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Malta Budget ‘broadly compliant’

Like so many other governments everywhere, Joseph Muscat’s administration does not hold back from inflating successes and downplaying unfavourable trends, criticism or, even, cautionary remarks or observations.

Judging by the government’s reaction to the approval, by the European Commission, of the Budget for next year, the impression that might be gained is that it was passed with flying colours. This is not the case, though the government may not be all that interested in detail.

What Brussels actually said was that the island’s Budget was “broadly compliant”. This is not the same as being “fully compliant”.

However, since it is not classified as “non-compliant”, the government appears happy with the Budget being assessed as being “broadly compliant”, so much so that, in its reaction, it quickly welcomed the Commission’s assessment. Not only that but it regarded it as yet another positive certificate that reflected the new direction brought about by the present administration. What would it have said had the Budget for 2017 been found to be fully compliant? The government has become so used to resorting to self-congratulatory messages that what seems to matter most to it is the political mileage it can get out of them, irrespective of whether or not they make sense.

In its Budget, the government is forecasting an economic growth rate of 3.5 per cent, in real terms, next year. The deficit this year is expected to drop to 0.7 per cent and to 0.5 per cent in 2017, which is quite creditable.

However, contrary to all the vibes given out by the administration, the European Commission does not seem convinced that the country’s Budget for 2017 is in line with the long-term sustainability objectives recommended earlier this year.

Projections for this year seemed to be in line but those for the next might not and Brussels, therefore, called on the authorities to take the necessary measures within the national budgetary procedure to ensure that the Budget for next year will be compliant with the rules of the stability and growth pact. As it has done at other times, the Commission has specifically mentioned lack of tangible reforms in pensions and healthcare, matters that have preoccupied other observers for years now.

Malta, the Commission pointed out, had made no progress with regard to the structural part of the fiscal country-specific recommendations issued by the European Council earlier this year. Warning of possible deviations, the Commission mentioned the two “big” expenditures – pensions and healthcare – and said that, although it recognised that the Budget addressed such areas, “no new elements have been reported” and that it was uncertain whether the measures introduced for the Budget for next year were sufficient to cope with the challenge of long-term sustainability.

Almost simultaneously, Central Bank governor, Mario Vella, struck the right note when he called for judicious control of government expenditure. Making his first speech since his appointment, he said this was essential since some important government revenue streams could be past their peak and might need to be replaced by new initiatives.

These warnings are all the more important at a time when the government may be tempted to be more generous than it should in the hope of ensuring another electoral win.

It is unlikely the European Commission has categorised the Budget as being only “broadly compliant” without good reason. At whatever rate the economy is expanding, it is wise to take heed of the Commission’s advice in time.

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