Malta drops 1.5 points in 2011 Economic Freedom Index

Also ranking 25th out of 43 countries in the Europe region - with an overall score is below the regional average - the survey notes that Malta’s dip in its score “reflects declines in government spending and freedom from corruption.”

While registering moderate increases in trade freedom (+0.1), monetary freedom (+2.0), and investment freedom (+5.0), Malta’s performance suffered with regard to government spending (-5.8), property rights (-10.0) and freedom from corruption (-6.0).

The 2011 Index of Economic Freedom is a global survey that reports on economic policy developments since the second half of 2009 in 183 economies and bases itself on 10 measures that evaluate openness, the rule of law, and competitiveness, the Index ranks economies according to their economic freedom.

In its analysis of Malta’s economic performance, the survey found that despite how well-trained workers, low labour costs, and membership in the European Union attract foreign investment, “the government also maintains a sprawling socialist bureaucracy, and the majority of spending is allocated to housing, education, and health care entitlements.”

It notes that “Malta has made some moves toward liberalization of its economy since joining the EU in 2004 and adopting the euro as its currency in 2008, but its economy remains weak overall. Declines in tourism sent the economy into recession in 2009, prompting the government to distribute grants to affected businesses.”

On government performance – Malta’s lowest performance value at 39.8 as compared to the world survey average of 63.9 - the survey is especially critical. “The Maltese government is significantly involved in the economy through ownership, plentiful subsidy programs, and provision of social services.”

“The level of government spending is high,” the survey notes. “In the most recent year, total government expenditures, including consumption and transfer payments, rose to 44.8 per cent of GDP as a result of the restructuring of state-owned shipyards and spending on energy subsidies and health care. Government financing of the resulting fiscal deficit has pushed public debt to 63 per cent of GDP.”

The survey also reports that “while its institutional competitiveness is notable, Malta is weak in several areas of economic freedom.” It maintains that “relatively high tax rates and government spending are a drag on economic activity. Lingering corruption and rigid labour regulations add to the cost of conducting business.”

In the wake of the global crisis, the survey added, “a limited stimulus package, which focused on infrastructure investment, was introduced. Continuation of fiscal consolidation, halted in 2008, will depend on reasonable containment of the wage bill, social transfers, and pension funds.”

The survey also found that perceptions of corruption are “perceived as present.” Pointing out how Malta ranked 45th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009 - a drop from 2008.

“According to the Council of Europe’s Group of States Against Corruption, Malta still lacks a comprehensive anti-corruption strategy as well as appropriate institutions to implement and monitor anti-corruption activities,” the survey also added.

The 2010 Economic Freedom Index Survey raised similar concerns last year. Commenting on Malta’s government spending – once more its lowest performance value at 45.6 – the survey comments that “total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equalled 42.6 percent of GDP.”

The 2010 survey also drew attention to Malta’s “relatively high taxes.” It pointed out that “both the top income tax rate and the top corporate tax rate are 35 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. In the most recent year, overall tax revenue as a per­centage of GDP was 36.1 percent.”