The government's deficit projections are partly based on an estimate of future revenue streams which are by their very nature uncertain and subject to a margin of error which, if not minimised could possibly lead to a higher deficit rate, according to economist Stephanie Vella.

Asked for her reaction to the budget announce by Finance Minister Edward Scicluna on Monday, Ms Vella also said the budget is based on an "optimistic economic growth projection which surpasses the level reached in the past four years.

"The deficit projections determined through the budgetary process are based on an estimate of future revenue streams from which budgetary expenditure for the upcoming year is derived. A strong element of the revenue forecasts depends on how the economy is expected to perform in the upcoming year and beyond. This in turn depends on the effectiveness of measures adopted in the budget. These forecasts are by their very nature uncertain and thus characterised by a margin of error. However it is imperative that these errors are minimised as much as possible. An erroneous upward estimate of the forecasted revenue or higher than expected government expenditure leads to a higher than expected deficit, further increases in government debt and ultimately dents Malta's fiscal credibility."

The economist also said that the economic growth rates that the budget is based on depend, in part, on a weak external environment. "The budget for 2015 is based on an optimistic economic growth rate of 3.5% which surpasses the real economic growth registered over the last four years. The extent to which it can be attained partly depends on the external economic environment, which remains weak, and the effectiveness with which fiscal measures announced in the budget are implemented."

Ms Vella said measures which stimulate economic activity and translate into the generation of jobs such as a reduction in income tax rates and the reduction in electricity tariffs to business is bound to have a positive impact on the economy. "Similarly, curtailing abuse in social security benefits, which accounts for one of the largest shares of government expenditure, is also bound to have a positive impact. On the other hand, further increases in registration taxes and the imposition of excise tax on mobile services will dent purchasing power."

The economist said it is imperative that measures are sustainable and implemented in a transparent and steadfast manner. "Uncertainty in the implementation and operation of these measures is to be avoided at all costs. Towards this end, measures related to the purchase and sale of property, rental income and social and pension measures should be clarified."