Malta to Cut Taxes in Face of Deficit Risk, Prime Minister Says

Malta’s new government will go ahead with tax cuts, undeterred by a deficit that threatens to top the European limit of 3 percent of gross domestic product, Prime Minister Joseph Muscat said.

Muscat, elected last month, blamed the previous government for overstating the country’s fiscal health and said his aim is to keep the shortfall under the European limit in 2013.

“The public finances are not as they have been described, or what was expected,” Muscat said today in Valletta in a presentation on the budget, which he will take to lawmakers on Monday. “We will still be able to carry out our electoral program. We won’t complain.”

In bringing the Labour Party back into power after 15 years in opposition, Muscat pledged to cut income taxes and energy costs while reducing the budget deficit.

Muscat said today that without a course correction the deficit would go as high as 3.5 percent of GDP in 2013. Malta’s deficit was 2.6 percent last year, according to a February estimate by the European Commission. Official European data are due on April 22.

“Political instability in 2012, that was finally resolved by the election, had an impact on government income with a corresponding increase,” Muscat said.

Labour won 55 percent of the vote, giving it the largest parliamentary majority since Malta achieved independence from Britain in 1964. The election was triggered by an impasse over the budget, which led Standard & Poor’s to cut Malta’s credit rating one level to BBB+ in January.

Victory by Muscat, 39, ended nine years of rule by the centre-right’s Lawrence Gonzi, 58. Gonzi’s Nationalist Party had steered Malta into the European Union in 2004 and to euro adoption in 2008. Under Gonzi, economic growth outpaced the euro-region average.

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