BUDGET 2008 | Tuesday, 16 October 2007

The budget paradox: Deficit to fall while expenditure rises

James Debono

The Budget in figures

• Deficit to decrease from LM 48 million to Lm 29 million
• Government revenue set to increase by Lm 58 million
• Government tax revenue to increase by Lm 46 million
• Recurrent expenditure set to increase by Lm 29 million
• Increase on pensions and social services to increase by Lm 20 million
• Capital expenditure set to rise by Lm 10 million despite spending Lm 14 million less on Mater Dei hospital
• Tax payers to save Lm 12 million from tax cuts
• Budget on education to be increased by Lm 9 million
• Expenditure on children allowance set to rise by Lm 5 million
Despite increasing its recurrent expenditure by a gross Lm 29 million and its capital expenditure by a further Lm 10 million, the government plans still plans to decrease the deficit by LM19 million; from LM48 million to LM29 million.
Despite saving the tax payer Lm 12 million through the second consecutive reform of the tax bands and without increasing taxation, the government is set to increase its revenue by a grand sum of Lm 58 million.
While LM 46 million is expected to come from increased taxation revenue, Lm 12 million is expected from other revenue sources.
The government is expecting revenue from income tax to rise by Lm 25 million, social security contributions to rise by Lm 8 million and VAT contributions to rise by Lm 10 million. Another Lm 5 million is expected from increased revenue from fines, duties and fees.
The Prime Minister explains the apparent paradox of increased spending and a falling deficit by vaguely hinting at “more work and more investment.”
But a substantial increase in non tax revenue is expected from “grants” which are expected to rise by Lm 15.5 million. This is an indication that EU funds are an important part in the government’s fiscal equation.
Surprisingly, during 2007 the government only managed to get Lm 38 million less than the Lm 73 million allocated in last year’s budget.
On the other hand in 2007 the government collected Lm 30 million more from income tax than the sum projected in the last budget.
This time round the government plans to increase both its revenue from grants as well as it’s revenue from taxation.
All this would depend on whether the government will be able to reach a four per cent growth target while tapping as much EU funding as possible.

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