Malta to face excessive deficit procedure, Brussels wants energy support phased out by winter

Updated at 3:25pm with PN reaction

Malta is set to face an excessive deficit procedure after the European Commission recommended action today against seven EU member states.

The last time Malta faced an excessive deficit procedure was in 2012 when a Nationalist government was forced to make spending cuts to the tune of 0.59% of GDP to meet deficit projections.

EU member states are required to keep their annual deficit below 3% of GDP and a debt-to-GDP ratio of 60% or less.

Following an assessment of 12 member states to determine compliance with the deficit criterion, the European Commission on Wednesday recommended the opening of a deficit-based excessive deficit procedure for Malta, Belgium, France, Italy, Hungary, Poland and Slovakia.

The Commission noted that Malta’s general government deficit decreased from a deficit of 5.5% of GDP in 2022 to a deficit of 4.9% in 2023, while the general government debt fell from 51.6% of GDP at the end of 2022 to 50.4% at the end of 2023. According to the fiscal policy guidance for 2024, the Commission is taking the first step for the opening of deficit-based excessive deficit procedures on the basis of the 2023 data.

The news comes just after the European election campaign when Prime Minister Robert Abela pledged income tax cuts for lower middle income earners in the forthcoming budget.

‘Wind down energy support by winter’

The Commission is recommending that Malta submit the medium-term fiscal-structural plan in a timely manner. In line with the requirements of the reformed Stability and Growth Pact, Malta will have to limit the growth in net expenditure in 2025 to a rate consistent with reducing the general government deficit towards the 3% of GDP.

The Commission also wants Malta to “wind down” the emergency energy support measures by next winter and given the country's dependence on imported energy any measures should be targeted towards supporting vulnerable families and companies.

It is also asking Malta to tackle remaining aggressive tax planning risks, introduce a withholding tax on outbound payments or equivalent measures, and amend rules on non-domiciled companies.

Malta is also urged to continue with the swift and effective implementation of the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026.

The Commission also recommends strengthening the quality and labour market relevance of education and training to address low educational outcomes as well as the severe shortage and mismatch of skills.

The Brussels executive is also recommending the acceleration of the deployment of renewable energy through large-scale projects as well as small-scale investments in direct energy production and consumption.

Even traffic congestion is on the Commission’s bucket list. Malta should improve the quality and efficiency of public transport and “step up investments in ‘soft mobility’ infrastructure”.

The Commission’s report is only the first step into opening the excessive deficit procedures.

“In light of this assessment, and after considering the opinion of the Economic and Financial Committee, the Commission intends to propose to the Council to open deficit-based excessive deficit procedures for these Member States in July 2024,” the Commission said in a statement.

The Commission will propose to the Council recommendations to put an end to the excessive deficit situation.

In 2020, the Council had decided that an excessive deficit existed in Romania, based on 2019 data. According to the Commission's assessment, Romania has not taken effective action to correct this and put an end to its excessive deficit situation.

Maltese government reaction

The Maltese government said the country's deficit-to-GDP ratio will continue improving in the coming years, with a planned fiscal reduction of 0.5% annually. It said in a statement that the deficit will fall below 3% over the next four years, in line with the agreed Economic Governance Framework.

"The government takes note of the draft Country Specific recommendations and Country Report, issued by the European Commission, which highlight the achievements obtained together with the remaining and emerging challenges," the statement reads.

However, the statement makes no reference to the phasing out of blanket energy and fuel support, which is costing public coffers in excess of €300 million annually.

Instead, the government said it was accelerating the green transition with four new calls for investments in larger renewable energy systems. It also noted that a second electrical cable interconnection between Malta and Sicily is slated to be commissioned by the end of 2026.

Government said it remains committed to effectively implementing the Recovery and Resilience Plan, including the REPowerEU Chapter, the statement added. "The implementation of this plan will tackle areas addressing the green and digital elements, as well as reforms in other sectors."

On the need to bolster the education system, the government said the new National Education Strategy (2024-2030) is based on the pillars of wellbeing, growth and empowerment and equity and inclusion.

Reacting to the Commission's assessment on the transport situation, government said significant investment has been directed towards improving transportation infrastructure, including both major and urban road networks, upgrades to the inner-harbour ferry system and the promotion of alternative eco-friendly commuting options. The extension of the free public transport to all led to an increase in the usage of this service, the government added.

It said the Commission noted that Malta’s economy will continue to outperform other Member States in 2024 and 2025. This growth is expected to be driven by net exports and private consumption.

‘The Maltese are paying for government’s corruption’ – Nationalist Party

Reacting to the European Commission’s recommendation, the Nationalist Party (PN) said that it was a result of government ignoring the Opposition’s warnings in stopping its corrupt practices.

“The PN is once again appealing for government to stop the useless spending of public funds unsustainably,” it said. “The debt, which exceeds €10 billion, is being paid with public funds, and is alarming and unsustainable.”

It said government should explain the impact of excessive deficit procedure on the people, and explain how it will try to address the problem.

“This problem was created by the Labour Government with its irresponsibility and should solve by it,” the PN said.