The government is optimistic that the European Commission will not force changes to its budget to ensure that Malta sticks to its commitment to lower its deficit, Finance Minister Edward Scicluna said today.

At a press conference this afternoon, Prof. Scicluna said that while he could not confirm what the Commission had in mind, he noted that the feedback received so far was that the government’s deficit target for 2014 – to bring the government deficit down to 2.1% of the GDP – was credible. The government was also encouraged by the fact that its economic forecasts were more conservative than the EU’s own, he pointed out.

The European Commission’s reaction to EU member states’ budgets will be made public on 22 November.

During the press conference, Prof. Scicluna said that many reactions to the budget – even those who reacted positively – appeared not to have understood the plan behind the budget, rejecting claims that the government had next year’s European Parliament election in mind.

He said that it was useless to wait to implement measures which aimed to boost economic growth.

The minister explained that in preparing for the budget, the starting point was that the deficit target could not be exceeded, and as a result, an expenditure ceiling based on the projected revenue – itself expected to increase through new indirect taxes and economic growth – was set.

Once committed expenditures were taken into account, he added, the government was left with some €55-60 million in discretionary expenditure it could allocate to various measures. These measures, the minister said, focused entirely on boosting economic growth.

Prof. Scicluna stressed that the government’s economic growth efforts were not aimed at boosting demand, but at the supply side of the economy. He explained that the Maltese labour market was full of obstacles – including women not working due to childcare concerns, registered unemployed who saw little gain in obtaining employment and pensioners without sufficient incentives to continue working – and said that the government aimed to address them to “make work pay.”

Chinese Enemalta deal of ‘tremendous’ importance

The minister also insisted that the agreement which will see a Chinese state-owned company acquire a minority stake in Enemalta was of “tremendous” importance, as far as government finances were concerned.

He said that while the government’s energy plan will help Enemalta’s fiscal position, there was still the risk that the state corporation would go bankrupt before it started reaping the benefits, and that this failure could have brought down the banks that lent to it.

Prof. Scicluna said that the Chinese company would not only provide a cash injection which would help bring down Enemalta’s debt, which presently exceeds €800 million, but would also see the company assume responsibility for a portion of the debt, equivalent to its stake in the corporation. As a result, he added, the agreement, once finalised, would see the government’s liability by around half.

The story is sponsored by HSBC Bank Malta p.l.c.