Tonio Fenech gets it wrong

If Minister of Finance Tonio Fenech is still confident about the state of the public finances, he must be living in Alice’s Wonderland.  The latest government finance figures released by the NSO show that the deficit is nowhere near what is required to meet even the Government’s target, even the relaxed one talked about by the Minister when he had to admit he would miss his budget target.

In September, the gap between expenditure and revenue improved by €1.6m or 9.9 percent compared to a year ago, leaving the deficit at €14.6m.  But this was well short of what Minister Fenech required to offset the series of bad results in the first eight months of the year.  In fact, the improvement in September left the deficit for the first nine months of the year at €282.2m or 49.8 percent above last year’s deficit at this time of the year.

In September, recurrent revenue fell by €1.9m or 0.9 percent, compared to a year ago.  There were drops in almost all sources of revenue, except in grants which rose by almost €35m.  In an indication that the fundamentals of the economy are under stress, customs and excise income fell by 45 percent, VAT takings by 29 percent, income tax by 7 percent, and social security contributions by 9.8 percent.  Total expenditure also decreased – by €3.5m or 1.5 percent.  There was a negligible decrease in recurrent expenditure, a fall of 5 percent in interest payments, and a reduction of 18 percent in capital expenditure – the latter perhaps the first indication that, in a desperate effort to improve the bottom-line, the Minister of Finance is cutting productive expenditure.

Looking at the first nine months as a whole, Recurrent Revenue grew by an annual 5.4 percent, but Total Expenditure was still outstripping revenue growth by a factor of 1.8.    Against an increase of €99.3m in recurrent revenue we had a growth of €193.1m in total expenditure.  In a rerun of previous months, recurrent (non-productive) expenditure rose by €124.6m or 7.5 percent whilst interest payments increased by €8.5m or 5.4 percent.  Capital expenditure rose by €59.9m or 32.7 percent.

Government Debt continued its inexorable rise.  In September it increased by €315m or 7.2 percent to reach the all-time high of €4.7bn. 

Maltastar has performed the same analysis we have been doing since March, where we  try to project the deficit by looking at a likely scenario, a worst-case scenario and a best-case scenario.  The best-case scenario worked out at -€97.5m, whilst the worst-case one worked out at -€349.4m.  Both look most improbable.  We plump for the “most likely scenario” which would show a deficit for the year of -€254.2m compared to last year’s -€188.5m.