The role of the Malta Fiscal Advisory Council (MFAC), which was set up by the Minister for Finance in January 2015, is to carry out fiscal surveillance in an independent manner in line with the requirements of the Financial Responsibility Act, 2014.
As part of its function, the MFAC on 26 May presented to the Minister for Finance a report on an assessment of the fiscal forecasts as presented by the Ministry for Finance in its Update of the Stability Programme 2015-2018 which was presented to the European Commission on 30 April 2015. On the basis of this fiscal assessment, the MFAC considers the fiscal targets to be attainable. The MFAC’s full report is available on the website of the Ministry for Finance at www.mfin.gov.mt.
The assessment positively notes that the fiscal consolidation plan for 2015 is not reliant on cyclical factors and one-off and other temporary measures to the same extent as that recorded in 2014. Moreover, the fiscal targets for the forecast period are quite similar to the forecasts presented by other institutions, namely the European Commission and the Central Bank of Malta.
With regard to the methodologies and processes by which the fiscal forecasts are estimated, this assessment positively notes the detailed process undertaken by the relevant authorities to take into account all available information and the detailed internal discussions between experts to finalise the forecasts. However, the assessment notes that the process remains subject to significant fragmentation particularly since different stages of the estimation of the fiscal projections are conducted by separate authorities. Furthermore, this process necessitates various assumptions entailing a certain degree of uncertainty.
As indicated by the MFAC in its assessment of the macroeconomic forecasts, which was presented to the Finance Minister on 30 April, whereas such projections may be achievable they are subject to an element of risk given the particularly high dependence on the planned strong growth in investment. In the eventuality that such investment growth does not materialize, it may affect other GDP components and, in turn, impinge on various tax bases, spilling over to the fiscal forecasts.
On the revenue side, this assessment notes that no particular risks were identified for the main tax items. Indeed, in the case of current taxes on income and wealth, the projections show an element of prudence. On the other hand, the assessment notes some element of uncertainty surrounding the expected impact of the new measures to combat tax avoidance.
With regard to the expenditure side, this assessment notes some risks of possible slippages regarding outlays on compensation of employees and intermediate consumption. Furthermore, some element of uncertainty also surrounds the estimated impact of the deficit-reducing measures under the social payments category. On the other hand, on a positive note, savings in expenditure could result from the implementation of the spending review.
The above-mentioned risk factors also apply to the debt projections presented in the Stability Programme.
Given the risks and uncertainties noted above, the MFAC recommends that close monitoring by the authorities is warranted to identify and correct any possible deviations from the projections included in the Stability Programme.