EU Commission set to propose opening excessive deficit procedures on Malta

The European Commission has announced that it will ask the European Council to open excessive deficit procedures on Malta in spring 2024 for exceeding the three per cent deficit limit outlined in the Maastricht Treaty.

“The Commission will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023,” read the EU Commission’s statement in reference to Malta, and also Belgium, Bulgaria, Czechia, Germany, Estonia, Spain, France, Finland, Italy, Latvia, Hungary, Poland, Slovenia and Slovakia.

According to a report prepared by the EU Commission, Malta’s deficit is set to decrease to 5.1 per cent in 2023, but remain among the highest in the EU.

The announcement comes from a policy guidance note prepared by the European Commission, which includes a number of non-binding economic recommendations for each member state.

In Malta’s case, the EU Commission prepared four main recommendations.

The first recommendation is that Malta should wind down its energy support measure by the end of 2023, and use the money saved to reduce the Government deficit. The same recommendation was also made to other countries with similar measures in place.

Malta’s energy subsidy scheme amounts to roughly 10 per cent of the Government’s expenditure for the year 2023, and has contributed to Malta’s deficit exceeding three per cent of GDP.

Since that exceeds the limit outlined in the Maastricht Treaty, the EU Commission said it will ask the European Council to open deficit-based excessive deficit procedures on Malta (along with 15 other countries) in spring 2024, on the basis of the outrun data for 2023.

If energy prices were to rise to a level that would once again necessitate state intervention, it recommended the creation of new support measures which target vulnerable households and firms, and incentivise energy saving.

The EU Commission also urged Malta to continue the steady implementation of its recovery and resilience plan and cohesion policy programmes.

It also touched on Malta’s tax system. It recommended to effectively addresses features which facilitate aggressive tax planning by individuals and multinationals. It also suggested to ensure sufficient taxation of outbound payments of interest, royalties, and dividends, and amend the rules for non-domiciled companies.

Reform of Malta’s tax system is well underway, with significant changes expected over the next two years.

Lastly, it recommended Malta to reduce its resilience on fossil fuels by accelerating the deployment of renewables, including offshore wind and solar energy. It also urged the country to upgrade and expand the capacity of its electricity grid, including transmission, distribution, and battery storage.

Besides increasing capacity, it also recommended to reduce energy demand by increasing energy efficiency, particularly in residential buildings.

Touching on roads, it suggested to improve the quality of public transport, and invest in soft mobility infrastructure in order to reduce emissions from road transport by decreasing traffic congestion.