In August, the Government made a surplus of €129 million in its Consolidated Fund. This was the first surplus ever recorded since Robert Abela became Prime Minister. Moreover, testament to the success of Malta’s economic recovery, this was the third best government financial result observed during the month of August in history.
In fact, it was only in August 2019 and in August 2017 that larger surpluses were recorded, €210 million and €136 million respectively.
August is typically characterised by a spike in revenue, particularly income tax and VAT, due to the timing of tax payments. The fact that this year’s figures are just marginally below those seen in August 2017, which was the month with the second-best ever results, gives an indication of how good these figures are.
The fiscal result achieved in August 2021 was six times better than that observed in August 2008, when our country was undergoing a much less pronounced economic crisis than the shock of the COVID-19 pandemic. At that time, the Government had implemented austerity policies because its experts, ironically are still giving the Party advice today, thought this would have led to a strong fiscal situation. In reality, the Consolidated Fund fared much worse because austerity led to a weak economy which lowered tax revenues. Thus, the fiscal situation took until 2010 to return to its pre-crisis level.
This was the third best government financial result observed during the month of August in history.
By contrast, the progressive policies adopted during COVID meant that this August, Government had the largest intake of revenue ever observed in all Augusts in history. In fact, revenue topped €605 million, which means an improvement of €53 million on August 2019, and an increase of €186 million on August 2020.
In his reply to this year’s budget, Opposition Leader Bernard Grech had called Government’s revenue forecasts as an exercise in virtual reality. He had claimed that there was no way that these forecasts could materialise and therefore the Government was lying about its financial situation.
On the contrary, the current government’s policy is based on the basic principle that if you want higher Government revenue and a better fiscal situation, you need to support the economy and not leave firms and families to face economic recession on their own.
Almost a third of the increase in tax revenues observed this August was from VAT. This shows how Government measures, especially the second round of vouchers, have led to strong private consumption which has returned almost to its pre-pandemic level.
This August, Government had the largest intake of revenue ever observed in all Augusts in history, €605 million.
More than a third of the increase in income was from income tax and social security contributions. Revenues here are well exceeding their 2019 level. This is because unemployment has fallen to a historic minimum, as job creation has remained strong while incomes continue to rise.
The rest of the increase in revenue came from customs and grants. Customs revenues almost returned to their 2019 level, another reflection of the increase in private consumption. As for the rise in revenue from grants, they reflect the Government’s hard work to get the best funding package in history. Funds which are being used for projects of great need.
In fact, in August there was a capital expenditure of more than €54 million. This was the largest amount of capital expenditure ever incurred in the month of August in Malta’s history, an increase of 17% on levels achieved a year ago. In contrast to the 2008 crisis, when a Nationalist Government with an austerity policy reduced capital expenditure by almost half, the current government is increasing public investment sharply.
The fiscal results of August were achieved even though the Government spent €401 million in recurrent expenditure, which was also a record in history. This was due to the implementation of the generous measures announced in last year’s Budget speech.
While the Opposition had predicted that the deficit would increase because of those measures, we now know that in just the first eight months there has been an improvement of €333 million, or one third of a billion euro. The deficit has already fallen by a third, with no increase in taxes, with the wage supplement continuing, with record increases in social services, with extraordinary health expenditure, with major investment projects and with another round of vouchers and tax refunds.