The budget presented yesterday for 2007 contains no surprises and certainly reflects the government’s pre-budget emphasis on fiscal consolidation, on keeping Malta’s membership of the euro on track, and on stimulating economic growth through investment and new jobs.

It was obvious from the pre-budget document published in July that the government had no intention whatsoever of giving handouts that could, directly or indirectly, damage what the government (and taxpayer) had worked so hard to attain through considerable sacrifice. Efforts to improve the country’s financial situation and boost economic growth were further hindered by external factors that the government simply had no control over.

The increase in the price of oil, which led to an increase in expenditure of Lm48 million in 2006, the impact of an increase in the number of illegal immigrants, the drop of 3.7 per cent in tourist arrivals, coupled with the loss of more than 1,000 jobs following the closure of two factories late in 2005, forced the government to reconsider any plans to give back to taxpayers a decent return on their sacrifices.

That said, the government has reached a lot of the financial targets it set itself. The deficit, although it is not the only measurement of the economy, is an important consideration. It is one of the economic indicators that the European Union looks at when gauging a country’s progress or otherwise. To its credit (and the public’s), the government has brought down the deficit to 2.8 per cent from a high of 10 per cent in 1996. The government has also succeeded in controlling public debt and this has fallen to 66.8 per cent this year. Whether this is sustainable in the next few years – since very few public assets are still up for sale – remains to be seen.

The government is also confident that economic growth – 2.6 per cent this year – will continue to increase and that foreign direct investment will also increase, leading to the creation of more jobs.

The only concern for the government remains the high rate of inflation. At 3.2 per cent it is 0.4 per cent over the reference value that Malta must meet to join the eurozone. The government is confident that inflation will go down over the next few months but it is still a factor that could ruin the country’s plans.

The measures announced in the budget for next year are geared towards consolidating the government’s efforts to create a sustainable economy and to improve the public’s standard of living. Although the government had announced that it would be in a position to give back only Lm8 million, the revision of the income tax bands will mean a payback of around Lm12 million.

It is encouraging to note that the government will invest an extra Lm13 million liri in education although the Lm1.5 million allocated to research and development (R&D) is still too little if Malta wants to boost its competitiveness and become innovative.

The government said it will be investing another Lm15 million in the tourism sector, a 40 per cent increase over last year. Lm8 million will be given to the Malta Tourism Authority, however more than funding, this authority needs a thorough overhaul to get it out of the mess it finds itself in. The possible opening of new routes for low-cost airlines is certainly welcome.

The 50 per cent reduction in the departure tax as from June 2007 was expected but is, in our view, too little.

The increase in tax credits for parents who send their children to private schools is a good move and will help to alleviate the rising costs of education. Equally important is the tax credit for those who make use of child care facilities.

The budget for 2007 is not an attempt at introducing new government policy. On the contrary, the government’s approach has been business as usual, strengthening those areas that are already growing and introducing measures to stimulate sectors that have potential over the medium to long term. Overall, the government is using this budget to protect the country’s finances and its efforts to join the euro.

Considering the stakes, there is little that the government could have offered more than it has done.