Such a scheme would be justified as one which reallocates resources from current to future consumption, and the reallocation would occur only during a time of relative prosperity. 5  See F. Holme-Hadulla, S. Hauptmeier and P. Rother, “The impact of numerical expenditure rules on budgetary discipline over the cycle”, ECB Working Paper Series No 1169, April 2010; see S. Hauptmeier, J. S. Fuentes and L. Schuknecht, “Towards expenditure rules and fiscal sanity in the euro area”, ECB Working Paper Series No 1266, November 2010. BIS central bankers’ speeches  7  While this on its own would not ensure the sustainability of the pension system, it would be an important component in the process of pension reform, and, as I have already mentioned, I would suggest that it would be appropriate for deliberation at the MCESD. The phenomenon of population ageing raises sustainability challenges also for the public provision of healthcare, which represents a significant share of government expenditure. It must be recognised that the extent of provision of free healthcare and other services by the State must ultimately be financed by the taxpayer. The earmarking of certain revenue measures or particular revenue streams for this purpose may also be an appropriate topic for consideration by the social partners. The sustainability of funding the government’s capital expenditure programme, particularly in relation to the infrastructure and the public utilities through fiscal resources may also have to be reviewed.
Thus, in terms of labour cost competitiveness, Malta has kept pace with the euro area average. However, to maintain competitiveness a further focus on the wage setting process may be appropriate. In particular the basic principle must be to emphasise that productivity improvements are at the basis of sustained wage increases, and that these are best negotiated at firm level, where improvements in productivity can be best gauged. Consequently, any cost of living adjustments should form part and parcel of the collective agreement and not be superimposed on collective agreements by legislation as happens today. Indeed, already a number of collective agreements incorporate the COLA increase, and I suggest that this should be the norm. Another important message that has emerged from the sovereign debt crisis is the need for fiscal prudence, which provides the space for countercyclical fiscal policy during a downturn. In the euro area, fiscal policy is the major macroeconomic management tool at the national level. Thus, in periods when economic activity is relatively strong, policy needs to be sufficiently prudent to build the necessary fiscal buffers that would be utilized during periods of weaker growth. BIS central bankers’ speeches  5  In the aftermath of one-off expenditure during 2008, the deficit ratio in Malta declined in 2009 despite the recession of that year and narrowed slightly further in 2010. The debt ratio generally declined until 2008, but then picked up in 2009, partly in response to the contraction in the economy.