Malta Fiscal Advisory Council publishes its assessment of the government’s fiscal forecasts

On 31 May the Malta Fiscal Advisory Council presented its assessment of the fiscal forecasts for the Maltese economy prepared by the Ministry for Finance, as part of the Update of Stability Programme for the period 2017 to 2020, which was published on 2 May. The Council notes that government intends to maintain a fiscal surplus equivalent to 0.5% of GDP in each year between 2017 and 2020, after having achieved a fiscal surplus of 1% of GDP in 2016. The outturn in 2016 was better than originally targeted, with notable deviations as a result of higher-than-projected revenues derived from current taxes on income and wealth and from the Individual Investor Programme, and lower-than-planned spending on gross fixed capital formation. The Council, after having scrutinised the various revenue and expenditure components within the budget, considers that the projected annual fiscal surplus for the period 2017 to 2020 is within its endorsable range. Likewise, the projected decline in the debt-to-GDP ratio, from 58.3% in 2016 to 47.5% by 2020, is considered to be plausible. Indeed, the ministry’s projections for both the fiscal balance and the public debt ratios are also within close range to those published by the European Commission in May. The Council notes that the latest Update of Stability Programme projects a scaling back of both the revenue-to-GDP ratio and the expenditure-to-GDP ratio when compared to 2016, as both revenue and expenditure are projected to grow at a slower pace than nominal GDP. In the Council’s view, there may be upside risks to both total revenue and total expenditure throughout the forecast horizon. On the revenue side, the Council notes, in particular, the prudent assumptions employed by the ministry in the projections for current taxes on income and wealth, as well as for taxes on production and imports. Turning to the expenditure side, the Council considers that the upside risks are mainly driven by the fact that the projections for compensation of employees and for intermediate consumption embed a certain element of restraint, which may be rather challenging to achieve. The magnitude of the upside risks regarding revenue and expenditure is broadly similar, and therefore the balance of risks with respect to the fiscal balance is considered by the Council to be neutral. The Council’s assessment was based on the information available in the latest Update of Stability Programme and does not take into consideration new fiscal proposals which were made after the publication of this programme. The full report, entitled Assessment of the Fiscal Forecasts – Update of Stability Programme 2017 – 2020, is available on the website of the MFAC http://www.mfac.org.mt.