Brussels has recommended lifting the excessive deficit procedure for Malta after the deficit was reduced significantly over a two-year period.

The recommendation will have to be endorsed by the European Council in June but this is expected to be a mere formality.

The Commission noted that the deficit reached 2.1 per cent last year after peaking at 3.6 per cent in 2012 when Malta was put under the procedure. The deficit benchmark is three per cent.

The Commission said the deficit reduction last year was driven by budget measures which led to a significant increase in current revenues that offset the increase in expenditure.

Malta was given a three-year transition period to correct its deficit after the 2012 pre-election spending spree reversed progress in previous years.

The new Labour government’s policies to encourage more women to work, the income tax cuts and other measures to wean people off social benefits and into the labour market, coupled with the reduction of utility tariffs helped stimulate economic growth. A stronger economy meant more revenue from taxes and lower deficit and debt figures when compared to GDP.

There is a long-term risk to public finances

The stability programme for 2015-18, submitted by the government last month targeted a deficit of 1.6 per cent of GDP this year and 1.1 per cent in 2016.

The Commission said the deficit was set to remain below the reference value of three per cent over the forecast horizon and recommended the excessive deficit procedure be lifted. At the same time the Commission released the country specific recommendations for each member state, which noted the progress of reforms in the justice sector.

However, it also commented on the long-term risk to public finances because of a heavier expenditure on pensions and the lack of reform to address this problem.

The government welcomed the Commission’s recommendations, pointing out that for the first time in many years Brussels had recognised the wide-ranging and holistic reform in the justice sector.