Brussels warns Malta on health, education costs

Brussels yesterday warned Malta to curb spending particularly on health and education and to plan and execute its budgets better if it wanted to have sustainable public finances.

Malta is facing EU action after it registered a deficit equivalent to 4.8 per cent of GDP, exceeding the Union's benchmark of three per cent.

In a review of the measures being taken to get back in line, the European Commission recognised progress made last year and accepted a request by the government to extend an earlier deadline to rein in its overspending from 2010 to the end of 2011.

However, the Commission was critical of the "weakness at the execution stage" of the Maltese budgetary framework.

"Public expenditure is still subject to discretionary decisions in the implementation phase, while the Budget lacks a clear medium-term focus in the sense that the multi-annual projections presented in the annual Budget are not underpinned by an articulated medium-term strategy, nor by an indication of the broad measures to achieve them," the Commission's analysis said.

Citing an example connected to the 2009 Budget, the Commission said that while the Budget measures for the year were executed as planned and no important discretionary measures were taken, expenditure overruns were recorded.

"Previously negotiated collective agreements covering public health care and tertiary education employees are turning out to be costlier than anticipated, while intermediate compensation is higher than budgeted from health care pressures. Also, fewer savings were realised in the area of subsidies than foreseen in the 2009 Budget."

In its recommendations, Brussels said it wanted Malta to specify the measures necessary to correct the excessive deficit by 2011 and accelerate the reduction of the deficit if the economy recuperated more than anticipated.

The Commission also asked the government to indicate where it expected major improvements in its finances.

"Reforms should be geared towards enhancing the efficiency of government expenditure, especially in the high resource-absorbing areas of health and education," it said.

"In addition, to reduce the risks of long-term sustainability of public finances, the Maltese authorities are invited to pursue further reforms of the social security system and reduce the budgetary costs of aging populations."

Contacted, Finance Minister Tonio Fenech reacted positively to the analyses of the Commission and said Brussels was recognising the severe effects the recession had on the Maltese economy and its finances during the past two years.

"We will obviously try to meet the targets set by the Commission by the end of 2011. However, this all depends on how the economy performs in the coming months," he said.

The government is projecting to end 2010 with a deficit of 3.9 per cent and to lower it to 3.2 per cent in 2011.