Budget plans for 2015 were not on track and Malta risked not meeting strict EU rules, the European Commission noted yesterday.
Analysing data submitted by the government and comparing it with its own economic and fiscal projections for 2015, the Commission said Malta must make a bigger effort next year to lower its deficit and debts to meet targets set by Brussels last year.
In an immediate reaction, the government played down the warning, pointing out that the Commission had accepted the Budget since it had not requested a correction. For the Opposition, the report was another warning sign that not all was as well as the government claimed.
In 2013, the European Commission had started an excessive deficit procedure against Malta, demanding that the national debt and deficit are lowered to acceptable levels by the end of 2014.
Although progress was registered on both fronts, the Commission noted Malta had to make further cuts, adding there was a risk it would not manage to comply.
While the government insists it is managing to reduce its deficit and that all is on track, the Commission said in its latest report this was not the case. “The Commission forecasts highlight the risk that the correction of the excessive deficit may not be achieved, owing to the apparent lack of a sufficient effort to support it.
“In addition, the Commission’s autumn 2014 forecast points to a structural adjustment that is not in line with the targets of the EDP recommendation for 2014.”
The Commission also said that Malta was also off track in terms of debt, which would hit 71 per cent of GDP when EU rules set the level at 60 per cent.
“Compliance with the debt rule needs to be ensured in 2014,” it said.
“Based on the Commission’s forecast, the forward-looking debt rule is expected to be slightly missed in 2014, while it appears to be met in 2015.”
The Commission’s report states that although the island has made some progress over the past two years to streamline its debt and deficit levels, a bigger effort was needed to prevent “a significant deviation”.
Increasing government expenditure was highlighted as one of the risks, which could continue to put Malta’s finances off track.
“There is also a risk of slippages in the public sector wage bill, based also on the actual trend in cash data, and in intermediate consumption, given previous years’ experience,” the assessment notes.
“In addition, any delay in the privatisation of the public transport service could require additional subsidies on top of what is already budgeted.”
Brussels said that, based on a no-policy-change Commission 2014 forecast, which does not incorporate the consolidation measures in the 2015 Budget, a significant deviation is to be expected, based on both the structural balance and the expenditure benchmark.
Malta was invited to take the necessary measures to consolidate its finances on the long-term, including accelerating its efforts to improve the fiscal sustainability of the healthcare system, to ensure that further pension reform measures are put in place and to ensure that the efforts to improve tax compliance and fight tax evasion yield the expected results.
Euro-area assessment
The European Commission said in late October that none of the draft budgetary plans for 2015 showed “particularly serious non-compliance” with the requirements of the Stability and Growth Pact, which aims to ensure sound public finances in the EU.
The draft budgetary plans of Germany, Ireland, Luxembourg, the Netherlands and Slovakia were found to be compliant with the pact. In the case of Estonia, Latvia, Slovenia and Finland, the plans were deemed broadly compliant.
Malta was one of seven countries – the others were Belgium, Spain, France, Italy, Austria and Portugal – which, in the Commission’s opinion, risked non-compliance. Cyprus and Greece were excluded from this exercise as they are following a bailout programme.