Understanding the increase in recurrent expenditure

A constant criticism made by the Opposition is that the Government has let recurrent expenditure run loose. The implication is two-fold: that this largess was used to “buy” electoral support, and that the management of public finances was not sustainable. Rather than retorting to the usual argument made by economists, that looking at absolute figures does not make sense and that one should look at spending as a proportion of GDP, it makes more sense to try to understand how recurrent expenditure has grown.

The table compares recurrent spending as per the 2012 Budget with that observed in 2020. The first thing to notice is that it is quite true that recurrent spending has increased by 2.2 billion. But is this spending run loose or an attempt to purchase votes?

Well, the data shows that nearly €0.7billion, or close to a third of the rise was due to higher spending on health and elderly care. This is in part due to extraordinary spending brought about by the pandemic, but also reflects the steady enhancement in the health sector which meant that facing COVID-19, our front liners were not bereft of equipment and were not in short supply. In fact, according to Eurostat, Malta in recent years has had the largest relative increase in healthcare professionals, particularly nurses, in the EU. 

Another quarter of the increase in recurrent expenditure was on social security benefits. This mainly reflected enhanced generosity of benefits as the Government ended the freeze on pensions and introduced significant improvements for carers, widows and disabled amongst other groups.

Spending on education nearly doubled since 2012, and together with spending on economy-related ministries,accounted for another quarter of the increase in recurrent expenditure. The spending on economy-related ministries is also extraordinary as it reflects support measures related to the pandemic, which will gradually be wound down.

Therefore, when one looks at the available information, nearly 80% of the rise in recurrent spending is down to higher outlays on health, education, social benefits and economic assistance. Hardly the picture painted by opposition spokespersons, who, if anything, usually argue that not enough is being spent on these sectors.

Nearly 80% of the rise in recurrent spending is down to higher outlays on health, education, social benefits and economic assistance.

But maybe it all boils down to the remaining 20%. Well, digging deeper does not yield any such evidence. To give some examples, spending on the Police rose from 49 million to 84 million, that on Justice from 18 million to 51 million.

The rise in recurrent expenditure appears to mainly reflect rising demands of a growing economy and population, together with an improvement in the overall standard of public services. So much so that the latest Eurobarometer indicates that 72% of Maltese respondents say that public services are good, as against 46% in the EU.

Another frequent claim made is that in the run-up to the 2017 election the Government let rip and run the public finances with the sole intention of “buying votes”. This appears to be a case of the pot calling the kettle black. In 2017, public finances registered the highest surplus on record, 374 million, an improvement of 274 million over 2016. In 2018 the fiscal surplus remained a healthy 241 million.

Contrast this with the way public finances were run under previous administrations. For the 2008 election, the deficit rose from €123 million to €256 million. Election over, and despite a substantial economic recession, in 2009 the deficit was lowered to €198 million. Ahead of the 2013 election, the deficit was again increased from €164 million to €249 million. The other prime example was 2003 when the deficit was allowed to rise to €433 million, and then cut by half the following year.

This highlights the importance of reading past the headlines and digging deep into the arguments being thrown in Parliament or at political rallies.