Updated at 2.39pm

The European Commission has urged Malta to address aggressive tax planning systems, consider raising its retirement age and focus on fixing road congestion problems. 

In a country-specific report issued on Wednesday, the Commission listed recommendations which also included calls to strengthen judicial independence and to create a separate prosecution service. 

'Aggressive' tax planning

Malta was advised to address "features of the tax system that may facilitate aggressive tax planning by individuals and multinationals, in particular by means of outbound payments", in a country specific report issued on Wednesday by the European Commission.

Anti-money laundering

The report also recommended that the country should continue the ongoing progress made on strengthening the anti-money laundering framework, notably regarding enforcement. 

A delegation from the European Commission was here last March and had already said that Malta had not made any significant progress in the fight against corruption.

Read: European Commission's appraisal of Malta: not entirely ‘outstanding’

Road congestion concerns

Malta needed to invest in the untapped potential for energy efficiency and renewables, water-management cycle and waste management, the report said.

It also needed to tackle the growing emissions from air conditioning and car use.

"Road congestion is one of the weakest aspects of Malta’s business environment and remains a major challenge," it said.

Malta’s fiscal energy consumption is constantly on the rise, the report warned, adding investments across sectors are needed in the short-term to meet 2020 targets.

The environmental and social costs of the housing boom require closer monitoring, the report said. The economic and social consequences of the increase in the cost of housing require attention.

Reliance on foreign workers 

It also noted policy initiatives in the labour market, particularly in the areas of skills and social inclusion, require better monitoring and evaluation.

The increasing reliance on foreign labour to address the labour and skills shortages creates social and sustainability challenges, it said. It also called for emphasis on addressing gender employment gaps.

Malta invests relatively high amounts in education and training but this is not yet reflected in better outcomes for all, it warned.

Governance warnings

Malta’s increasing reliance on sectors “considered vulnerable to financial integrity risks”, such as remote gaming, creates challenges to the governance framework. This places pressure on the supervisory and enforcement capacity, the report noted.

While it praised the increase in the human and budgetary resources of the Financial Intelligence Analysis Unit, it said governance shortcomings, particularly in the fight against corruption, may adversely affect the business environment.

Governance shortcomings could also weigh negatively on investment, the report warned.

“In particular, there is a risk of conflict of interest at various levels of government,” it added.

“Improving the governance framework and ensuring an effective implementation is a key element to preserve Malta’s attractiveness and protect the economy from reputational risks,” it said.

The report called for a strengthened governance framework, including effective judicial and anti-corruption enforcement. These were prerequisite to obtaining the full benefits of investment, it said.

Pension and healthcare spending

Age-related pubic spending in the pension and healthcare systems is expected to increase significantly, compared to other Member States. This indicates a risk of rising debt over the long-term, the report noted.

Ongoing efforts have helped to increase the supply of labour and prolong working lives, with a positive impact on employment rates for women and older workers.

The report noted that the statutory retirement age is set to remain unchanged after 2027 (at 65 years), despite a projected further growth in life expectancy.

The country-specific recommendations noted plans to expand the capacity of public hospital outpatient care. While it said this could help in tackling long waiting times for certain specialties, it noted measures to reduce unnecessary referrals to specialists and redirect inappropriate use of emergency care to outpatients have so far not been fully used.

This, the report said, prevented improvements in the efficiency of the system.
Other measures, such as community-based and home care services introduced in 2017 and 2018, have not had any impact, the report said.

Final recommendations

An increased appetite for establishing and expanding specialised insurance vehicles, paired with a rising complexity of insurance business models, called for more stringent supervision, it added.

The report also recommended the country ensures the fiscal sustainability of healthcare and pension systems, including by restricting early retirement. 

It also suggested that Malta should adjust the statutory retirement age in view of expected gains in life expectancy.

The semester report also called for investment-related economic policy on research and innovation.