Malta’s first Fiscal Responsibility Act discussed in parliament

Malta is in the process of establishing its first Fiscal Responsibility Act, through which Malta’s first Fiscal Council will be set up.

The Bill was presented in parliament by Finance Minister Edward Scicluna, who together with shadow finance minister Tonio Fenech, spent Tuesday morning in parliament scrutinising the bill, made up of 61 clauses.

The process will now continue within the parliamentary committee for the consideration of bills.

The objects of the Bill are to provide for a law on fiscal responsibility and for the establishment of a Fiscal Council.

The Act aims to enhance the principle of transparency, where the government has the obligation to make public all the information necessary to allow the assessment of the implementation of such fiscal and budgetary policies.

The principle of fiscal responsibility means that the government must carry out its fiscal and budgetary policy in a way that ensures sustainability for both the medium and long-term.

The purpose of the law is to ensure fiscal responsibility in the European Union, aimed at the execution of certain rights and obligations arising from the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

The Fiscal Responsibility Act follows a recommendation by the European Council which found that the non-binding nature of Malta's fiscal framework and the short horizon of fiscal planning are not supportive of a sound fiscal position. In its country specific recommendations, the EU had noted that the adoption of the legislation meant to come into force by the end of 2013 and aimed at fulfilling the requirements of the Directive 85/2011/EU on budgetary frameworks and the Fiscal Compact had been delayed.

However, the Council acknowledged that, according to the Stability Programme, the Maltese government was endorsing a Fiscal Responsibility Act, which is being approved by parliament.

The draft act foresees the introduction of a balanced-budget rule in structural terms, a debt rule, a three-year rolling budgetary framework and a gradual set up of the fiscal council which would be charged with endorsing of the government's official macroeconomic and fiscal forecasts as well as ex-ante and ex-post monitoring of the respect of fiscal rules.

Put simply, the Fiscal Responsibility Act places certain regulatory requirements on all current and future Maltese governments to keep public finances on track in an accountable and transparent manner.

Certain fiscal rules established by the Act should ensure that the main principles of fiscal responsibility are adhered to, also in view of Malta’s responsibility as member of the Euro area.

Salient points of the Act include the ‘Budget Rule’ and the ‘Debt Rule’ – this will require that the budget, baring “exceptional circumstances”  should be in balance or in surplus, or the structural budget is converging towards medium term budget objectives in line with a set time frame.

The ‘Debt Rule’ will require that when the debt-to-GDP ratio exceeds 60% of the gross domestic product, this would be reduced.

The Fiscal Responsibility Act also strengthens the budgetary process and role of the Ministry for Finance. This will be achieved through the establishment of rolling medium term fiscal strategy (3 year) and the adoption of a top-down budgetary approach. Among others, it also provides for the regular monitoring of budgetary performance to allow more scrutiny by parliament, fiscal council, and wider public

Malta’s first Fiscal Council

The Act will lead to the setting up of Fiscal Council, tasked with making regular appraisals and recommendations to the government regarding public finances.
The main tasks of the fiscal council include endorsements of official forecasts; analysis of compliance of the medium term fiscal strategy and annual budgetary policy; monitoring progress of any corrective action being taken and make
suggestions accordingly; and deliver advise on legislation in the interest of maintaining of fiscal discipline.

The Fiscal Council should also provide the public with information to reinforce a
democratic approach to responsible fiscal policy.
The Fiscal Council will also be responsible of ensuring that this law is being adhered to.