EU, Minister for Finance and Employment Clyde Caruana said yesterday.

In spite of this, the government does not plan to introduce any taxes in the near future, Caruana said when addressing the media.

“The pandemic is costing the government €5 million per day; this is due to spending €3 million more per day because of the pandemic and a reduced government income due to lack of economic activity,” Minister Caruana remarked.

During the last budget, it was predicted that in 2021 the deficit would stand at 5.9%, but now it has been revised to stand at 12%. “The deficit that Malta is expecting for the year 2021 is forecast at 12.1%, but the Government expects the GDP growth to be the highest in the EU in 2022, Minister for Finance and Employment Clyde Caruana said. The deficit forecast for 2022 has been increased from 4.2% to 5.3%, and for 2023 it was revised from 3.7% to 3.9%. The deficit for 2024 is now predicted to be 2.9%.

The general government debt was predicted to stand at 55% of the GDP for 2020 during the budget, but it now stands at 54.3% of the GDP. This will be followed by 65% in 2021, 66% in 2022, 66.5% in 2023 and 65.9% in 2024.

Before the pandemic, the Government was also forecasting that the country would have a surplus of 1.4%, but it now stands at a 10.1% deficit in 2020. The Minister explained that this is due to an increase of 43% in expenditure and a decrease of 57% in revenue.

The Minister said Malta spent €647 million more than was projected prior to the pandemic. €384 million were spent

on the wage supplement, €43 million in vouchers and other benefits amounted to around €38 million, amongst other things. Health costs rose to €74 million, while repatriation flights cost €50 million.

Government income was reduced by €846 million than was predicted. Primarily, this was due to a lack of income from VAT as people spent less – which is €272 million less than predicted before the pandemic – while revenue from duty on documents resulted in €72 million less.

“This results in a deficit of around €1.5 billion in 2020,” the Minister remarked.

The difference in the 2021 forecast is due to the fact that the government is expecting a 54% increase in expenditure and a 46% decrease in revenue than predicted prior to the pandemic. These equate to around €1 billion more in expenditure than predicted and €848 million less in revenue.

The expenditure increase will be seen mostly due to the €375 million wage supplement, €71 million more in Health, amongst other things. “We are also predicting to see more expenditure in terms of allowances and overtime,” Caruana said.

The Minister also noted that the government will lose €309 million from VAT, while duty on documents will result in a loss of €86 million.

Even though Malta was one of the most that suffered in the EU in terms of GDP, Malta managed to safeguard jobs through the government’s help and interventions, so much so that it increased the number of people in employment, Caruana remarked.

He mentioned that Malta has the highest positive change in employment rate in the EU. “Our business market is still very strong,” he said.

The Minister noted that lack of tourism was one of the biggest factors in all of this. The minister said that for every 2.8 million tourists that Malta was used to seeing, only 660,000 tourists came in 2020. Furthermore, for every €100 that tourists used to spend, last year they spent only €20 on average.

Although there are these grim factors, the minister reiterated that he “absolutely” expects that there will be no increase in taxes at any point in the near future.

“The debt that our country has, in comparison to other countries, is relatively low; one of the smallest in the rest of Europe when compared to the GDP of the country,” the Minister remarked. He noted that this is an important factor for economic success.

“The government was decisive in the amount of expenditure. So, last year, despite the deficit, our country still managed to safeguard our businesses. I predict that in the coming months we will have a higher employment rate. I will see that this continues to be strengthened,” he observed.