The government has reduced the deficit to 2.1 per cent of GDP through economic growth without resorting to austerity measures, Prime Minister Joseph Muscat said today.

Addressing a press conference, Dr Muscat said doubts were raised as to the sustainability of the government’s 2014 budget, which included a number of tax reductions including a reduction in income tax.

Dr Muscat said the government has managed to make the economy grow as well as reduce the deficit, which is the lowest it has been in two decades.

He said the parameters of EU deficit rules are being satisfied, and although it is not Malta’s call as to whether the EU will lift its excessive deficit procedures, the signs are positive.

The aim for this year is to further reduce the deficit to 1.6 per cent of GDP.

The Prime Minister once again spoke of the need for lessening bureaucracy, saying the economy needs “clear and timely” decisions to be taken.

“For all our defects this is what we are trying to do,” he said.

Asked if the government’s deficit reduction was mainly reliant on economic growth rather than any drastic cuts in government spending, Dr Muscat said this was not the case as there have been cuts in government spending.

The Prime Minister said the challenge not only lies in cutting costs, but in keeping expenditure at its current levels without allowing it to balloon.

He said the government will not be cutting capital costs as these are vital for economic growth.

The reduced deficit is the result of an economic model rather than an accounting exercise, he said, and the economic growth is not the result of a single policy but a number of them such as free childcare and the reduction in water and electricity tariffs.

Questioned whether the governments ‘cash-for-passports’ scheme has helped reduce the deficit, Dr Muscat said the effects of the scheme will only begin to be felt next year , as the revenue is only accrued once the payments have actually been made.

Finance Minister Edward Scicluna said Malta’s credibility in the international community is on the increase, as the government has shown it can stick to its deficit targets.

Professor Scicluna said Malta is an example of growth-friendly consolidation, and the indications from credit rating agencies as well as the IMF are positive.

Video by Matthew Agius.