The Malta Fiscal Advisory Council has given the government Budget the thumbs up – and even said that the fiscal balance both for 2016 and for 2017 could improve by more than was being targeted.
The council said the fiscal deficit-to-GDP targets of 0.7 per cent for 2016 and 0.5 per cent for 2017 were within its comfort range while the debt-to-GDP targets of 63.3 per cent for 2016 and 61.9 per cent for 2017 were “plausible”.
“The council understands that the planned improvement in the fiscal balance in both years is the result of expected larger increases in revenues than in expenditures, while the expansion in nominal GDP fully explains the anticipated lower debt-to-GDP ratio,” it said.
“If recent revenue trends are maintained, and if labour market conditions remain buoyant, the projections for current taxes on income and wealth, as well as those for social contributions, may be higher than expected in both forecast years.”
It said that there was a risk that revenue would be lower than anticipated because of the absorption of EU funds in 2016 and of dividend earnings in 2017.
On balance, however, the council said it was more likely that revenue for both years would be higher, rather than lower, than forecast. Reaching announced expenditure targets was conditional on successful restraint, through scaling back of a number of expenditure categories, in terms of their share in nominal GDP, it said, adding that this challenge appeared rather significant in the case of the compensation of employees category.
However, the council’s view was that for 2016, the upside risk for this category was more than compensated for by the downside risk stemming from possibly lower-than-budgeted spending on investment financed through EU funds.
On balance, the council views downside risks for total expenditure in 2016. On the other hand, for 2017, the balance of expenditure risks is on the upside.
“Apart from spending on compensation of employees, which may exceed targets, spending on intermediate consumption may also be higher than planned should the allocation for the EU Presidency be exceeded. Further upside risks relate to spending on social benefits, owing to the fact that the absolute budgeted increase is similar to that anticipated for 2016, notwithstanding the new expansionary measures announced in this field for 2017,” it warned.
http://www.mfac.gov.mt