EU issues positive report on Malta

A report issued yesterday by the European Commission praises Malta for its efforts to come into line with EU rules on public finances and forecasts that the island's deficit will be less than three per cent of GDP by this year.

In its report on the state of public finances in the EU, the Commission also gives a positive assessment of Malta's privatisation process and of the announced changes to the pension system.

Following Malta's accession to the EU in 2004, the EU Council had decided that the island had an excessive deficit and agreed that this had to be corrected by the end of this year. It recommended that Malta implement, with vigour, measures, particularly those of a structural nature, aimed at rationalising and reducing expenditure.

In its report yesterday, the Commission said that "on the basis of the measures contained in the 2005 budget, Malta appeared to have taken effective action regarding the measures to achieve the deficit targets for 2005 in response to the Council recommendation. According to the spring 2006 forecast of Commission services, Malta seems to be on track to correct the excessive deficit by 2006".

The Commission noted that the main revenue-raising measures this year include a reform of taxes on the transfer of immovable property, further tightening of rules to prevent tax fraud and the sale of government property.

On the expenditure side, measures include support to the main sectors of the economy and others intended to mitigate the impact of higher oil prices on public finances.

"On the revenue side, the measures announced in the budget are projected to lower the deficit ratio for 2006 by around 0.5 of a percentage point of GDP, while the remaining 0.25 percentage point is envisaged to be achieved from lower expenditure.

"The Commission services' spring 2006 forecast projects the deficit to fall to slightly below three per cent of GDP in 2006, compared to the official budget target of around 2.75 per cent presented in the latest update of the convergence programme."

The Commission also gives its opinion on the various reforms being implemented in the member states to pension systems. According to the report, the EU faces a major budgetary challenge in view of ageing populations over the coming decades. Malta is being considered by the EU to be of medium-risk in this area.

"The assessment of this round of stability and convergence programmes suggests that the increased focus on the long-term sustainability of public finances in the EU has contributed to incorporate longer term concerns in the policy-making processes. The analysis of the 2005/06 updates of the stability and convergence programmes reveals that six member states (the Czech Republic, Greece, Cyprus, Hungary, Portugal and Slovenia) face a high risk with regard to the long term sustainability of public finances in view of the budgetary impact of ageing populations. Ten member states - Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Malta, - the Netherlands and the UK - are at medium risk."

On the privatisation programme being carried out in Malta, the Commission makes an optimistic assessment and states that "privatisation has been more conducive to achieving the stated objective of enhancing efficiency than in supporting fiscal performance".

According to the Commission, in terms of factors such as service expansion and operating efficiency, a marked improvement after privatisation has been registered, at least in the case of the banking sector.

"The extent to which privatisation resulted in better budgetary outcomes was limited, although the proceeds derived from the sale of assets contained the growth in debt," the Commission's report says.