Tight spending controls, and higher tax revenues, due in part to improved compliance, raised the primary budget surplus to over 4% of GDP in 2017 and 2018, bolstering fiscal credibility. The primary surplus is projected to decline, but remain high at 3.8% of GDP in 2019 and 3.5% in 2020-21. The decline is attributable to the expansionary fiscal measures passed in mid-2019 and the tax cuts planned in the 2020 budget (worth about 0.6% of GDP), partly offset by measures aimed at improving tax compliance (mostly by extending the use of electronic payments) and, to a lesser extent, rationalising spending. The government remains committed to adhere to the fiscal target agreed with EU partners or find an agreement to lower it. Debt servicing costs remain low and will continue to decline, resulting in a headline budget surplus of 1% in 2020-21. Further progress on spending reviews, enhancing tax compliance and broadening the tax base are key to improving the quality of public spending and the equity and efficiency of the tax system. This will allow reductions in the high tax burden while safeguarding fiscal credibility and achieving fiscal targets.
Continuing ambitious structural reforms will raise long-term growth prospects. The approval by the European Commission of the government’s plan – involving a public guarantee scheme similar to the one already in use in Italy – to further develop a secondary market for non-performing loans is expected to accelerate banks’ disposal of such loans, which is essential to raise bank lending and investment. Strengthening job‑search and training policies and public employment services will raise employment, especially among women and the young, and reduce long-term unemployment. Advancing public sector administration reforms, completing the land registry and opening state-owned companies to private capital would reduce barriers to firms’ growth and boost productivity and jobs.
