EC letter demands specific details on Budget measures, no breach indicated

The European Commission has asked Malta to provide more specific details on its fiscal measures for 2014 as well its targets for revenue and expenditure in 2015, because a draft budgetary plan “does not provide sufficiently detailed information” on the discretionary measures which are to be announced on Budget day, 17 November.

In a letter from the European Commission’s vice president Jyri Katainen – seen by MaltaToday – Finance Minister Edward Scicluna was asked for specific details on his plans to increase indirect taxation on goods and services and other measures so that the EC can “assess if and how these measures contribute to meeting the obligations under the Stability and Growth Pact for 2015.”

Scicluna today confirmed that the communication from the European Commission asking for information on the draft budget, which the government has to send to the EU, was a normal procedure according to new European rules.

Malta has already submitted a draft budgetary plan to the Commission indicating that while VAT rates will remain unchanged, the government will be ‘shifting towards indirect taxation and easing the burden of direct taxation’.

The Commission’s letter in fact states that under the so-called Two Pack code of conduct, the draft budgetary plan must contain “a description and quantification of the expenditure and revenue measures to be included in the draft budget…”

The letter tallies with claims by the government that the EC was not considering Malta’s budget plans at risk of breaching EU rules.

Originally, the Financial Times had reported that five countries – France, Italy, Austria, Slovenia and Malta – would be warned by the European Commission that their draft budgets risk breaching EU budget rules.

While Malta’s case concerns a lack of detail on the specific measures, Italy is taking the EC head-on after its treasury ministry published the Katainen warning in full.

Letter to Italy from the European Commission claiming it will deviate from SGP targets up to 2017

In Italy’s case, the EC is asking the Renzi government “why it plans non-compliance with the Stability and Growth Pact”, which means the country will be breaching the 3% of GDP deficit this year.

According to the letter, Italy plans deviating from its 2015 targets, which would imply a higher deficit and concurrently a higher debt.

The EC has also delivered similar warnings to France and a few other governments.

France and Italy have both set out budget plans that could leave them on a collision course with the EU’s fiscal rules. France is seeking additional time to put it budget deficit under 3% of GDP. In addition to Italy, the commission sent letters to France, Austria, Slovenia and Malta.