Friday, 15 May 2009

Redoing the Budget


15th May 2009

The Malta Independent - Friday Wisdom

Government has pooh-poohed calls made for presenting a mini-budget to take new measures to address the economic downturn. My opinion is that rather than a mini-budget government should present to parliament a fresh budget for 2009 based on current realities even if it does not consider it necessary to take any new measures.

The Budget for 2009 presented last November is dead in the water and the projected deficit of ninety eight million euro for 2009 is totally unrealistic.

Let me make my case with the aid of some basic figures.

Table 1
Government Finances 2008
Budget Day
€ 000's
recurrent revenue
recurrent expenditure
interest payments
capital expenditure
fiscal deficit

Table 1 compares the actual outturn of the fiscal deficit for 2008 to the result projected by the Minister of Finance when he presented the Budget for 2009 in parliament on 3rd November 2008.

The deficit projected at two hundred million euro on budget day finished 16% higher. This however is not the real story. The real story is that there is a shortfall of eighty two million euro in revenue and the bottom line difference was not impacted much harder by this revenue shortfall only because payments for capital expenditure were postponed and probably shifted to the current fiscal year.
In normal circumstances these variance in such a short period of time would be unacceptable and would force one to question the technical competence of the Minister running our public finance. However these are not normal circumstances. The Minister presented the Budget in the middle of an international economic freefall and visibility about actual revenue from taxes suddenly disappeared. This is not to say that the Minister was not unduly optimistic when presenting his budget, but no one really could preview accurately how the economic problems would compound into a crisis compromising the basis of government revenues throughout the world.

Table 2 shows the outturn of public finance for the first quarter January to March for the years 2007 -2009.

Notice that the deficit for the quarter has this year more than doubled from where it was two years back.

Table 2
Goverment finances
€ 000's
fiscal deficit Jan -March
fiscal deficit Jan - Dec
performance Apr - Dec

*result required to meet current budget target

Notice also that that for the government to hit the 98 million euro deficit projected last November for the whole of 2009 it would have to generate a fiscal surplus of one hundred and sixty seven million Euro in the 9 months April to December 2009. This would be impossible even in normal circumstances, so much so that the performance April to December 2008 was negative twenty three million and 2007 was positive twenty one million. Hitting a positive one hundred and sixty seven million in the nine months April – December 2009 when the economic slowdown is brutally impacting government revenues is as likely as Christmas next July.

Government cannot continue to operate our finances using a totally irrelevant benchmark. Given current realities the final deficit is likely to finish between double and treble the level projected in the Budget for 2009.

It is time to look reality straight in the eye and present a totally new budget after making a line by line review of discretionary expenditure to see what economies could be driven to cushion the impact of the international recession on public finance.

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