Finance Minister dismisses worries on excessive deficit procedure against Malta
Finance Minister Clyde Caruana has said that he is confident that Malta can abide by the EU’s debt threshold within the next four years, stating that people need not worry about the state of the country’s debt and the excessive deficit pr
Finance Minister Clyde Caruana has said that he is confident that Malta can abide by the EU’s debt threshold within the next four years, stating that people need not worry about the state of the country’s debt and the excessive deficit procedure opened by Brussels.
Minister Caruana said this in Parliament on Wednesday evening a week after the European Commission issued a formal warning to Malta and seven other European Union Member States on their excessive budget deficits. The Commission’s assessment led to them publicizing their intention to open excessive deficit procedures onto Malta and the other respective Member States next month.
The Minister for Finance said that he feels no pressure or worries when negotiating this topic with the European Commission, despite the fact that Malta is currently breaching EU fiscal rules by having its national debt above the 3%-of-GDP threshold.
Caruana said that if the country abides by the EU’s fiscal rules, then it should not worry, before personally saying that he hopes citizens concerns lessen following his speech.
He continued that according to the EU’s present fiscal rules, countries in the European Union are obliged to control their national debt by ensuring that it does not exceed a value equal to 60% of the country’s GDP. He added that while most Member States are currently way over this suggestion, Malta’s debt-to-GDP ratio should continue to remain just slightly above the fiftieth percentile, and under the 60% cap.
Caruana said that he has Finance Minister has never resorted to austerity measures, and that we should be responsible with throwing the word “austerity” around, especially when both him and the Prime Minister were committing their pledge to continue decreasing taxes during the last Budget.
He stressed that these budget pledges concerning the reduction of taxes and national debt will be fulfilled.
The minister then stated his belief that all this talk is being done by the Opposition in order to create fears and doubts in the Government “when there shouldn’t be.”
He remarked that the European Commission and credit rating agencies function on whether a country’s officials can keep their word to meet targets and strategic goals, before then implying that people who try fearmongering over financial subjects such as debt and deficits are working against the country.
“Eventually we will prove ourselves in future months when we present our figures on this subject for the months and years to come,” Minister Caruana said.
The Finance Minister explained that a country can choose to reduce their excessive deficit over a period of either four years or seven years, with each option featuring different compliance conditions.
Caruana described that under the four-year option – which he had previously said Malta is opting for – a country can choose to abide by the 3% threshold at their own rate, as long as each year sees an improvement of at least 0.5%. The minister dismissed concerns that reducing the excessive deficit within such a quick period of time would create an exogenous shock that could be detrimental to Malta’s economic growth.
Alternatively, he said that the seven-year route can be selected by a country should they require more time. However, while the annual rate would be lessened to a minimum of 0.25%, Caruana said that this would come at the price of the Member State being obliged to abide by certain reforms imposed onto it by the Commission.
Minister Caruana said that despite dealing with the economic shocks provided by a pandemic and a war on Europe’s border in recent years, the incumbent Labour government was able to overcome the financial challenges imposed onto the Maltese islands. He added that the government managed to do so with minimal fears being discussed in local discourse, and that the country will address its excessive deficit similarly in the coming years.
The Finance Minister then said that the EU’s fiscal rules nowadays are much less stringent than they were just a decade and a half ago. Hence, he recounted that during the Gonzi administration, just prior to the Labour Party’s 2013 election into power, the excessive deficit procedure was what he called “a guillotine procedure” where a country had less leeway to take care of the issue than they do today.
He then said that the Labour administration since its 2013 election has done a lot to improve the country’s percentage of debt to GDP; Caruana said that upon PL’s 2013 election, this percentage had stood at 69.3%. He elaborated that throughout the Labour administration’s time in power, “the numbers indicate that today we have almost 20% less debt in our economy” than the country had under the last PN administration, in spite of Malta dealing with the financial shocks provided by the COVID-19 pandemic and Russian invasion of Ukraine.
“I think we should up our game to be more technical in our words,” he said, describing this as a needed upgrade from the strict political talk that is often present in local discourse.
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