The European Commission is at odds with Malta over the classification of its spending on the rotating six-month EU presidency.
The Malta Fiscal Advisory Council (MFAC) said in a report and letter sent to Finance Minister Edward Scicluna that it was in agreement with the Commission’s view that spending on the presidency should not be classified as a one-off expenditure item.
The independent advisory council is tasked with monitoring the government’s fiscal and economic policy objectives.
Finance Ministry sources told this paper that classifying the €40 million budgeted spending on the presidency as “one-off” expenditure, would not impact the government’s deficit targets.
The EU Commission closely monitors member states’ yearly budgets in order to ensure compliance with its three per cent maximum spending deficit target as set out in the Stability and Growth Pact (SGP).
The deficit has fallen steadily under the current administration from 2.6 per cent of GDP in 2013 to 1.4 per cent in 2015.
Although the latest figures have yet to be published, further deficit reduction in 2016 and 2017 has been projected.
The MFAC chairman told the Finance Minister that the council agreed with the Commission that the presidency spending should not be classified as one-off “if one interprets conservatively the published guidelines”.
Any tweaking or fine-tuning will be done along the year to ensure that our 2017 fiscal targets are reached
It was noted by the council that not all of the principles in the guidelines were satisfied in order to classify the EU presidency expenditure as one-off costs.
It said the main argument related to the fact that EU membership was an integral part of the country’s obligations and hence, despite the EU presidency’s disproportionate impact in terms of costs in the case of a small economy, this by itself could not be considered as a one-off event.
MFAC chairman Rene Saliba told the Finance Minister there was a risk of deviating from the 1.8 per cent government expenditure growth limit set for 2017 by the Commission.
The MFAC said in its report that the Finance Ministry was “invited” to explore whether fine-tuning of expenditure plans for 2017 would be possible so as to at least aim towards the annual 0.6 per cent of GDP requirement in the improvement of the structural balance, if the presidency costs were excluded from the calculations.
The council said the government was on track in respecting the expenditure growth limit for 2016.
Asked by the Times of Malta why the government opted to classify the presidency spending as a one-off item, Prof. Scicluna argued that whether or not revenue or expenditure items were classified as a one-off did not change the government accounts “one iota”.
The Finance Minister said it only affected the year-to-year structural effort as measured by the EU Commission in connection with the Stability and Growth Pact (SGP).
Asked if the Finance Ministry would take on the MFAC’s suggestion to fine-tune the government’s expenditure plans, Prof. Scicluna pointed out that the 2017 Budget was approved by the council on the advice of the Commission.
“Any tweaking or fine-tuning will be done along the year to ensure that our 2017 fiscal targets are reached as they have been reached from 2013 to date,” Prof. Scicluna said.