I refer to the article in Times of Malta entitled ‘Losing IIP puts economic model used into question’, (October 21), casting doubt on the sustainability of Malta’s economic model in the absence of an Individual Investor Programme (IIP).
The argument is primarily aimed to belittle the exceptional economic performance our country obtained over the last seven years through good economic management and good fiscal governance. This argument first raised its head some years ago and was subsequently debunked.
Whoever raises the argument shows lack of familiarity with both the country’s public finances and the various structural reforms carried out over the last two legislatures.
Malta managed to exit the Excessive Deficit Procedure (EDP) and the Macroeconomic Imbalance Procedure (MIP), turn the deficit to a surplus and lower the debt burden through a series of structural reforms.
These reforms have succeeded to raise Malta’s potential growth and the labour market participation rate by making work pay through the lowering of the tax burden on labour, the introduction of free childcare centres, the in-work benefit and the tapering of benefits to avoid Malta’s longstanding poverty traps.
The reforms were well documented and commended by the European Commission, the International Monetary Fund and the credit rating agencies that have been upgrading Malta’s sovereign credit rating as a result of this progress.
Indeed, these reforms resulted in a lot of firsts for Malta. Malta ranked first globally for two consecutive years in macroeconomic stability in the World Economic Forum annual report.
For a number of years, it also recorded the highest economic and employment growth rates in the EU and the eurozone and among the lowest, both total and youth, unemployment rates. It also registered the lowest tax wedge on labour in the EU.
The government can ‘live within its means’ without resorting to the IIP- Ellen Farrugia
Malta’s Gross Value Added growth averaged 9.1 per cent over the period 2015 to 2019, chiefly underpinned by the professional, scientific and technical activities sector (average growth of 18 per cent), the administrative and support service activities sector (average growth of 21 per cent), the information and communication sector (average growth of 11 per cent), the real estate activities sector (average growth of 11 per cent) and the wholesale and retail trade sector (average growth of six per cent).
This impressive economic performance contributed to a high tax revenue growth which, in turn, afforded the government to reduce the deficit without the need to resort to austerity measures or increasing taxes.
Anybody not familiar with Malta’s economy can be duped into thinking that the revenue from the IIP is the sole reason for this success. Cognisant of this, at the outset of the Individual Investor Programme, the government took upon itself the challenge of achieving a balance or a small surplus of 0.5 per cent in Malta’s public finances without the need to resort to the IIP revenues.
Public accounts presented to the European Commission showed that the general government balanced net of all IIP revenues. This shows without any doubt that the government can ‘live within its means’ without resorting to the IIP.
The idea behind the proceeds from the IIP is for Malta to have its own wealth fund, like other countries, to save for a rainy day, while also allocating resources for investment in economic and social projects that can be enjoyed by current and future generations.
The proceeds from the IIP have contributed in accelerating the decline in the national debt, thus providing further fiscal space and strengthening the economy’s resilience against external shocks and crises.
However, at no point has the IIP’s existence affected or brought into question the sustainability of Malta’s robust economic and public finances.
Ellen Farrugia is from the Communications Office, Ministry for Finance.