Malta’s Draft Budget passes first EU test

The European Commission did not send Malta a letter asking for further explanations of the plan on 27th October, as it did to many other Euro area countries.

As part of the Stability and Growth Pact – a set of rules designed to ensure that countries in the European Union pursue sound public finances and coordinate their fiscal policies – each and every government of Euro area country must send a Draft Budgetary Plan to the European Commission before the enacting of their Budget. This plan is carefully analysed by the Commission’s experts and approved or returned to the respective government for alteration.

The Maltese government’s draft budget plan has passed the first test of the Europoen Commission, because the Commission did not send a letter asking for further explanations of the plan on 27 October, as it did to many other Euro area countries. These include Belgium, Croatia, Finland, Lithuania, the Netherlands, and Slovakia. Slovenia was also not sent the letter because it was deemed that the country’s worsening fiscal performance was due to natural disasters. To some extent, the Greek budget was also given this reprieve.

Stark contrast

When looking at the contents of the other countries’ draft budgetary plans, they are in stark contrast to the economic and fiscal performance of Malta. The Austrian government, among others, reported that “in the second quarter … economic output fell surprisingly sharply by 0.8%’. This was due to “losses in value added … in construction, industry, and some service sectors”. This happened just when the Austrian government reduced its fiscal support on electricity and fuel costs. The Austrian Government’s draft budgetary plan indicates that there will be a reduction of 0.3% of GDP in relation to energy subsidies and fuel tax rebates.

Even the Cypriot government is cutting aid. The Government stopped the fuel duty rebate at the end of June, and another severe impact was related to the reinstatement of a 19% VAT rate on electricity bills.

The draft budgetary plan of Estonia notes that the “economic situation has been challenging in Estonia and the neighbouring countries over the past year and a half. Sentiment of different economic sectors has deteriorated significantly in Estonia with companies considering a lack of demand as the main factor limiting their activity”. As a result the Estonian Ministry for Finance was projecting only 2% reduction in spending, and a large spike in the deficit.

The Finnish plan notes that “the Ministry of Finance considers that economic growth will be close to zero in 2023” and that “the permanent structural imbalance between expenditure and revenue in general government finances is an acute problem”. In fact, the European Commission asked the Finnish government to provide it with more details as it believes the plan does not conform to the fiscal rules.

France’s “gradual wind-back” of energy measures

The French government’s plan, like Malta’s, so far seems to have been acceptable to the Commission. But when you compare the two reports you notice a big difference. While the Maltese plan clearly says that energy and fuel subsidies will be maintained, the French one notes that “the gradual wind-back of measures introduced in the context of energy price hikes – representing a cost of approximately €40bn in 2022 and 2023 – will take place in 2023 and 2024”. The price of electricity has actually already risen by 15% in February and by 10% in August.

Moreover, the French government has already announced it will undertake austerity measures. The draft budgetary plan states that “the ratio of public expenditure to GDP should continue to fall, standing at 55.9% in 2023, excluding tax credits, compared to 57.7% in 2022. Public expenditure should decrease by 1.3% in real terms, following a decline of 1.1% in 2022.”

Malta committed to shielding economy

While across Europe economic growth is slowing, and governments are unable to continue to help families and businesses, the Maltese government remains committed to act as a shield protecting the local economy. This explains why Malta’s GDP growth is about ten times that in Europe.

Photo credit: Marco

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