LA VALLETTA (MALTA) (ITALPRESS/MNA) – The Malta Fiscal Advisory Council (MFAC) has issued a comprehensive assessment of Maltàs government’s Annual Report 2023, highlighting several areas of concern and offering specific recommendations for fiscal management. In its report, the MFAC emphasised three critical issues: the need to curb government spending, address revenue shortfalls despite economic growth, and develop an exit strategy for the fixed-energy-price policy. “The government should avoid inflating government spending to ensure adherence with the benchmark fiscal expenditure path,” the council said. However, it also cautioned against curtailing productive capital expenditure that promotes medium to long-term growth. While noting Maltàs economy outperforming expectations in 2023, the MFAC also underlined a concerning trend, warning that “government revenue did not exhibit a corresponding increase”. The council pointed out that both direct and indirect tax elasticity to GDP growth remained low compared to previous years, calling for an investigation into these discrepancies. Weighing in on the exorbitant energy subsidies which are costing the taxpayer 320 million annually, the MFAC reiterated “its recommendation to prepare an adequate exit strategy in relation to the fixed-energy-price policy, adopting a more targeted approach and enhancing incentives for energy savings”. This aligns with previous warnings from the European Commission and the International Monetary Fund. The European Commission has recommended that Malta phase out energy-related emergency support measures in 2024 to reduce its deficit. The Commission suggests that savings from cutting these subsidies should address the deficit, but the government has not indicated when it will end them. Ending the subsidies could lead to a spike in the cost of living, a politically unpopular move for the Labour government already facing challenges after recent election results. The government did not address the subsidies in its response to the Commission. In addition to these key points, the MFAC report outlined several other important recommendations. These include:
Export-Led Growth: The Council emphasised the need for Maltàs economic growth to be export-led, reducing reliance on domestic drivers, particularly private consumption. They stressed the importance of enhancing labor productivity and addressing skills gaps to maintain a robust competitive position. Private Sector Investment: The MFAC called on firms to direct excess profits into productive investments and initiatives to enhance labor productivity, viewing this as crucial for improving competitiveness and sustainable economic growth. Fiscal Consolidation: The Council advised that fiscal consolidation efforts should exceed the minimum required under the Excessive Deficit Procedure. They suggested targeting an annual structural adjustment greater than 0.5 percentage points of GDP, especially given the current high economic growth environment. Debt Management: While Maltàs debt ratio remains below the 60% of GDP reference value, the MFAC recommended maintaining this buffer and closely monitoring various components contributing to debt changes, particularly interest expenditure and stock-flow adjustments. These recommendations come as Maltàs debt continued to rise, reaching 9,976.2 million by the end of March, equivalent to 50.4% of GDP. Last month, the EU launched excessive deficit procedures against Malta and seven other member states, Belgium, France, Italy, Hungary, Poland and Slovakia. EU treaties mandate that member states’ deficits should not exceed 3% of their GDP, with debt below 60%. Malta, with a 2023 deficit of 4.9%, faces an excessive deficit procedure from the European Commission.
– Foto Agenzia Fotogramma –
(ITALPRESS).
