Brussels opens excessive deficit procedure against Malta

Commission 2013 spring forecast projects that the deficit will rise to 3.7% and 3.6% of GDP in 2013 and 2014.

Prime Minister Joseph Muscat’s first year in government will be marked by a high deficit that must be brought down.
Prime Minister Joseph Muscat’s first year in government will be marked by a high deficit that must be brought down.

The European Commission has today recommended that the Council of Ministers opens an excessive deficit procedure for Malta.

In 2012 Malta recorded a general government deficit of 3.3% of GDP, breaching eurozone rules to keep deficits below the 3% threshold.

The Commission wants Malta to put an end to its excessive deficit by 2014, but it believes the deficit will rise to 3.4% in 2013 and 2.7% in 2014 - an improvement of 0.7%. Additionally, it will have to ensure that government debt approaches 60% of the country's GDP.

Malta will also have to specify and rigorously implement the measures that are necessary to achieve the correction of the excessive deficit by 2014, and use all windfall gains for deficit reduction.

The Commission 2013 spring forecast projects that the deficit will continue to be above the reference value in 2013 and 2014, respectively at 3.7% and 3.6% of GDP. These budgetary projections are based on current policies, thus incorporating the 2013 budget that was endorsed by Parliament in April 2013, which includes expansionary measures on both the revenue and expenditure side, as well as the already planned equity injection into Air Malta (0.6% of GDP), with a net deficit-increasing impact of 0.3% of GDP.

The expansionary measures are only partially compensated by increases in excise duties, the collection of tax arrears as well as the expenditure savings and higher social contributions stemming from the 2006 pension reform.

In addition, revenue contribution from one-offs will fall after 2012. Current deficit levels will push debt to 73.9% of GDP in 2013 and to 74.9% of GDP in 2014. In 2015 and 2016, the general government deficit is projected to remain above the 3% of GDP reference value, and the debt-to-GDP ratio would increase to 75.6% of GDP by 2016.

Recommendations

While the Labour government says it will reduce the deficit to 0.8% in 2016, the Commission said its target was "more ambitious than required by the Stability and Growth Pact, but its achievement is not planned within the programme period."

Malta's 2013 deficit target relies on relatively high growth in tax revenues, which does not appear to be fully explained by the underlying macroeconomic scenario. In addition, it is not sufficiently supported by detailed measures, as is also the case for the subsequent years.

The Commission also said that Malta did not make sufficient progress towards compliance with the debt criterion in 2012 and is not projected to do so in 2013-14. "While Malta's fiscal framework is quite flexible, its non-binding nature and the short horizon of fiscal planning are not supportive of a sound fiscal position."

Brussels added that tax compliance and evasion continue to pose a challenge to the quality of public finances. "In 2012, Malta stood out as the country with the second highest gap between the tax treatment of debt and equity financing of new investment. This debt bias may lead to excessively high corporate leverage and inefficient allocation of capital. Malta is among the few Member States without any provisions to counter the debt bias."

Another stark reminder came on pensions and age-related expenditure, where compared to other member states the statutory retirement age remains low and the increase legislated with the 2006 reform is slow.

"The employment rate of older workers is low and a comprehensive active ageing strategy has still to be developed. Limited primary care provision, combined with the projected ageing of the population may lead to high healthcare costs in the long term. The administrative capacity in the area of public procurement is weak, leading to complicated and lengthy procedures."

Brussels said measures had to be taken to reduce the rate of early school leaving, and said the recent launch of the preparatory process leading to an early school leaving strategy are welcome, and that Malta had taken significant steps to increase participation by women in the labour force, mainly aimed at improving reconciliation of work and family life.

But Malta's competitiveness was said to remain at risk in view of the very limited diversification and poor environmental performance of its energy supply leading to high electricity tariffs.

"The dire financial state of Enemalta adds to this insecurity, but the electricity connector with Sicily is expected to provide relief after 2014. While a number of initiatives have been further pursued, such as the uptake of photovoltaic power, the share of renewable energy sources remains particularly low and the feasibility of major projects, such as the development of wind farms, seems to be at stake.

"Progress was registered in energy efficiency, notably for public buildings, supported through Union funding. The environmental performance of Malta's transport system is also poor. Malta would benefit from a comprehensive transport strategy that seeks to improve public transport, the road network, the system's carbon performance and to further encourage the use of other types of transport than passenger cars."

Brussels said Malta had to ensure the long-term sustainability of public finances, reform the pension system to curb the projected increase in expenditure, including by accelerating the increase in the statutory retirement age, by introducing a link between the statutory retirement age and life expectancy and by encouraging private pension savings.

Another recommendation was to pursue health-care reforms to increase the cost-effectiveness of the sector, in particular by strengthening public primary care provision.

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Emmanuel Mallia
The EU started excessive deficit procedure for Malta.And the blue eyed Spain ? They say nothing !
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If you read between the lines, what the EU is saying is that they want Malta to remove all social safety net and introduce – private healthcare and private pension. Private Pensions are great income earners for financial institutions and I would not be surprised if relevant legislation has not already been written by some Wall Street corporate law firm and is just waiting in the wings until the time is ripe to implement it. Ditto Health Insurance. Is it any wonder when the EU is just the mouthpiece for the IMF, a conglomerate of private American banks and Insurance Corporations? To be sure, they have been eyeing this great big pie called Europe for decades and now the jackals have come in for the kill. Even tiny Malta will not be spared. That means no National Pension and only the barest of public healthcare, the rest by private Insurance. And I see they dragged that canard of people living more now and to a great age (actuarial figures prove quite the opposite). The human lifespan is species specific and unless the genome is changes, people will die at the same age they always did. And increasing the retirement age is one of the cruelest things they have done. The next step is to do away with retirement altogether and old people will have to work until they die with no respite. It is amazing how fast Europe forgot its Social democratic roots. I guess it was a matter of buying up the leaders and the rest fell into place. Malta too has forgotten about Unions and Workers Rights and everything that our forefathers fought and sacrificed for. They have bought into the worst form of Fundamentalist Capitalism or neo-fascism, Capitalism with no moral compass and no decency, interested only in increasing profits at all cost. God help us all.
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That's the result of the 'par idejn sodi' and 'finanzi fis-sod'. That is why Gonzi told his supporters - ' on Saturday we vote, on Sunday we'll celebrate' - he wanted to celebrate the fact that he got rid of having to solve the financial mess PN Government created!!
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Review all collective agreements signed between January and March 2013 NOW. Too much wastage with no control mechanisms to ensure efficiency.
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It is time we Maltese start thinking on the same lines as the British, and that is to take Malta out of the EU by 2020. The corrupt EU commissioners take millions from EU citizens, spending substantial funds from individual contributions of Countries on unnecessary ceremonials, travels etc when they pressurize the weak and poorer countries into austerity measures and let the rich dictate to the others. We are supposed to have a European Foreign Policy but yesterday Britain and France went on their own re Syria. Gone is the single policy. The same is happening in the financial markets. We were bambusled into joining the EU so that the GONZIPN clique place their blue eyed boys in exorbitantly paid positions and we have been left to suffer instead. So let us get out when we still can.
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Yes there is a way to fill up the hofra. But they should stop being afraid of loosing votes.He must introduce the local income tax,yearly house tax, and make sure the self employed pay their taxes.Hefty fines on violations will help as well.There is no need to cut spending costs,all you have to be keen of what is going around us.
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Emmanuel Mallia
A detailed report of the PN legacy.....finanzi fis-sod !???????