The European Commission will be placing Malta under the excessive deficit procedure for two years, Finance Minister Edward Scicluna said on Bondi+ tonight

Professor Scicluna said that two rules had been broken, in that both government’s deficit and the sovereign debt were over the limits stipulated by the European Commission.  Those stipulated limits are 3% and 60% of gross domestic product (GDP) respectively.

The Finance Minister said that he tried to bring the Commission round by arguing that the country had been in election mode for months, resulting in less fiscal revenue. He explained how the Commission shunned this argument, as elections do not count as a “temporary economic shock,” as defined by the EU treaty.

The Commission’s spring forecast projects that Malta’s deficit will peak at 3.7% in 2013, 1% more than the government’s revised projection of 2.7%, which it announced in the wake of the last general election. The former PN government had projected a 1.7% of GDP deficit when it announced the budget in November 2012.

“The Commission is going to give us two years to regularise our position, and we have until the end of 2013 to do so. It is favourable that the Commission has granted us two years in which to reduce the deficit. The European Central Bank only wanted to give us one year. Being under the excessive deficit procedure for two years gives us more breathing space, which is not a bad thing,” Professor Scicluna argued.

The finance minister said that a lot of the revenue estimates tied to the 2013 budget inherited by the government from the previous administration were “too optimistic,” leading to a downward revision of the projections.

Professor Scicluna expressed himself to be optimistic in reining in the deficit, which (at the last count) stood at 3.3% of GDP.

 The finance minister said he has the backing of the cabinet and prime minister, and reassured that he will do his utmost to bring the figure down to the 2.7% figure. He said that the situation will be monitored on a “monthly basis.”

Professor Scicluna explained that the government’s hands were tied in several aspects, as agreements reached by the previous administration could not be breached. He cited the collective agreements signed with teachers, nurses and doctors as one example that is going to cost the government €7 million.

Tonio Fenech

Former finance minister Tonio Fenech, who presented the budget originally in 2012, and projected the 1.7 % of GDP figure, countered in arguing that the very size of the cabinet and the amount of ancillary staff needed add an extra €6 million to the running of government on an annual basis.

Mr Fenech said that the deficit in the first quarter of 2013 was actually down when compared to the corresponding period in 2012.  He also refuted that 2013 is a total write-off, in that the government has more than half a year to implement measures to reduce the deficit.

“If there is so much waste, then why couldn’t you convince the Commission,” Mr Fenech questioned. He stated that the government had “miscalculated” in thinking that by virtue of having a good relationship with the Commission, they would be able to buy some breathing space. He said that the Commission is a technocratic institution that looks at hard figures, and is not easily swayed by political arguments.

“A mere statement is not enough, the Commission needs something tangible. The government has just reacted and was not proactive,” Mr Fenech said pointedly.