The European Commission last week released its opinion regarding the Government of Malta’s (and all the other eurozone countries’) budget plans according to the new rules of governance within the eurozone.

In its opinion about Malta, the Commission shows skepticism that Malta will meet the deficit targets it has announced for next year. That will mean that Malta will not be compliant with the Stability and Growth Pact and the Excessive Deficit Procedure will still remain hanging over Malta.

The Commission said that the Draft Budgetary Plan as sent by Malta is slightly more optimistic than the 2013 stability programme. The Draft Budgetary Plan is based on a macroeconomic scenario where real GDP  growth is expected to accelerate gradually, reaching 1.7% in 2014 from 0.8% in  2012. It adds that “The Commission services 2013 autumn forecast project higher real GDP growth. Assessed against currently available information, the Draft  Budgetary Plan macroeconomic scenario appears cautious for 2013 and plausible for  2014.”

The macroeconomic forecasts have been vetted by Malta’s National Audit Office which concluded that the forecast was based on  sound methodology and plausible assumptions.

Malta’s Draft Budgetary Plan projects higher current revenue due to revenue-increasing measures envisaged with the 2014 budget, which offsets the  upward revision in both current expenditure as well as in capital expenditure net of  EU grants.

But while the Draft Budgetary Plan confirms the deficit targets of 2.7% of GDP and 2.1% of  GDP respectively for 2013 and 2014 set in the 2013 stability programme, the Commission services’ 2013 autumn forecast projects the 2013 deficit to be at  3.4% of GDP.

It adds “the difference with the target in the Draft Budgetary Plan is mainly  explained by lower growth for current revenue, in particular indirect taxes. For 2014, the difference between the Draft Budgetary Plan target and the Commission services  forecast widens to 1.3 pps of GDP and is explained by both the base effect from a  different deficit projection for 2013, a lower estimation of revenue elasticities as well as the absence of new corrective measures in the Commission forecast as the 2014  budget was presented to parliament after the cut-off date. There are risks that the  deficit outcomes could be worse than targeted in the Draft Budgetary Plan.”

It adds: “There are risks that the deficit outcomes could be worse than targeted in the Draft Budgetary Plan. The projected dynamic increase in tax revenues in 2013-14, especially as regards indirect taxes, does not appear to be fully explained by the underlying macroeconomic scenario, nor is it underpinned by measures. There is a risk of slippages in the public sector wage bill and in intermediate consumption, given previous years’ experience.”

Then the Commission concludes: “For 2013, on the basis of the Commission 2013 autumn forecast, the projected deficit fulfils the Excessive Deficit Procedure requirement. At the same time, according to the Commission 2013 Autumn Forecast, the change in the adjusted structural balance  (0.5% of GDP)  comes slightly short of the recommended annual structural effort (0.7% of GDP).

Therefore, while Malta can be considered to have complied so far with the Council recommendation of 21 June, 2013, there is a risk that the correction of the deficit may  not be achieved, owing to the apparent lack of a sufficient effort to support it.

“By contrast,  pending the assessment of the 2014 budget, the EDP requirements for 2014 are not  fulfilled both in nominal and structural terms as the Commission deficit forecast  remains above the EDP target of 2.7% of GDP and the adjusted structural balance  (0.4% of GDP) is lower than the recommended annual fiscal effort (0.7% of GDP) in  2014.

“However, the projected deficit for 2014 (3.4% of GDP vs the recommended  2.7% of GDP) does not incorporate the consolidation measures in the 2014 budget,  the details of which were not available by the cut-off date. It should be noted that,  taken at face value, the measures included in the DBP would reduce the deficit  forecast by 0.2% of GDP. This would still be insufficient to comply with the EDP  recommendation.”

The Commission’s opinion concludes: “Overall, based on the 2013 Autumn Forecast, the Commission is of the opinion that there is a risk that the Draft Budgetary Plan for 2014 sent on 15 October will not fulfil the requirements in the EDP recommendation, since the headline deficit target is expected to be met in 2013, while this is not the case for the headline deficit in 2014 nor the structural effort in both 2013 and 2014.

“In addition, the Draft Budgetary Plan presented by Malta does not specify in detail the measures that underpin the revenue and expenditure targets for 2014, thus not complying with the obligations laid down in Art. 6(3e) of Regulation 473/2013.

“The Commission is also of the opinion that Malta has made limited progress with regard to the structural part of the fiscal recommendations issued by the Council in the context of the European Semester.

“Therefore, the Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2014 budget will be fully compliant with the SGP, notably to address the risks identified by the Commission in its assessment of the Draft Budgetary Plan.

“Moreover, it invites the authorities to accelerate progress towards implementation of the fiscal recommendations under the European Semester.”

In the language normally used by the Commission with regard to Member States, “invites” means much more than expressing a wish.