Obdurate Deficit

The Malta Independent



In preparation for the last budget of this legislature The Minister of Finance last Sunday organised an official government sponsored public consultation meeting. As could be expected this was not at all different from the Sunday morning political meetings which dominate the Sunday evening news giving us no weekend respite from permanent electioneering.

As usual the Minister used his skills to turn figures on their head trying to prove that the fiscal deficit is being addressed, when hard reality indicates otherwise.

`Deficits, hidden or exposed, still need to be financed!` There is another way how to measure the deficit rather than rely on the Minister`s manipulated figures. It is by looking how much financing was necessary during the period.` Deficits, hidden or exposed, still need to be financed!

A deficit may be financed in three ways.` Primarily it is financed by borrowing which would reflect itself in an increase in the national debt. Secondly it may be financed by privatisation revenues through one-off sale of state assets. Lastly it could be financed by other extraordinary one-off revenues.

The National Debt as at September 2002 amounted to Lm1043 showing an increase of Lm317 million over the debt of Lm726 million registered in September 1998 where Labour left off after its short tenure.

Privatisation revenues during the period amount officially to Lm104 million being Lm85 million from the sale of Mid-Med Bank and Lm19 million from sale of MIA.

Extraordinary one-off revenues officially amount to Lm37 million being funds sucked out of the Sinking Funds for local loans which are being dismantled as the government has no intention to provide for repayment of national debt and will just keep rolling it over. To this one must add Lm21 million from the privatisation of MIA which was abusively included as ordinary revenue whereas in fact it is one-off extraordinary inflow. Total amount financed by extraordinary revenues over the last four years amount to Lm58million. `Playing with figures or waiting for EU funds will not address our budget deficit`

The three sources of national debt increase (lm317 million), privatisation revenues (Lm104 million) and extraordinary revenues (Lm58) give total financing sources of Lm479 million between Sept 1998 and September 2002 average a deficit of Lm120 million p.a.

Unfortunately this is not even the whole picture as it does not capture government expenditure being financed out of central budget through commercial bank loans for perfectly non-commercial activities. These include Foundations for Health and Education which are making substantial non-productive capital expenditure from bank loans covered by central government guarantee.

During the two years of Labour administration 1996-1998 a similar exercise would produce an average annual deficit for the two years of Lm110 million which is roughly the same deficit found for 1996. So the deficit was definitely not of Labour`s own making. At best one can argue that Labour did not effectively address the inherited deficit whereas the present government effectively increased it in spite of raising Lm200 million more taxes in 2002 compared to 1998.

Playing with figures or waiting for EU funds will not address our budget deficit.` Only serious cost controls and economic re-structuring will!