Thursday, 29 November 2012

The numbers do not add up

The Budget for 2013 presented in parliament yesterday leaves unanswered  two very serious questions.

Firstly someone has to explain  how government is going to find a cash bonanza by the end of this year.

In 2011 the government had a deficit of Eur 188 million in the first 9 months to September 2011 and by December 2011 the deficit grew to Euro 219 million.    So in the last quarter of 2011 the government deficit grew by Euro 31 million.   Taking the same figures for 2010 it results that in the last quarter of 2010 the government deficit reduced by Eur 3 million.

Let's repeat that.   In the last quarter of 2010 the government deficit reduced by EUR 3 million and in the last quarter of 2011 the deficit grew by Euro 31 million.

What is being projected for 2012?   The published deficit for the for the first 9 months of 2012 is Euro 282 million,    But according to the figures given in parliament yesterday by the Minister this deficit will by the end of Decber 2012 reduce to Euro 180 million.    So the Minister is planning that the last quarter of 2012 will prove cash positive to the tune of Euro 102 million compared to cash negative Euro 31 million last year and cash positive Eur 3 million in 2010.

Don't look for any explanations in the budget speech as there are none.   What I can say is that the actual figure for the deficit of 2012 will only be issued late in March 2013 and by that time we could well be in post-election period.

The other question is how the Minister is planning to grow revenue from Income Tax in 2013 by 10% i.e. by Eur 83 million from Eur 840 million in 2012 to Eur 923 million projected for 2013.

All things being equal tax revenue should increase at the same tempo of the growth of the nominal economy.   So normally tax revenue, all things being equal, should increase by some 4% in 2013 being 1.6% real growth  plus 2.4% inflation.

But all things are not equal.   Government is reducting the marginal rate of tax for earners between Eur 19500 to Eur 60000 from 35% to 32%.   The revenue government forfeits from this measure has not been estimated but it does not come cheap.

So how come that in spite of this concession government is expecting tax revenue still to increase by more than twice the rate of nominal economic growth?

During a TV debate the Minister in a side remark said this was due to economic growth.   The Minsiter must be a frim believer in supply side economics beyond what empirical studies show if he believes that economic growth of 4% nominal will generate increased tax revenues of 10% even though tax rates are reduced.    It was well said by Prof Edward Scicluna that on government's own figures the tax burden will increase in 2013.

And if the Minister believes so much in government finance inflows bouyancy from economic growth why do they continue to doubt Labour's ability to finance utility rate cuts from economic growth?

I can only think of two explanations.  Either government will enhance tax enforcement and  collection efficiency by an abnormal   and probably unrealistic degree or otherwise the Minsister is inventing figures.

1 comment:

  1. The financial crises of 2008 was the result of a huge economic bubble that burst bringing down colosal banking institutions spiralling the world in global recession... This sound the same as Tonio Fenech is doing with Maltese finances, he managed to distort figures just in time for election to be over, now adding up that we don't know the amount Malta will be getting from the EU budget this means that we are steadily heading for a disaster. After the election if he's lucky the PL will win and will have to face the burst of his bubble, if he's unlucky the PN will win the election and am sure that with a huge spin he will blame the PL, the world but not himself!

    Our only hope is a change in the way our finances are being managed, someone that will bring back trust and stability in Malta. So the only hope is a change in Government because the GonziPN formula failed big time!!