Setting a bad precedent

All the reviews of Malta’s economy by the various ratings agencies and also by the European Commission have generally praised Malta’s economic record, but they also warned against a runaway expenditure. Now it seems these warnings have not been heeded and the supplementary estimates just approved by the House of Representatives speak of cost over-runs that amount to €250 million, not a small sum. In today’s issue, the Malta Fiscal Advisory Council warns that that the expenditure rule should be respected in 2016, as annual expenditure growth, after adjusting for certain components, is expected to be within the prescribed limit. However, there is a risk that such limit could be exceeded slightly in 2017. Having said that overall, it is the council’s view that the budgetary plan for 2017 broadly complies with the requirements of the Fiscal Responsibility Act and the Stability and Growth Pact and that this was the same conclusion reached by the European Commission, the Council invites the government to explore possible finetuning of expenditure plans for 2017, to accommodate the requirements set by the Commission for both the annual structural effort, as well as the yearly expenditure growth limit. In this issue, we also reproduce a statement by the Ministry of Finance that states, inter alia, that the increase in recurrent expenditure mainly reflected the increase in expenditure on programmes and initiatives (€74.7 million) which mainly reflected added expenditure towards social security, health and education as well as the EU Presidency 2017. Other expenditure increases were recorded in contributions to Government entities, personal emoluments and operational and maintenance expenses. But a detailed explanation of this €250 million increase, as explained in the details of the Supplementary Budget, puts the afore-mentioned explanations in some doubt. One reads the explanation for each line item and one asks: Was this really necessary? This is a disturbing trend. We must also consider that the new year is the pre-electoral year and it has been the practice under previous governments for balanced budgets to develop huge sink-holes. The government must rein in the expenses and exercise close control over expenditure or else all the sacrifices of past years will be up in smoke. One can also add that the expenditure involved by the largest Cabinet in history and the amount of persons added to the government expenditure as persons of trust, consultants, etc (this was also the practice under previous governments) continue to inflate the wage bill. The state of public finances is not such that permits a balanced budget or a commitment, such as other states have, of a balanced budget inscribed in the Constitution. But that would be worthless without an underlying will not to let go not even in the most dire of situations. Other countries also have a legal commitment to make up for extra expenditure by corresponding cuts in other areas of expenditure or increased revenue from somewhere else. We do not have such a commitment but maybe the sudden increase in the price of fuel can be looked at as one such way of fulfilling the commitment.