More than simple budget blues

KURT SANSONE analyses the targets set out in last year’s budget

When Finance Minister John Dalli tonight stands up in Parliament to deliver his budget speech stakeholders’ eyes will be fixed on the financial figures he will give.
In last year’s budget Mr Dalli produced some ambitious projections to stabilise government finances and reduce the recurrent deficit. The blueprint laid out in front of Parliament established 2004 as the date by which government would have reached its target of reducing the structural deficit to 3% of the Gross Domestic Product.
Last year government managed to reduce the structural deficit to 6% and the projection for this year is to bring it down to 5%. Judging from the January-September figures released by the National Statistics Office government seems to be well on track to achieve the projection and it could possibly even go further below than that.
The same holds water for the recurrent balance, which last year registered a surplus of more than Lm2 million. This was the first surplus registered in five years.
Mr Dalli’s projection for this year is that government will end up with a recurrent surplus of Lm12 million. The actual figure might even be higher.
Over recent weeks both Mr Dalli and the Prime Minister have spoken about a positive feeling without giving much information. Finance ministry officials reveal rather secretively that the actual results obtained may well be beyond what was projected in last year’s budget. There seems to be an expectation that government has managed to curb the structural deficit and cap it at 3%, three years earlier then expected.
The recurrent surplus may also be higher than what was projected. Until September the surplus was almost a Lm100 million higher then the end of year projection. However, one must keep in mind that the last quarter of this year is a very crucial one, especially after the 11 September attacks and the continued international slowdown in the high tech industry.
Looking at the other projected indicators, one can see that registered unemployment is still relatively too high for government’s 4% target.
The same can be said for public sector employment. Although last year Mr Dalli did not give any projections on government’s intended figure to reduce public service employment, the expectation is that it should stand at between 25% and 30% of gainfully occupied workers.
The most recent figure puts public sector employment at 35%, nothing near the expected figures. This evening private sector leaders would expect Mr Dalli to announce target dates for reducing public sector employment to more manageable figures.
It must not be forgotten that after social services, public sector wages are the second heftiest expenditure bill for government. Last year’s collective agreement increased the wage bill by almost Lm50 million. Another collective agreement has to be signed by year’s end. This evening unions will be all ears waiting for government to announce its intentions on the forthcoming collective agreement. Mr Dalli himself has already expressed his views that government wants to see no change in wage structures discussed in last year’s collective agreement. In other words he is clamouring for a wage freeze for the next three years. Mr Dalli’s argument is that the current public sector wages adequately reflect the work done.
Turning on to revenue this current year has seen a record amount of tax revenue from increased enforcement rather then new taxes. The same is expected for the next year, more so after launching the Tax Compliance Unit, strategically on the eve of budget day. The Unit is expected to rake in an additional Lm40 million from increased enforcement over the next five years.
Although the inflation rate has been on the increase since June, the latest September figure is well within the budget projection of 2.5%.
When asked by The Malta Financial and Business Times to qualify his "the worst is over" statement, Mr Dalli said that the foundation was set and the economy was moving in the right direction. He added that the statistics show that government has reached its goals and possibly more.
This does not mean that we can now all turn to relax mode. In the months to come EU negotiations will centre on tough chapters, which require a certain amount of spending. However, according to Mr Dalli we are on the right track. "I am positive about the outcome," he told this newspaper.
Will this be a ‘good’ budget that meets the business and financial sectors’ expectations? We all have to wait and see what the finance minister has to propose this evening.