We are constantly told that thanks to the wise leadership of GonziPN, Malta is managing to do wonders in the current economic upheaval.

Up to the first week of January, we were also told that due to great foresight in economic management displayed by GonziPN, Malta has managed to avoid having to adopt any austerity measures. As usual, the local situation was compared with the worst performing economies and with countries worst hit, for various reasons, by the international situation. Journalists from PBS were sent to Greece and Spain days before the budget just to make sure we get the point. The logic behind this strategy was to drive home the fact that things are moving in the right direction given that no austerity measures were needed.

However, on the first Friday of the year, coincidentally on the same day that the PM announced the Cabinet reshuffle, the Finance Ministry released a very dry note announcing that it had agreed to shave off 0.59% of the GDP from the Budget expenditure that Maltese parliament had approved before the Christmas recess. Away from technical jargon, a cut in government expenditure of 0.59% of GDP amounts to €40 million. A business-as-usual attitude to this cut by the government means two things: either there is so much wastage that it has no problem in cutting €40 million or else it is not taking things seriously and is just playing for time with the EU Commission.

To put things in the right perspective, let’s briefly track the main events leading to these austerity measures. Things started to get really messy at the outset of the 2008 financial economic crisis and subsequent debt crisis in some member states, most notably Greece and Italy. The EU Commission had its fingers badly burnt and decided that the present surveillance mechanisms were not strong and comprehensive enough to prevent individual member states from drifting into vulnerable positions by having excessive debt and deficit levels. Thus, in September 2010, the Commission proposed a new set of legislation including a comprehensive assessment of the budgetary implementation, hoping to strengthen fiscal surveillance. Against this background, the European Commission assessed the budget and the economic situation of all member states and found that 5 countries including Malta had to take further measures to keep the government deficit below 3%.

It is here that questions need to be answered. This because in the budget speech for 2012 the government announced that the deficit for 2011 will go down to 2.8% and will continue to decline to 2.3% and 1.8% in 2012 and 2013 respectively. However, the EU Commission foresees the situation to develop differently. According to the Commission, the budget deficit is projected to stand at 3.0% in 2011 and to increase to 3.5% and 3.6% in 2012 and 2013. These differing views mean only one thing: that the European Commission does not believe the figures presented in the budget. When translating the figures from percentage terms, this assessment takes more weight as the difference amounts to around €80 million in 2012 and to around €120 million in 2013.

The differing views between the Finance Ministry and the European Commission in the evolution of the budget deficit is partly due to an overly-optimistic rate of economic growth, 4.8% compared to 3.9%, but more so due to unrealistically high revenue projections. Given, that the government did not have the bottle to announce tax increases in its last budget before the election, it probably tried to sell to the Commission the idea of restraining expenditure. In the end, the Ministry of Finance had little space to move and decided to announce the cuts in expenditure made up of restraints.

Till now, no details were given on how these cuts will come into force. It is in the general interest to know whether the restraints in recruitment, amounting to around €7million, will affect recruitment in key areas such as teachers or nurses, especially in view of the proposed absorption of a substantial number of Air Malta employees.

Incredibly enough, the acceptance by the Commission of the austerity measures and the subsequent temporary removal of Malta from the Excessive Deficit Procedure was presented by GonziPn as some sort of ‘certificate of competence’. It is as if, having failed an exam, a student is asked to repeat classes and having accepted to do so, is boasting about how competent s/he is!

The reality is that Malta is following the steps of other troubled economies which were forced to announce austerity measures during the past two years. At least these countries had the decency to be transparent with their own citizens.

Dr Anton Refalo is Labour spokesman for Gozo