I refer to the article of Malta timetables titled âLoss of IIP calls into question the economic model usedâ (21 October), questioning the sustainability of the Maltese economic model in the absence of an Individual Investor Program (IIP).
The argument aims above all to belittle the exceptional economic performance that our country has achieved over the past seven years thanks to good economic management and good fiscal governance. This argument first arose a few years ago and was later debunked.
Whoever invokes the argument shows a lack of knowledge of both the country’s public finances and the various structural reforms carried out during the last two legislatures.
Malta has successfully emerged from the Excessive Deficit Procedure (EDP) and Macroeconomic Imbalance Procedure (PDM), turning the deficit into a surplus and reducing the debt burden through a series of structural reforms.
These reforms have succeeded in increasing Malta’s potential growth and participation rate in the labor market by making work remunerative through lowering the tax burden on labor, the introduction of free childcare, the allowance linked to employment and the gradual reduction of benefits to prevent Malta from becoming poverty traps.
The reforms have been well documented and hailed by the European Commission, the International Monetary Fund and credit rating agencies which have upgraded Malta’s sovereign credit rating as a result of this progress.
Indeed, these reforms have given rise to many firsts for Malta. Malta has ranked first in the world for two consecutive years in terms of macroeconomic stability in the annual report of the World Economic Forum.
For several years, it also recorded the highest economic and employment growth rates in the EU and the euro area and the lowest unemployment rates, both total and among young people. It also recorded the lowest tax wedge on labor in the EU.
Government can “live within its means” without resorting to PII-Ellen Farrugia
Malta’s gross value added growth averaged 9.1% over the period 2015-2019, mainly supported by the professional, scientific and technical activities sector (average growth of 18%), the administrative and support services (average growth of 21%), the information and communication sector (average growth of 11%), the real estate business sector (average growth of 11%) and the wholesale trade sector and retail (average growth of 6%).
This impressive economic performance contributed to high growth in tax revenues which, in turn, enabled the government to reduce the deficit without the need to resort to austerity measures or raise taxes.
Anyone who is not familiar with the Maltese economy can be fooled into thinking that income from IIP is the only reason for this success. Realizing this, from the start of the program for individual investors, the government challenged itself to achieve a balance or a slight surplus of 0.5% in Malta’s public finances without the need to resort to the revenues of IIP.
The public accounts presented to the European Commission showed that the general government was in equilibrium net of all revenues from the IIP. This clearly shows that the government can “live within its means” without resorting to IIP.
The idea behind the IIP product is for Malta to have its own wealth fund, like other countries, to save for rainy days, while also allocating resources for investment in economic and social projects including will benefit current and future generations.
The proceeds of the PEG have helped accelerate the decline in the national debt, thereby providing additional fiscal space and strengthening the resilience of the economy to external shocks and crises.
However, at no time has the existence of the IIP affected or undermined the sustainability of Malta’s sound public and economic finances.
Ellen Farrugia is from the Office of Communications, Department of Finance.
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