Thursday, 6 September 2012

He's starting to get it!


At last! He's starting to get it!   He's starting to understand plain English!   Possibly it is because he has no alternative - TINA - There Is No Alternative - as Margaret Thatcher used to say.

Finally the Budget Minister admits that he will be unable to meet the year end target.   And this just a few days after both himself and the Prime Minister assured us they will still hit the end of year target in spite of the official government finance figures for the first 7 months of 2012 showing a fiscal position suffering very material slippage, 40% worse than last year.
Suddenly a backtrack and admission  that Moody's are right, there is fiscal slippage, the end of year deficit will be worse than last year, but we are told still below 3% of GDP.

To stay within 3% the Minister needs luck and "skill".  I put skill in inverted commas as it refers to the skill to cook the books by shifting expenditure to next year and allocating revenues after the year end to this year.  Luck in the sense that the international economic scenario keeps improving rather than having any tail risk event which would blow away any expected growth.

But reflect a bit on what is reported in the Times article:

The Government has repeatedly helped prop up the ailing energy corporation within EU state aid parameters, and that is likely to continue. Enemalta has so far withheld excise payments it owes the Government to ensure liquidity, explaining much of the €15.8 million shortfall in the government’s excise duty revenue in the first seven months.
At the beginning of the year the Government injected €25 million into Enemalta to keep utility bills static as the firm’s oil costs rose.
If you reflect hard enough you will realise that the budgetary improvement reported in previous years leading us to have a below 3% deficit in 2011 is illusory.   For as long as Enemalta had debt capacity, even if against the sovereign guarantee, government shifted the debt onto Enemalta's books as government milked the Corporation with excise duty, VAT and removal of subsidy to inflate its revenues. Now that Enemalta has exhausted its debt capacity and has exhausted any political manoeuvring space to raise its end consumer prices, the tide is turning again.

Government is having to absorb on its own books the financing Enemalta needs to keep afloat.

So, as I have been repeating these last few years, analysing the government budgetary figures without taking Enemalta's financial position in the consolidation ( Enemalta is wholly owned by the Malta Government and government is directly and indirectly responsible for its debt either through guarantees or through the Act of Statute) gives a very incomplete picture.

Now let me make another suggestion.  Government has financed the City Gate project outside the mainstream budget.  To do so it has sold the project to a 70% owned subsidiary company( Malita Investments - 30% private sector shareholding) for a fixed sum of EUR 80 million.  Any cost overruns will have to be borne by Malta Government.    Any bet that these cost overruns will be in high double digits percentage higher than the base figure is quite safe.   The Minister will leave his successor a lot of unpaid invoices in his pending tray.

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