Brussels remains unconvinced by Malta’s proposed Budget for next year, insisting it still risks not reaching its EU fiscal targets despite the Government’s assurances on the debt and deficit.
The European Commission yesterday also criticised other aspects of the Budget, stressing the plans “lack details” while Malta made “limited progress” on important long-term reforms such as pensions, healthcare and budget discipline.
Addressing a press conference in Brussels, Economic and Monetary Affairs Commissioner Olli Rehn summed up the Commission’s conclusions in two sentences: “Malta appears to have taken effective action but our analysis still shows a risk of non-compliance. We invite Malta to take the necessary measures to ensure full compliance with the Stability and Growth Pact in 2014.”
Though recognising that Malta’s 2014 Budget projections for the deficit – 2.7 per cent of GDP this year and 2.1 per cent in 2014 – appear to be better than when Brussels started a new Excessive Deficit Procedure against the island earlier this year, the Commission said it was not clear how these results would be achieved.
“There are risks that the deficit outcomes could be worse than targeted in the Draft Budgetary Plan,” it stated.
“The projected dynamic increase in tax revenues in 2013-14, especially with regard to indirect taxes, does not appear to be fully explained by the underlying macroeconomic scenario, nor is it underpinned by measures.”
The Commission stood by its own projections, stating that it sees the deficit reaching 3.3 per cent this year, increasing to 3.4 per cent next year.
Brussels said that the same risks highlighted for the deficit targets also apply to the debt projections of Malta’s Draft Budgetary Plan.
“Moreover, the government-guaranteed debt in Malta is high (17.4 per cent of GDP in 2012) compared to other member states, 60 per cent of which is accounted for by the public energy utility corporation Enemalta.”
Malta appears to have taken effective action, but our analysis still shows a risk of non-compliance
On the actual measures underpinning the Government’s plans, the Commission stated that it “does not provide sufficient details on the discretionary measures underpinning the 2014 budgetary targets”.
Estimates will now have to be reassessed against new data that shall be given to the Commission in spring.
The EU executive insisted little progress has been achieved in other areas recommended last June, even though, on paper, reforms appear to be ongoing.
“As regards the long-term stability of public finances, decisive policy action is still missing,” the Commission said.
The report notes there were “no concrete steps to improve pension sustainability in the long term” and that expenditure efficiency in the healthcare sector was not yet clear.
While the Government announced its intention to introduce a rolling, three-year fiscal framework that would specify expenditure commitments and include specific provisions to prevent overruns, these actions “have not been presented or approved by Parliament”.
“In addition, a structural balanced Budget rule, as provided for in the Treaty on Stability, Coordination and Governance, has not yet been introduced in legislation.”
The Commission invited Malta “to accelerate progress” towards implementing the fiscal recommendations under the European semester.
These include action to reduce the debt bias in corporate taxation, concrete delivery of measures taken to increase tax compliance and fight tax evasion and ensuring the long-term sustainability of public finances.