The government should focus on a fiscal policy that is geared towards the longer term, the Malta Fiscal Advisory Council has urged, calling for more effective frameworks.

A report, published last week, assesses the stability programme for 2017-20 as part of the government’s medium-term fiscal strategy.

It also contains the council’s assessment of the extent to which the numerical fiscal rules outlined in the Stability and Growth Pact and the Fiscal Responsibility Act are being adhered to.

While the council commended the government’s “conduct on fiscal policy”, notably the strong economic growth that facilitated the attainment of a fiscal surplus, it did however encourage the authorities concerned to conduct a policy that is geared towards the medium- and long-term.

“This would require a more effective transposition of a three-year policy framework, away from the tendency of yearly moving targets for the various revenue and expenditure components.

“Such a strategy would enhance the transparency, continuity and consistency of budgetary objectives,” the council concluded inits report.

On public finances, the MFAC positively noted that the government’s efforts were focused on three areas – productivity, expenditure and revenue – which in turn gave rise to productivity gains. It however called on the government to “intensify its efforts” to channel best practices across the various departments and entities, adding that it supported a suggestion by the European Commission to introduce performance-based public spending.

On expenditure benchmarks, the council said that this was “fully-respected” in 2016 and was stable on a year earlier, as defined under the expenditure rule.

And while compliance with the expenditure benchmark should not be a problem as long as Malta maintains a structural surplus, the council encouraged the government to monitor trends closely to avoid any “unfavourable developments” that might jeopardise compliance with the medium-term objective.

“The analysis carried out by the European Commission points towards low risks to sustainability for Malta, in the short term and in the medium term.

“However the European Commission judges that there are medium risks in the long term, mainly on account of the estimated future increases in ageing related costs,” the council said in its report.

It added that in case of less favourable ageing cost projections, the Commission did not exclude that there could be high risks for Malta’s public finances in the long term.

“Therefore, the Malta Fiscal Advisory Council encourages the government to continue to sustain the pension reform process in order to address long-term sustainability challenges,” the report reads.

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