A series of pay increases for teachers and state employees has pushed Malta’s government wage bill beyond expectations for 2024. Recent data from the finance ministry reveals that the additional burden was further exacerbated by arrears paid to teachers as part of a new pay agreement.
The fiscal strategy document highlights that spending on contractual services and health sector costs also exceeded earlier forecasts, creating additional pressure on government finances.
Measures to Offset Rising Costs
To address the rising expenditures, the government plans to partially offset costs by:
- Reducing Subsidies: A gradual reduction of energy subsidies is anticipated as energy prices stabilize. However, the government remains cautious, fearing rapid withdrawal could lead to inflationary pressures.
- Phasing Out Financial Support for Air Malta: After ceasing operations in March 2024 due to insurmountable debt, financial support to the former national airline has been withdrawn. A new airline has since taken over operations.
- Investing in Renewable Energy: Long-term strategies include reducing reliance on subsidies by improving energy efficiency and fostering renewable energy adoption.
European Commission Oversight and Fiscal Responsibility
Malta remains under scrutiny by the European Commission for surpassing EU spending rules aimed at controlling government deficits. The finance ministry outlined its commitment to improving the deficit-to-GDP ratio through measures designed to limit net expenditure growth.
Currently, Malta’s debt-to-GDP ratio is set to rise from 47.4% in 2023 to 50.1% in 2025, remaining below the EU’s threshold of 60%.
Tax Revenue Surges Amid Stronger Economic Growth
On the revenue side, Malta has benefitted from higher-than-expected inflows from taxes on income and wealth. This growth is attributed to increased wages, corporate profits, and enhanced tax collection efficiency.
The Road Ahead
The government’s financial strategy reflects a delicate balancing act. While efforts to reduce subsidies and control expenditures are underway, long-term sustainability hinges on continued economic growth and investment in energy reforms.
