Reforms can save millions

Millions of euros could be saved if healthcare and tertiary education are reformed, European Union experts have concluded.

Technical economic computations made by EU experts indicate that Malta can save up to three-fifths of its current spending on health care and more than a forth of its budget allocated to tertiary education while securing the same level of results.

In this context, the EU is suggesting to the Maltese authorities to "enhance (the) efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform".

The Malta study forms part of a wide-ranging report on the state of public finances in the Economic and Monetary Union (EMU) for 2008, drawn up by the Directorate-General for Economic and Financial Affairs of the European Commission.

An economic exercise on the healthcare spend, indicated that "input efficiency in Malta is low, amounting to a score of less than 0.4. Put differently, this means that the same level of output could be achieved by reducing expenditure by three-fifths of the current level.

This suggests ample scope for improving efficiency in healthcare expenditure".

The exercise was based on estimates for input efficiency scores along with the respective ranking computed using life-expectancy at birth, infant deaths and standardised deaths as three output measures. Input was measured by per capita public expenditure in purchasing power parity (PPP) terms.

Spending on tertiary education also needs restructuring, according to the Commission's study.

Public spending in primary and secondary education is considered to be very efficient but not the same can be said on tertiary education spending, which primarily includes the University and Mcast.

"At least the same level of output could be achieved with 77 per cent of the present level of expenditure per student, suggesting important scope for improving efficiency at this level of education," the report says.

The EU economists also measured the level of efficiency from the output side or, in other words, compared to the relatively more efficient countries, by how much could tertiary education output in Malta increase if spending was fully efficient.

The output efficiency score for Malta stands at 65 per cent of what it could be if spending was more efficient.

"This implies that, if educational spending was efficient, the tertiary enrolment rate would rise to about 90 per cent instead of the current 59 per cent," the report notes.

Looking at public finances in general, the EU report comments that, despite these gross inefficiencies, Malta is on the right track to achieve a balanced budget by 2010 while the reduction of the general government gross debt is planned to proceed at a satisfactory pace and is expected to fall below the 60 per cent of GDP reference value by 2009.

It warns, however, that, "there are risks to the achievement of the budgetary targets linked to a reliance on volatile tax revenue items in 2008, the envisaged degree of spending restraint, the favourable macroeconomic outlook after 2008 and the lack of information of the underlying measures, in particular as regards the envisaged continued restraint in the public wage bill".

The EU experts also noted that Malta's competitiveness within the euro area may be at risk in the event of a departure from wage moderation in the public sector, which may spill over to the private sector.

Malta has, thus, to be placed at medium-risk where it comes to the long-term stability of public finances, it concludes.

Points to ponder

Malta is invited to:

(i) Pursue further fiscal consolidation as envisaged in the programme so as to reach the medium-term objectives by 2010 and ensure that the debt to-GDP ratio is reduced accordingly, by spelling out the measures supporting the planned consolidation, especially on the expenditure side.

(ii) Enhance the efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform.

Ivan Camilleri Brussels