Safeguarding the economy and protecting jobs come before considerations about the deficit, Finance Minister Clyde Caruana told parliament on Wednesday.

Speaking at the opening of a debate on the implementation of the Budget measures, the minister outlined the impact of COVID-19 on the government's finances.

He said that last year, revenue from VAT had dropped by €450 million while revenue from income and corporate tax was down by €200 million as tourism practically collapsed, and, domestically, people stayed at home and spending patterns changed.  

Those figures, he said, had not taken the government by surprise. From the outset, it had tackled the economic impact of COVID-19 forcefully, its principle being that the structure of the economy needed to be preserved. Only by safeguarding the economy and preserving jobs could recovery come quickly once the situation returned to normal.

4% of GDP on wage supplement, health

As a result, the government had spent €360 million on a COVID-19 wage supplement and spending on health increased by €110 million. These two figures alone accounted for 4 per cent of GDP.

Last year, he said, the government also spent €50m on vouchers to kickstart the local economy, an exercise which would be repeated this year. Some €50 million was also spent to repatriate people from and to Malta.

Several million were spent to relocate elderly people from old people's homes to more secure locations. Other millions were spent to help couples forced to postpone their wedding, or NGOs whose activities had to cease. 

'Deficit is cyclical'

"The government's priority was not its debt or deficit, however important. The overriding priority was the economy in general. It is useless having a lower deficit when ultimately the various sectors of the economy end up on their knees."

The government, Caruana said, was committed to retaining the assistance to various sectors introduced last year and this year.

Caruana said the deficit figures did not worry him too much. Deficits were either structural or cyclical. He would be worried by the former, where the deficit continued to rise even if the economy was in good shape. The cyclical deficit went in parallel with the economy, and it was this kind of deficit that Malta has at present. Once the pandemic passed, the extraordinary spending would cease and revenue would kick in as the economy recovered. The deficit would then drop without the need for government intervention to, say, raise taxes.  

Will wage supplement be extended?

Caruana said that in August, tax deferrals were €215 million. The situation had since improved and by the end of January the deferrals were down to €145 million. The situation was improving further and incentives may be announced in this regard.   

As moratoria started to expire, the government would ensure that sectors such as hotels would not have the rug pulled from beneath them, and payment timetables could be extended.

Ultimately what was due to the government would have to be paid. It would not be fair on regular taxpayers if payments were deferred for others, Caruana said. 

With regard to the wage supplement and other forms of assistance, the government would consider the situation of the various sectors since some had improved while others had deteriorated. The government would also consider some sectors which had so far not been helped despite having been impacted by COVID-19.  

Plans for next Budget

The government was also starting to plan for the next Budget. By the middle of this year, or slightly later, most of the people would have been vaccinated, most measures would have been lifted and the economy would be recovering, yielding revenue to the government once more.

His plan was not only to return the deficit below 3% but to return to surplus, Caruana said. 

He said the debt had also risen from 42% of GDP before COVID-19 to 60% now. This was substantially lower than in most EU countries, which had debt-to-GDP ratios of around 100%, and Malta would not get anywhere near those levels. 

"The financial situation is more than sustainable," Caruana stressed.  

Air Malta must be truly commercial entity, free of politics

On Air Malta, Caruana reiterated government plans for an "honest and credible" proposal to the European Commission for the authorisation of state aid.

The plan, he said, would set the number of aircraft, the number of employees and what business model would be followed. The airline, he said, was critical for Malta, not just for tourism purposes but as a lifeline for the provision of medical supplies, for example.

Over the years the company had been used as a political football. He wanted to ensure it became a fully commercial entity that did not become a burden on the country's finances. 

The minister has previously said that the airline is currently losing more than €170,000 every day.

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