Proposal for a COUNCIL OPINION on the Economic Partnership Programme of Malta
Date: 2013-11-15
Institutions: European Commission
Subjects: Malta, budget deficit, budgetary equilibrium, stability pact, tax reform













EUR-Lex - 52013PC0909 - EN











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52013PC0909

Proposal for a COUNCIL OPINION on the Economic Partnership Programme of Malta /* COM/2013/0909 final - 2013/0399 (NLE) */









2013/0399 (NLE)
Proposal for a
COUNCIL OPINION
on the  Economic Partnership Programme of Malta 

THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty on the Functioning of the European Union,
Having regard to
Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21
May 2013[1] on common provisions for monitoring and
assessing draft budgetary plans and ensuring the correction of excessive
deficit of the Member States in the euro area, and in particular Article 9(4)
thereof,
Having regard to the
proposal of the European Commission,
Whereas: 
(1)       The Stability and Growth
Pact (SGP) aims at securing budgetary discipline across the Union and sets out
the framework for preventing and correcting excessive government deficits. It is
based on the objective of sound government finances as a means of strengthening
the conditions for price stability and for strong sustainable growth
underpinned by financial stability, thereby supporting the achievement of the Union's objectives for sustainable growth and jobs. 
(2)       Regulation (EU) No
473/2013 of the European Parliament and of the Council of 21 May 2013 on common
provisions for monitoring and assessing draft budgetary plans and ensuring the
correction of excessive deficit of the Member States in the euro area sets out
provisions for enhanced monitoring of budgetary policies in the euro area and
for ensuring that national budgets are consistent with the economic policy
guidance issued in the context of the SGP and the European Semester. Since
purely budgetary measures might be insufficient to ensure a lasting correction
of the excessive deficit, additional policy measures and structural reforms may
be required.  
(3)       Article 9 of Regulation
(EU) No 473/2013 sets out the modalities for Economic Partnership Programmes,
to be submitted by euro area Member States under an Excessive Deficit
Procedure. Setting out a roadmap of measures to contribute to an effective and
durable correction of the excessive deficit, the Economic
Partnership Programme should detail the main
fiscal-structural reforms, in particular those referring to taxation, pension
and health systems and budgetary frameworks, which will be instrumental to
correct the excessive deficit in a lasting manner. 
(4)       On 21 June 2013, the Council
adopted a decision according to Article 126(6) of the Treaty, whereby Malta is placed in an excessive deficit procedure. In this context, Malta was requested to present an Economic Partnership Programme by 1 October 2013. 
(5)       On 1 October 2013, and thereby
within the time frame established by Article 9(3) of Regulation (EU) No 473/2013,
Malta presented to the Commission and to the Council an Economic Partnership
Programme, setting out structural reforms that aim at strengthening public
finances and, more broadly, complying with the 2013 Country-Specific
Recommendations (CSRs). These policies can be grouped under the following
objectives: (i) ensuring public finance sustainability (CSR 1, 2 and 4), (ii)
enhancing the efficiency of the public administration (CSR 2 and 5), (iii)
raising potential output, while enhancing competitiveness and promoting a
diversified and balanced economy (CSR 2, 3 and 4) and (iv) safeguarding
financial stability (CSR 5). 
(6)       The fiscal-structural
measures that Malta plans to implement are the following: (i) reform of the
fiscal framework, (ii) a spending review at ministry level, (iii) taking the
pension reform further by introducing a third pension pillar, (iv) measures to
improve the provision of services in the health sector, (v)
restructuring of state-owned enterprises, (vi) increasing the efficiency of the
public administration and (vii) gradually shifting the burden of taxation from
direct to indirect taxes. The set of measures is broadly adequate and could be
expected to contribute to the strengthening of the public finances.
Nevertheless, further efforts in some areas, such as ensuring the long-term
sustainability of public finances, appear necessary.
(7)       The reform of the fiscal
framework is adequate and can be expected to strengthen fiscal governance and
to help contain fiscal slippages. The appointment of an independent fiscal
council can be expected to contribute to an enhanced monitoring and planning of
  Malta's public finances. The reform, however, has not been adopted by the
parliament yet.
(8)       The ongoing spending
review that aims to identify expenditure savings and improve the efficiency of
public spending can result, on the one hand, in lower growth in expenditure
and, on the other, in more growth-friendly public spending.
(9)       The introduction of a
third pension pillar could improve the adequacy of the pension system, but it
would not contribute towards improving its sustainability. None of the other
relevant measures recommended to Malta under CSR 2, namely accelerating the
increase of the statutory retirement age and increasing the effective
retirement age, appear to be under consideration.
(10)     The planned measures to
improve the provision of services in the health sector can be expected to
improve the efficiency and adequacy of the system. Still, at the same time it
can contribute to higher demand and take-up of government-funded healthcare
services. In the absence of more detailed information on the measures it is not
possible to determine to what extent the reform can lower the pressure on
public expenditure in the long-term.
(11)     Restructuring state-owned
enterprises, such as the national airline Air Malta and the energy company
Enemalta, could improve their financial performance and in turn reduce the
contingent liabilities on the government finances. Policy efforts in the energy
sector are particularly notable, where the main energy provider Enemalta holds
government-guaranteed debt of around 10% of GDP. In addition, this can be
expected to reduce the need for government subsidies in the future.
(12)     The authorities present a
mix of ongoing and new measures that can be expected to raise the capacity of
the public administration to enforce tax compliance and to reduce tax evasion.
In addition, the programme contains measures that would reduce the length and
increase the efficiency of public procurement procedures.
(13)     The indicated gradual shift
from direct to indirect taxation could encourage job creation and improve the
growth-friendliness of the tax system. However, the shift is described in very
broad terms without providing details. In addition, plans to reduce the debt
bias in corporate taxation are still missing.
(14)     The Economic Partnership
Programme also contains a variety of non-fiscal structural measures that
broadly aim at complying with the 2013 Country-Specific Recommendations. The
policy plans include comprehensive reforms of the judicial system and the
diversification of energy sources. The measures appear to be in the right
direction and can be expected to contribute to the creation of growth and jobs
in Malta, while also safeguarding financial stability. Nevertheless, in general
they are still work in progress, while the information provided is often
limited. Therefore, further analysis of the impact of the policy plans and
their contribution to addressing the challenges identified in the 2013 CSRs
will be needed once the policy plans become more concrete and their
implementation advances,
HAS ADOPTED THIS OPINION: 
The Economic Partnership
Programme of Malta presented to the Commission and to the Council on 1 October
2013 includes a set of fiscal-structural reforms that is partially adequate to
support the achievement of a sound fiscal position. Specifically, the Economic
Partnership Programme takes further the fiscal and non-fiscal reform agenda
included in the 2013 National Reform Programme and Stability Programme and adds
policy plans aiming at improving the efficiency of government expenditure,
reinforcing the public administration and restructuring state-owned
enterprises. In general, however, all reforms are work in progress and their
adoption and implementation remain subject to risks. In addition, some CSRs are
yet to be fully addressed, namely the debt bias in corporate taxation in CSR 1 and
the long-term sustainability of public finances in CSR 2. Malta is therefore
invited to provide additional information on the implementation of the planned
reforms in the upcoming National Reform Programme and Stability Programme,
while considering additional measures that would be instrumental to ensuring
long-term public finance sustainability. The Commission and the Council will
monitor the implementation of the reforms in the context of the European
Semester.
Done at Brussels, 
                                                                       For
the Council
                                                                       The
President
[1]       OJ L 140, 27.5.2013 p. 11.