Finance Minister Edward Scicluna said in parliament today that there was no need for any alarm over a 5.5 per cent increase in government spending this year as this was projected on conservative estimates of GDP growth.
Introducing the debate in second reading of the Fiscal Responsibility Bill, Prof. Scicluna said Malta’s GDP was growing at a strong rate and government was well within its planned parameters. A stronger growth was being reflected on government income such as from Vat receipts.
On the other side of the scale, he said, there were unexpected but explainable losses such as the €40 million owed by Enemalta and which would be paid once the Enemalta agreement with China was finalised.
Prof Scicluna said the financial statistics showed that the economy was facing a good future with increases in work and employment. He said that Eurostat today confirmed that Malta has an unemployment rate of 5.7 per cent – the third least unemployment rate in the EU after Austria and Germany. This was also less than half that registered in the eurozone. The rate of inactive people was decreasing slowly but steadily and has reached an all-time low.
Earlier, Prof Scicluna said that the Bill provided for the setting up of a Fiscal Council, a regulatory body made up of the various components of the financial sector which would be responsible for evaluating the fiscal strength of proposed fiscal measures. It sought to regulate in a strict way the manner in which government not only operated but also planned fiscal disbursement.
These regulations would be five-fold. In the first part of any fiscal plan, the law required that the plan always contained a direct link to the rules and regulations of the EU. This would mean a direct relation between the plan proposed and the financial parameters of the EU. The law however permits a government deviation from established plans so that it would have room for manoeuvre in case of emergency.
The second part provided for the accumulation of surplus after the deficit had been eliminated. Prof Scicluna recalled the Kenysian principles of reducing taxation in lean times and increasing it in affluent times which tallied with the aim behind this section.
The third section related to ensuring the good health of financial institutions to enable the fluent operations as arbiters in finance. This would include the setting up of the Fiscal Council.
The fourth part obliged the government to present a medium-term fiscal plan of not less than three years, using the concept of top-down budgeting. This would eventually also involve a accrual system of accounting.
The fifth part provided for independent monitoring of the law and how it is implemented.