Despite tax cuts, increased spending, and global crises, Malta’s economy continues to defy the fiscal laws of gravity; however, what is the cost of this phenomenon, as analysed by James Dobino in his search for answers?
Before the Maltese election 12 years back in 2013, the most frequent question asked was how Labour could deliver on its pledge to improve living standards without increasing taxes, especially during a period when governments worldwide were struggling with the choice between austerity and taxing the rich to sustain public spending.
Labour had campaigned on reducing utility bills, maintaining the previous government’s tax cuts, and promising no new taxes, a commitment that some believed was likely impossible to achieve.
12 years later, Malta, under Labour, seems to have defied the laws of fiscal gravity. This largely adheres to EU fiscal rules & avoids major tax hikes. Government revenue has risen from a previous €2.8 billion 12 years back in 2012 by nearly 200% 5 years later in 2017 to €4.5 billion, besides reflecting a further 200% increase to €8 billion 5 years later. The government has forecasted a total of €8 billion for 2025, and is projecting an additional €8.4 billion for the following year, 2026.
This expansion of the ‘budget cake’ has enabled government spending to nearly double, from a mere €4.43 billion 13 years back in 2012 to almost €9 billion by next year. All this has been achieved despite 2 successive tax cuts, retention of energy subsidies such as on fuel, and the pressures of 2 global crises, being the pandemic, followed by the subsequent surge in inflation.
Labour’s budgetary manoeuvres have not relied on unsustainable borrowing, despite the many challenges and the obvious question of Malta’s income sources. Malta’s 2023 deficit stood at 4.9% of GDP, above the EU’s 3% limit, which led to an excessive deficit procedure last year in 2024. Yet, Malta’s debt-to-GDP ratio remained comfortably below the EU’s 60% threshold.
