The evolution of budgetary institutions in Malta since EU membership : what role for the delegation approach in the EU’s rules-based fiscal governance framework?

Abstract

The European Union’s (EU) Stability and Growth Pact involves a rulesbased, or contracts, approach to achieve fiscal discipline, with limits on the size of the budget deficit and government debt. An alternative approach to fiscal governance is the delegation approach, which emphasises strong procedural rules governing the budgetary process, namely through a finance minister who has strong powers vis-à-vis spending ministers. The characteristics of Malta’s political system, with single-party majority governments, as well as the small size of its public administration being a micro state with limited human resources, suggest a delegation form of fiscal governance with centralised budgetary decision-making. Yet, since EU membership, Malta had to adapt to the EU’s supra-national fiscal rules and to introduce rulesbased institutional reforms. In this context, we examine the evolution of budgetary institutions in Malta since EU membership in 2004, using available delegation and contracts indices, as well as interviews with key stakeholders in Malta’s budgetary process and documentary evidence. Our results show that despite initial hesitancy, Malta has considerably strengthened characteristics of the contract approach, particularly through the introduction of national fiscal rules and the set-up of an independent fiscal council, which in some respects went beyond the EU obligations. Nevertheless, the fiscal governance framework remains based on the delegation approach, which was strengthened further during the period under review. Indeed, Malta has adapted the supra-nationally mandated rules-based reforms to its specific circumstances, to strengthen delegation characteristics during budget negotiations and implementation, thus showing complementarity between the two forms of fiscal governance.