Commission concludes that Malta’s Deficit Reduction Action is effective and no further action required

Finance Minister Prof. Edward Scicluna welcomed the European Commission’s conclusion that Malta has taken effective action to address the budget deficit and no further steps in the excessive deficit procedure are needed at present.

Prof. Scicluna was speaking during a press conference held at the Ministry for Finance on Friday 15th November, during which he addressed the points raised in three separate documents published by the European Commission earlier that day.

These are the Commission’s Assessment of the Economic Partnership Programme, the Assessment of the Report for Real Effective Action, and the Assessment of the Draft Budget 2014, as submitted by the Government to the Commission in October.

All the assessments were made prior to presentation of the Budget 2014 in Parliament.

Reacting to the Council Opinion on the Economic Partnership Programme, Prof. Scicluna welcomed the Commission’s conclusions, noting that this means that Malta succeeded, once again, in avoiding disruptive corrective measures imposed by the EU.

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He also noted the Commission’s conclusions that the Government’s proposed measures with regard to public finances are “broadly adequate and could be expected to contribute to the strengthening of the public finances”.

Prof. Scicluna also welcomed the Commission’s remarks that the ongoing spending review will allow the Government to reduce and contain expenditure while also making inroads into more growth-friendly public spending.

With regard to the Commission’s remarks on pension sustainability, Prof. Scicluna underlined that while the Government remains committed to retaining the current pension age, it is introducing the third pillar pensions while considering other more long-term solutions.

Prof. Scicluna especially welcomed the Commission’s recognition of the Government’s efforts to restructure state-owned enterprises (Air Malta and Enemalta) so as to “improve their financial performance and in turn reduce the contingent liabilities on the government finances.“

Prof. Scicluna noted the Commission’s positive remarks regarding the Government’s direction to implement a shift from direct to indirect taxation within the Budget 2014, which the Commission noted “could encourage job creation and improve the growth-friendliness of the tax system.”

Prof. Scicluna also noted that, as part of its assessment of the Draft Budgetary Plan, the Commission noted that the Government’s forecasts are “cautious for 2013 and plausible for 2014”, and that “the scenario could turn out better than expected.”

Prof. Scicluna also explained the technical reasons why Malta and Brussels are at odds regarding the deficit forecast for 2013 and 2014.

He noted that this is due to how, thanks to overly-optimistic revenue projections by previous administrations, the Commission is sceptical that Malta’s indirect revenue projections will materialise, and consequently adopted a more cautious projection.

The Commission specifically defends its pessimism with regards to future risks of Maltese government expenditure slippages by its “previous years’ experience” or because these have “frequently occurred in the past”.

Prof. Scicluna noted that during the coming week the Commission will be in a position to analyse the Budget 2014 documents in more detail.

“I am confident that once the Commission gets the chance to review the full Budget 2014 documentation with its various growth-friendly measures, they will be able to confirm that the Budget we have presented goes a long way in meeting the country’s economic and financial objectives.” Prof. Scicluna concluded.