MALTA: REDIRECTING PUBLIC EXPENDITURE
Ministry of Finance MaltaPaper completed: December 2005 (updated 2007)1. Introduction
Over the past few years, Government’s main macroeconomic policy programme has focused on
consolidating public finances, achieving a stable macroeconomic framework and on implementing
structural reforms aimed at improving the competitiveness of the Maltese economy. In order to attain a
stable and sound macroeconomic framework, Government has implemented policies aimed at securing a
sustainable fiscal position and remains committed to pursue further fiscal consolidation, notably by
adopting expenditure restraint measures. This should enable Malta to reach its medium-term objective
(MTO) of a balanced structural budget. As set out in the fiscal targets presented in Malta’s Stability
Programme, the MTO will be achieved in 2010. The increasing primary surpluses, together with GDP
growth, will enable the debt-to-GDP ratio to maintain a declining path, such that the debt ratio will fall to
60 per cent of GDP in 2008 and continue to decrease further thereafter.
Fiscal consolidation is necessary to ensure the sustainability of the Government’s financial position and
to re-establish the role of fiscal policy as an instrument for stabilisation purposes. The long-term
economic benefits of sound public finances are also important. The elimination of the budget deficit is
essential to regain fiscal flexibility that would spur long-term economic growth. In fact, fiscal
consolidation promotes productive investment not only by releasing financial and other resources for use
by the private sector, but perhaps even more importantly by removing uncertainty regarding the future
tax burden.
Government’s fiscal policy has been directed not only towards the maintenance of fiscal prudence, but
also to enhance the growth potential of the Maltese economy. Indeed, over the past years, fiscal
programmes have provided for the necessary investment in the development of infrastructure, education
as well as the environment, aided by the effective and efficient absorption of EU funds. Furthermore,
Government has announced a number of measures aimed at improving the incentive to work, in order to
encourage an increase in the labour force participation rate, particularly in the Budget for 2007 and 2008.
Enhancing competitiveness is a key challenge in order to achieve sustainable economic growth. In this
context, promoting the development of high value added growth sectors constitutes a high priority in
Government’s economic policy agenda. Furthermore, Government will continue to implement
productivity enhancing structural reforms. The National Reform Programme provides a comprehensive
agenda of the main structural reforms underway, with the main relevant measures targeting the areas of
the business environment, the attraction of foreign direct investment, product and labour market reforms
and the promotion of research and innovation. These reforms will also instil further flexibility in the
economy, thus facilitating national adjustment capacity within the Monetary Union.
The overall goal of Government’s economic and fiscal policy is to achieve a growing economy which is
capable of sustaining improvements in the standard of living of the Maltese population. This should