The debate is no longer simply about creating jobs and expanding sectors. It is about where Malta wants to go as it enters the next phase of its economic development. The question is no longer whether the economy can continue to grow. That’s given. Now the question is how that growth will be generated and sustained in the years ahead.

From labour shortages to additional high-value growth

Over recent years, Malta has achieved unprecedented economic success. The country has registered strong economic growth, maintained one of the lowest unemployment rates in Europe, attracted substantial foreign and private investment, and enabled thousands to enter the labour market, including women and foreigners. Certainly, reforms such as free childcare helped increase workforce participation, particularly among women, while preserving their economic independence. However, what irks me most is that the opposition often argues economic growth was driven primarily by the arrival of foreign workers. However, such non-factual arguments ignore a simple economic reality. People migrate towards employment opportunities. Employment opportunities do not arise merely because people migrate. Indeed, Malta’s history provides a powerful reminder of this economic principle.

In the years before and after Independence, the country’s greatest challenge was the inability to create employment. I reminded parliament that reports from the colonial period reflected widespread pessimism about Malta’s economic prospects, even suggesting emigration would need to increase because the economy could not generate enough employment. Professor Lino Briguglio cites the 1964 Stolper Report, which described an atmosphere of pessimism and argued Malta’s economic absorptive capacity had reached its limits. They even suggested a decrease in income. This explains why so many Maltese emigrated at the time. I do not think they left their homeland because the archpriest recommended them to leave for a better life, amid a socio-religious crisis caused by the archbishop’s interdiction against PL supporters. Well, they left because employment opportunities were limited in Malta and prospects elsewhere were more attractive.

Today, sixty years later, Malta faces an entirely different challenge. The issue is no longer how to create jobs but how to increase growth in more productive sectors and reduce the population growth rate, though for different reasons. It means economic policy must evolve. The measures and priorities that served Malta well during the rapid economic growth that began after 2013, when the PL took office, now need to be reviewed as the country moves towards a more mature economic model.

Why we must focus on technology and high-value-added investment

Several traditional sectors of the Maltese economy have been successful. Investors took risks, committed capital and grew their businesses alongside the country’s expansion. To sustain this growth, Malta relied on additional workers across sectors including healthcare, tourism, accommodation, agriculture and construction. However, Malta today faces finite resources. The country’s territory is limited. Infrastructure, despite significant recent investment, also has capacity constraints. Major infrastructure investments since 2017 have recognised this reality. Significant resources have been allocated to roads, public services, electricity distribution, and other national projects. These investments were necessary because policymakers understood that infrastructure inherited from previous decades would not support future growth. Nevertheless, even substantial investment has limits.

Tourism has grown significantly relative to public services, and additional population growth pressures have further intensified demand on services. While these pressures have occasionally created challenges, they should be viewed within the broader context of Malta’s economic success rather than as evidence of failure. This is why the current discussion around economic policy places increasing emphasis on high value-added sectors. The key question today is not how much the economy will grow. The more important question is how it will grow.

The estimates presented by the Ministry clearly point to the need to enhance an economy driven by high-value-added activities, advanced technologies, capital investment, and innovation. The Ministry’s allocation for 2027 is approximately €163 million, with around €97 million for capital expenditure. This is significant because capital investment helps businesses modernise operations, adopt new technologies, automate processes and improve efficiency. Productivity growth happens when workers generate more value through better tools, sophisticated systems and efficient processes. Automation and digitalisation are not ends in themselves. They are tools that enable workers and enterprises to produce greater economic value.

The Budget’s economic message is clear. Malta must continue to attract investment but also transform how economic growth is generated. Future growth cannot rely only on expanding labour inputs. It must increasingly depend on higher productivity and stronger value creation.

Innovation, Human Capital and the Economy

This transition does not imply that foreign workers are no longer needed. On the contrary, they have made a significant contribution to Malta’s economic success and will continue to play a key role in the country’s future. Demographic realities cannot be ignored. Malta’s birth rate has declined, people are living longer, and the population is ageing. These trends naturally imply a continued need for foreign workers in various sectors of the economy.

At the same time, Malta’s future competitiveness will increasingly depend on sectors that compete through knowledge, innovation and specialisation rather than through labour costs alone. These include digital services, advanced manufacturing, specialised financial services, gaming, artificial intelligence and other emerging technologies. Such industries compete on talent, quality, creativity and efficiency. Strengthening these capabilities should therefore be viewed as an investment in Malta’s long-term prosperity and resilience. Yet technology alone cannot deliver this transformation.

People, not machines, ultimately create productivity. Technology provides tools that enable people to work more effectively. This distinction is crucial. Economic history shows that technological advancement does not automatically solve structural challenges. The Jevons Paradox reminds us that greater efficiency can sometimes increase overall resource consumption. For this reason, investment in technology must always be accompanied by investment in people. I have already mentioned this in the context of traffic and the Jevons Paradox.

The estimates that we discussed reflect an economic vision centred on transformation rather than simple expansion. The objective is not merely to spend more or grow faster. The objective is to build an economy characterised by higher value added, stronger innovation, greater sustainability and a higher quality of life for Maltese and Gozitan families.

That is the economic transition Malta must now embrace. We must move from an economy driven primarily by employment expansion towards one increasingly powered by efficiency, innovation and investment. Such a transition is not only necessary. It is essential if Malta is to maintain its competitiveness, resilience and prosperity in the decades ahead.

The post Malta’s economic transition continues with Budget 2027 first appeared on The Malta Business Weekly.

The Social Economy, the Social Entrepreneurship, and the Social Enterprise

The Social Economy is the wider ecosystem. It includes voluntary organisations, non‑profit service operators, associations, foundations, cooperatives, civil society, and social enterprises. These structures operate in different ways. However, they share one important principle, that economic activity should serve people, communities, and a social purpose, not simply the maximisation of profit.

On the other hand, social entrepreneurship is not a legal or organisational form. It is an approach that uses initiative, innovation, and entrepreneurial thinking to address a social need. This approach can emerge within a voluntary organisation, a cooperative, a social enterprise, a public institution, or even a conventional business.

However, the Social Enterprise is a particular organisational structure. It carries out economic activity in the market, but its primary aim is to create social or environmental impact. The income it generates sustains its mission, while most of its profits or favourable balances are reinvested in that same purpose.

These concepts are related, but they cannot be used interchangeably. This distinction matters because the sustainability of the social sector in Malta cannot be reduced to simple commercialisation. Certain social needs can be supported by a model that generates its own income. Others cannot and must not rely on vulnerable people’s ability to pay. A service does not become less valuable simply because it cannot generate commercial revenue. In fact, voluntary organisations and non‑profit operators often exist precisely because they meet needs that neither the market nor the State can fully address in time, or with the same level of confidence within the community. These organisations are not peripheral actors. Nor are they simply social enterprises that have not yet become commercial. They are part of the essential social infrastructure of our country.

The principles of ESG within the framework of the Social Enterprise

This is directly linked to the growing importance of Environmental, Social and Governance principles – the concept known as ESG – which I have the opportunity to work on from a banking perspective. We often speak about ESG as a reporting or investment framework for business, and this deserves emphasis. Behind every environmental, social, and governance indicator, there must be concrete action, clear responsibility, and real impact. The environmental dimension concerns how we manage resources, waste, and energy, as well as the transition to an increasingly sustainable economy. Social Economy organisations contribute through reuse and circularity, repair, environmental education, community actions, and sustainable jobs.

The social dimension concerns people, inter alia, decent work, inclusion, equality, health, wellbeing, care, skills, human rights, and resilient communities. These are not simply numbers or indices on paper. They are the daily work of many of Malta’s voluntary organisations, non‑profit operators, and social enterprises. The governance dimension concerns how decisions are taken, how resources are protected, how stakeholders continue to be heard, and how organisations remain accountable to their purpose. Shared governance, transparency, reinvestment of profits, and protection of social purpose are already at the heart of much of the Social Economy.

Therefore, the Social Economy is not separate from ESG. In fact, it helps give the Environmental, Social and Governance pillars concrete meaning. However, voluntary organisations and non‑profit operators should not become mere instruments through which larger organisations showcase their ESG credentials. A donation, sponsorship, or short‑term project can produce positive results, but it does not automatically create a sustainable social partnership with those who work continuously.

Long‑term commitment to ESG beyond reporting standards

A serious commitment to ESG must build long‑term capacity, sustain measurable social outcomes, and respect the knowledge and independence of the organisations closest to our communities. In tandem, we must not allow new concepts to create disproportionate reporting burdens. Accountability is necessary, but proportionality reflects the organisation’s size and capacity. Otherwise, we divert limited resources from the social purpose we are supposed to support to administrative requirements. Therefore, Malta needs a holistic and unified approach to the sustainability of the entire social sector. This means proportionate regulation and clear recognition of the different models within the social economy. It means funding that covers the full cost of the service, so key services are delivered through sustainable commitments rather than short funding cycles. It also means public procurement and commissioning that recognise social value, even when the direct financial cost is lower. We need proper access to grants, donations, income from activity, and responsible investment, investment in professional and voluntary capacity, and a common but proportionate approach to measuring social impact.

Political coherence

For those of us who form part of the European family of Socialists and Democrats, and for a Labour Party rooted in socialist values, this is not simply a matter of administrative design. It is a matter of political coherence. Social resilience cannot be designed separately from economic sustainability or environmental accountability. Nor can it be built in institutional isolation. A just transition must be environmentally responsible, economically sustainable, and socially inclusive, because a transition that leaves people or communities behind cannot be considered sustainable. It is crucial to create wealth, but progress today is evaluated not only by the wealth we generate, but also by how that wealth is distributed inter alia by the dignity, security, and opportunities people experience, as well as by the strength of the communities and institutions that sustain them. This connects directly with the Int Malta manifesto, which the electorate voted for, and where the PL introduced the concept of the Wellbeing Index.

The Social Economy gives concrete expression to these values. Voluntary organisations, non‑profit operators, cooperatives, and social enterprises transform solidarity into action, participation into governance, and social purpose into public value. For a Labour movement built on solidarity and social justice, social resilience is not an addition to sustainable development but the natural home of policy itself. It is one of its foundations. And this is consistent with the Malta Vision 2050, which identifies strengthening social enterprises as a priority to contribute to concrete improvements in the quality of life in Malta and Gozo.

The post Why we need a coherent social enterprise framework first appeared on The Malta Business Weekly.

Expected inflation must be curbed, not accelerated

When you have an increase in prices, a shock that in 2022 came from the war in Ukraine, adding costs for consumers and producers would have accelerated the price increase. What the European Central Bank does, and other Central Banks around the world do, is to increase interest rates to curb inflation. As a result, an increase in interest rates causes the economy to slow because the cost of capital increases, while investors and consumers’ confidence drops, and we typically experience sluggish growth or even a contraction, which imposes additional hardship on families and businesses.

Expected inflation is the first thing to manage when prices rise. When businesses and consumers anticipate that the central banks are fighting inflation, inflation expectations start falling, and the rate of price increases decelerates. So, while you have ongoing inflation, you don’t add additional cents to utility bills, irrespective of the minimal impact or outcome, or the revenue generated. That was my argument last week when I wrote about it on social media. I have already said that the BCRS introduction of 10 cents on bottles was ill-timed in 2022, due to expectations of price increases, let alone an additional increase in utility bills. I understand that the comment from local economists is genuine, and that the necessary measures were calculated. However, even if the policy yields additional revenue to the government, in my view as an economist, it would have been ill-timed. As economists, we may not always agree or converge on policy issues, and our arguments may differ. However, we engage in these debates respectfully.

France is dealing with mass protests because its finances are in shambles

So, while we have an ongoing discussion here in Malta about energy subsidies, other European Union states are in an economic mess. Such a mess is due to insufficient funding for various merit goods. Whatever anyone says, if we don’t have money and the economy doesn’t grow, we cannot sustain what we have. And this is what is happening in France right now. If you open the media and watch what is happening, you can see mass protests due to a lack of funding for education. Indeed, university students and high school students are asking for additional investment in French schools. It seems that even the largest unions are joining the protest, which is bringing a new movement or coalition between the largest unions and civilians. It seems that even parents and other union activists are gathering in the streets and squares, wearing white armbands in support of teenage students. During the past week, students blockaded several schools, with many young people reported injured and over 700 police officers hurt. It has also been reported that over 6,000 people were arrested.

What is disproportionate is the use of tear gas against civilians. The people of France are speaking. They have had enough of austerity measures. And, this goes beyond austerity measures. The problem is that France’s economy is in shambles. Even if people demand additional funding, the funds cannot be ringfenced to education, as most of the money is going elsewhere. France’s debt-to-GDP ratio is around 119%. That is not just breaking the six-pack and two-pack rules of the governance of the Euro, but is double what it must be, meaning 60%. At this rate, France risks exerting downward pressure on the euro area, especially the euro as a currency. France cannot provide additional funding for schooling, and, more so, it cannot pay additional money for the Multiannual Financial Framework, and, worse, to fund defence measures. Imagine if this situation were happening in Malta. Hell would break loose if we had this kind of debt-to-GDP ratio, which for us in Malta stands at around 46% of GDP. With this rate, France’s debt-to-GDP ratio will be three times of Malta’s. For 2026, the projected deficit for France is 5.5%, which means that whatever is being demanded is a fallacy. It won’t be honoured.

Housing affordability crisis in Europe and a Commission’s Consultation Paper

If you look at what is happening in Spain, there is a housing crisis, with many being priced out of the market and pushed out of their properties. The Spanish Prime Minister, Pedro Sanchez, just resigned from office and called for an early election. The problem is not just in Spain, but it is an EU-wide problem. I saw a paper outlining the rate at which prices rose in the past years. The EU just issued a consultation paper to determine how it can alleviate the housing problem. At this rate, the EU will enter every market, and instead of allowing the market to work, it jumps in to fix it. So, the ideology of the free market is slowly degenerating in control. Mind you, I agree that something must be done in the property market because prices in some states are approaching absurdity. And with the economy struggling for growth, and median incomes still increasing at a very low rate relative to housing prices, it is becoming difficult for first-time buyers, the elderly, and single people.

Meanwhile, here we can say that energy prices will remain stable, free childcare is guaranteed, no new fiscal taxes will be introduced, and the national insurance will be kept at this level. The projected deficit-to-GDP ratio will be around 2.8% next year, below the 3% required by the Six-Pack and Two-Pack rules of Euro governance, and debt-to-GDP is well below the required level. This fiscal space is allowing the Maltese government flexibility to help families. We can sustain ourselves through bad times, and the most important thing at this stage is stability. We will wait for the Budget 2026 to see what will be announced.

Personally, I’ve known Minister Clyde Caruana for nearly a quarter of a century, and I can say with confidence that we are in safe hands.

The post France’s finances are in shambles, and the mass protests reflect it first appeared on The Malta Business Weekly.

The interview also addressed matters of national interest, including environmental policy

One of the topics that I proposed was also a transition period from sectors that generate low gross value added and require several workers, whose labour force would need to be imported. In fact, I said that there must be bipartisan agreement on matters of national interest, including those related to the environment and education. We must converge on this matter both politically and economically. And the policies proposed within this area must be mature. However, the interview treated the economy, and economics is a complex topic. And as much as I understand that even politics can be a complex topic, especially here in Malta, economics becomes even more complex when theory becomes conflated with political rhetoric and partisan arguments.

Utility subsidies contribute to economic stability – Keynes vs Hayek

Indeed, I read what was issued, and I have no problem saying that utility subsidies must stay because the moment we create instability is the moment we ruin the economy. I have said this in my early podcasts in 2022, when the war in Ukraine broke out, and have kept this consistent in my arguments. There was no deviation since then. And there is not going to be any deviation, because I understand economic theory. And the part of utility subsidies is the way we view the economy, either from a Keynesian perspective or a Hayekian perspective. The former intervenes in the market in bad times to allow the economy to grow and stimulate demand without hindering growth. At the same time, the latter adopts a laissez-faire approach, leaving the market to operate on its own, much as it does with the electorate and citizens themselves. And as you may recall, I always said that I profess and follow Keynesian economics rather than Hayekian economics. This is my economic philosophy. And it dictates not to leave the market to function on its own.

However, given the complexity of the subject, I want to clarify that if subsidies are not retained, then we would shock the economy. I understand that this is not the PL’s policy, and that subsidies are here to stay. Back in 2022, I stated that had it not been for the utility subsidies, inflation would have hit double digits exactly as it happened in other EU member states. It would have wrought havoc on our economy, eroded incomes, and generated frustration among low- and middle-income earners. Such a blanket subsidy is provided to maintain economic stability. This means that the departure point must be the subsidies; then what comes after or complements it is another matter. Utility subsidies prevent imported energy shocks from cascading into domestic prices, wages, and expectations, which is crucial for a small open economy.

I respect and uphold journalistic independence

Additionally, I do not interfere with journalistic output when I sit for interviews, neither with the content nor with the headlines. And I leave it up to journalists to decide about headlines and outputs. What I always offer is that if any technical arguments are unclear, they can always revert to me; otherwise, it would be a dereliction of duty on my part not to assist. I take this approach because I am politically liberal and strongly support journalistic work that asks questions and provides readers with honest answers. This newspaper has never interfered with or altered my opinion pieces when I submit them. On the contrary, it always supported me. And I take a similar approach when this newsroom interviews me, as I do with other newsrooms. However, economics is a complex subject, and the interpretation of policies is also quite complex. And any reporting of deviation from my economic beliefs might be related to limited knowledge of the subject.

The PN’s aspirations for government

When asked what should be done if citizens wanted a phase-out of the subsidy under a different political party in government, I stated that there must be agreement on phasing it out; otherwise, it would shock the economy. And I will keep on reiterating it. If the PN aspires to be in government and politically decides to phase out the energy subsidy, it must do so in a way that does not shock the economy, with a phase-out that allows for planning, both income-wise and cost-wise. In truth, the PL in government managed to create an economy that withstood various economic shocks. Had it not been for past economic growth, including at times a surplus, we wouldn’t be in such a position to cover these costs. And as long as the economy keeps growing at the same rate and momentum, then we can sustain the current subsidies. It doesn’t make sense to remove a subsidy and create chaos, at least until this geopolitical chaos is ongoing.

Economic growth and the debt-to-GDP ratio

Those who do not understand economic theory might tell you that we are borrowing to keep what we have. True, they are seeing just one aspect of borrowing, especially when they view it in absolute terms. We need to see the other aspect of creating economic growth, too. And with creating economic growth, we are reducing the impact of the debt-to-GDP and deficit-to-GDP ratios. And I must agree with those leaving comments under the article that it is the PL in government that can solve this problem, as they did in 2013 with the reduction in energy bills. The comments reflect a limited understanding of the broader economic context. When asked where I was in 2008, I can tell Peter that I was working side by side with the Leader of the Opposition to win the government, grow the economy, and provide better policies, which policies are inter alia an increase in pensions, which he’s currently definitely enjoying, and would have been robbed of if there was an alternative government.

To conclude, I do not normally take such a direct route to explain myself. However, even the Leader of the Opposition referred to last Sunday’s article on subsidies in one of the local podcasts. And probably did not see what I said in an online post following the publication of the article. Well, now you know what I believe, economically and politically, about utility subsidies. And you may equally quote me in your next podcast. Now it’s high time for the Opposition to tell us what their alternative is for their energy policies, besides the proposed petrol station on the periphery of Hurd’s Bank, tsk, tsk.

The post Utility subsidies provide economic stability for all first appeared on The Malta Business Weekly.

Economic sluggishness in the EU

It is true that when, in 2022, I spoke of the economic hardships that would ensue, I was ahead of the curve. My point back then was not to appease any aggressors, but to find ways to ensure a lighter impact on Europe because economies couldn’t bear another shock. The pandemic shock wrought havoc on several economies that were still recovering from the financial crisis a decade earlier. Indeed, the 2015 Juncker Plan was to leverage budgets, engage the private sector, and promote an ecosystem that facilitates business to match the pre financial crisis level of private investment. The pandemic undid all of this, and what followed in 2022 — the energy shock — was fatal for several European economies. To make matters worse, the wars in Ukraine and the wider Middle East, together with global tariff escalations, have brought some of the EU’s economies to their knees.

When I speak of energy shocks or other exogenous economic shocks, we need to see the entire picture. These shocks feed into our system, into each level of economic activity. An energy shock, with inflation hitting double digit levels in Europe, sent another shock through many sectors, including cement, concrete, iron, and all the raw materials needed to build our infrastructure, our homes, and commercial buildings. Coupled with speculation, it didn’t help the housing market, and obviously prices soared. We are at a critical point, not just in the EU, but globally. Malta did a lot to help its people, businesses, and those in need. However, we need to revisit many policies introduced long ago to ensure that those at the lowest end of the salary band are lifted out of the risk of poverty. When we consider the shocks I’ve mentioned, some markets are in a new state after reaching a tipping point, due to distinct feedback loops feeding into the system. One of these markets is the housing market.

The right wing movements across the EU

For this reason, we must admit that, from a political point of view, examining how economies are structured and behaving is not helpful. We have the far right parties soaring in popularity. And the reason for this is positively correlated with economic sluggishness and the importation of rightist narratives into Europe. Certainly, we cannot compare the political fabric and social structure of the EU with that of the US. The two operate on opposing axes for different reasons, primarily cultural. The EU was born from the ashes of the Second World War. And it takes a bit of depth to understand what I am about to say. Indeed, the far right parties in Europe are masking themselves as friendly. Let me focus for a minute on Germany. Friedrich Merz doesn’t know what hit him with the current regional results, and even more so with the economic impacts that are leaving a lasting scar on Germany’s economy. However, the far right and Alice Weidel are playing chess by portraying the latter as approachable. No minority, and even less so no academic with a deep political and economic background and historical insights into Europe, would vote for Alice Weidel. Alice Weidel is being presented as a poster figure to soften the AfD’s image and alienate the German electorate from the party’s underlying ideological positions. Think about it, why would a leader of a political party choose to live primarily in a neighbouring country while officially maintaining her registered residence in Germany? Alice Weidel’s family home is in Switzerland, not Germany.

Wrapping alternative leaders in a nice wrapper

When digging further, one can notice that everything is ready lest they win the Bundestag anytime soon, and before 2029. Alice Weidel’s image and the political philosophy that is promoted, fomenting a narrative against certain minorities, are incompatible and cannot be regarded as complete. It’s built on a false image and a narrative that is too blatant to go unnoticed; or at least those with some analytical skills can see through it. The wrapper is one thing; the content inside is another. Alice Weidel’s personal life and the AfD’s political philosophy are on two opposing axes. Sadly, I must admit that if the EU, as well as the Germans, aren’t brave enough to prevent the inevitable, then we are heading for tough times.

Now, the EU must assess the negotiations from an MFF perspective and determine which funds can be allocated to mitigate the impact of rising diesel prices. The price of diesel has soared, due in part to geopolitical instability in the Middle East, disruptions in the Red Sea, and the ongoing war in Ukraine. These events have affected refinery output, shipping routes, and supply chains. As a result, diesel prices at fuel stations have outpaced crude oil prices. It is also a matter of supply constraints, with demand increasing to service our economies.

Mistaking the image with the underlying political ideology

Normally, I do not write about foreign politicians, except for von der Leyen, and I aim to find an alternative where countries and leaders can work together. However, having a leader of the most important and powerful country in the EU promoted to the public in a way that packages her as favourable to minorities simply because of the image that she is a lesbian in a registered partnership with a Sri Lankan, while simultaneously advancing a narrative that contradicts that image, is deeply worrying. If we want to regulate economic migration we need to tackle the root cause. And the root cause is the way the EU economies have been shaped over the past decades and the low fertility rate.

To conclude, those who use these narratives to win a seat in a federal or general election are only sowing the seeds of a future political movement that will eventually haunt and devour them, because they can never keep their promises. They can get rid of a few people. But that would be for the media to scapegoat. For the rest, additional thousands will be joining the EU’s economies without noticing. And that is what will happen in every Member State, unless the fertility rate soars. Well, do take note!

The post When alternative leaders are packaged in a nice wrapper first appeared on The Malta Business Weekly.

The liquidity preference theory

The first motive is a transaction motive. People need cash for day-to-day living as well as business transactions. The demand reflects one’s income level rather than the interest charged on the market. The second motive is the precautionary element. People hold cash as a safety buffer in case of a force majeure event, including war or emergency medical costs. This is driven mostly by income rather than the interest rate. And the third motive is speculative, where people keep money to invest in future opportunities, such as improved bond prices or interest rate improvement. Low interest rates increase demand for cash while high interest rates reduce it. Besides, cash deposits are not idle. Banks use that cash to dish out credit.

Banking regulations and competitiveness

Moreover, we have many regulations in place that were put in place after the financial crisis, which choked investment. Banks are not allowed to provide credit as they were in the past due to the highly regulated markets. Even in the Draghi report, it is noted that the EU needs to revise its banking regulations to compete with those of the United States and China. In fact, people will still hold money for precautionary reasons, and one of those relates to an event such as war. And let’s face it, President von der Leyen is associated with defence matters, and therefore one would expect a more nuanced understanding of precautionary motives. But in truth, I cannot understand her logic. At times, von der Leyen tries very hard to emulate Margaret Thatcher but runs counter to the latter’s economic beliefs. Margaret Thatcher’s economic policies were Hayekian. Ursula von der Leyen’s economic policies, however, appear inconsistent, from the centralisation of power to measures that have placed significant strain on Europe’s economic resilience.

Von der Leyen’s political and economic confusion

As much as I wasn’t eagerly waiting for the State of the Union speech to see what would be delivered, what’s been said from an economic point of view reinforced my belief that what will be delivered is purely nonsense. It will continue strangling Europeans’ personal budgets during periods of economic sluggishness. Obviously, the rest of the speech was the usual rhetoric that has characterised the past six years. We have another two and a half years left with her at the helm, unless political developments change the course. In truth, I am not comfortable with von der Leyen’s economic narrative, and we truly need to see and dig deeper into what this truly means. When I listen to such a bizarre economic narrative, I pause and wonder who is behind the speeches and the policies. If it is von der Leyen herself, then someone must tell her that she is approaching a Marxian ideology. Nobody should meddle with European citizens’ savings. And it’s up to them to see how to invest it. The EU is indeed approaching a difficult moment.

However, I forecast this back in 2022 when I said that if EU citizens do not have food on the table, far right and fringe parties will grow. We cannot take this with complacency any longer. Look at what is happening in Germany. It gives me chills to listen to Alice Weidel from Alternative for Germany. The narrative against migrants is just chilling. When I wrote about this a few years back, it was ill-timed and ahead of time. Now, we can see for ourselves what this truly means.

European savings are private, not public

We cannot allow a situation where we have politicians like von der Leyen at the helm, making decisions that may inadvertently fuel the far right with the wrong policies. If Ursula von der Leyen wants Europeans to invest their money truly, she must have a little word with Christine Lagarde and see how markets can be better deregulated, how costs can be harmonised across the EU, because the cost of capital to invest is still quite expensive relative to the US, and then come to us to allow our money to be used for additional projects. Ursula von der Leyen’s policies have placed Europe in a challenging position. Now we need to find a way out of this situation, and surely, we need leadership capable of delivering that outcome.

As John Maynard Keynes put it, “In the long run, we are all dead.”

The post If it’s not Pfizer, then it’s European savings for Ursula first appeared on The Malta Business Weekly.

Anticipating certain market dynamics

This week, I intended to focus specifically on the housing market and its affordability, as well as the strain on our infrastructure derived from the expansion of sectors requiring additional labour and higher volumes of people to host as a small island state. In my current post-election campaigning, even though the next general election is five years away, it is evident that markets are constantly evolving and that people feel the changes in how these dynamics play out in daily life. Economists, upon observing market patterns, are guided by the principle of intervening and regulating when necessary. When market failures arise and adversely affect society, prompt regulation is required. Nevertheless, markets should ideally operate within the framework of government policies designed to ensure optimal performance when left to function independently.

Before implementing government policy and regulation, it is essential to assess market failures and ensure that regulations across sectors, beyond EU directives and legislation, are effective and timely in stabilising markets. My recent interactions with the public highlighted that affordable housing and infrastructure strain are the most pressing concerns. Although I am no longer engaged in research and lack the resources, not least time, to construct detailed econometric modelling, my current focus on climate and environmental risks underscores the need to examine how markets are failing some segments of society. Economic intuition is guided by a strong background in economic theory and by what people feel on the ground.

The housing market, prices, and rent subsidies

Let’s start with affordable housing. Certainly, rent subsidies and market affordability do not reflect what is happening on the ground, and clearly there is a gap between statistics and reality. Surely, we need to address such a gap as quickly as possible. While I was writing this article, some followers coincidentally texted me to say they cannot afford the rent. I am not suggesting we encourage dependency. Rather, we should help those who have faced difficulties in life to improve their situation. For example, single persons, divorced or separated individuals, and those working in retail are struggling to keep up with rent and housing prices. I understand that some policymakers tell you that the key to success is education. However, we still need to be aware of people who cannot make it, for reasons such as social backgrounds and vulnerabilities.

We need a system that promotes social justice. It is fine to own 10 apartments if you can afford them and to live off the market. However, policy must be adjusted to promote social justice. I am glad to see people earning money, but there must be a limit on speculation to give others a chance; otherwise, inequality will grow. Current Minister Owen Bonnici is doing a great job in social housing, and the ministry’s personnel are efficient in responding to queries. Certainly, the government’s policy aims to promote the development of additional affordable housing units to support these groups. However, we need not just purchases but also units providing affordable rent.

The introduction of tapered subsidies represents progress. However, it remains unclear why eligibility for rent subsidies is assessed based on gross rather than net income. While banks use gross income to assess mortgage credit risk and maintain financial stability with respect to the debt-to-income ratio, this approach is not suitable for government rent subsidies. Net income should be considered to reflect individuals’ financial realities better. Many individuals struggle to afford basic expenses after paying rent, even with subsidies, while also fulfilling separation income obligations and paying taxes on gross income. After all deductions from gross income, some are left in relative poverty with net income. The rental market has also undergone significant changes since reaching a tipping point some years ago.

The tapering of the rent subsidy benefit and the supply of apartments

The government is attempting to address these market dynamics by also implementing a tapering system for individuals whose incomes increase and who no longer qualify for the full rent subsidy. However, if an individual’s income rises slightly above the threshold, the system begins tapering the rent subsidy. In a context of labour shortages, this can discourage individuals from working additional hours, including overtime, as the extra income results in the loss of benefits. Fewer hours of work would result in more people being imported to fill the gap, unless automation gradually fills part of the gap. Perhaps an alternative approach is to introduce a percentage buffer rather than a fixed income threshold. For instance, if an individual earns an additional €500 per year and exceeds the entitlement threshold, the subsidy will taper gradually. Establishing a 10% or 15% buffer on annual income before disentitlement, and then tapering it, would enhance transparency and incentivise greater participation in work. People could easily plan the hours of work, and so will employers. Ultimately, perceptions of taxes and benefits are shaped by considerations of fairness.

Moreover, it is becoming increasingly difficult for Maltese people to rent out apartments. I even saw messages exchanged by property owners and agents stating that the property is to be rented to foreigners, meaning that, in addition to the price, the supply is also excluding locals. Hence, there are two problems here: rent prices and supply. There are two options available to authorities. Either taxing more in areas where locals are excluded or providing additional units. I mean, providing additional units means the government must supply them. We do have a situation that requires urgent attention to revise regulations and policy to manage and support such cohorts. And we need to accelerate the affordability process, building on the work already underway.

The marginal benefits and costs of additional economic growth

Surely, beyond rent subsidies, I have advocated for a comprehensive assessment of current GDP growth, particularly from sectors that place additional strain on infrastructure. For example, if certain sectors contribute an extra two percentage points of growth but require the importation of labour and increased activity, this must be balanced by investments in infrastructure upgrades, the allocation of agricultural land for sewage treatment facilities as well as road upgrades, and measures to address noise pollution, emissions, and rising rents and property prices. It is essential to consider the multiplier effects of economic growth, but we must also measure the costs to our infrastructure. When natural capital is depleted, the resulting pressure on limited resources can lead to economic overheating and destabilisation of our social fabric. This necessitates a revaluation of policy priorities and our collective responsibilities. And the Opposition must express which sectors they refer to when they speak of planning, as hitherto, they did not mention any.

Ultimately, we must reconsider what we, as human beings, owe to nature, and certainly what we all owe to each other, if we are to live in peace, sharing progress and prosperity.

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The country has experienced robust economic growth, and the current fiscal position allows broad redistribution of income and subsidies. However, the adoption of laissez-faire economics in some sectors, at times, exerted considerable pressure on infrastructure and affected the quality of life and social behaviour within local communities.

The political and economic context

The PL in government prioritised liberal and progressive policies, both politically and economically. Between 2013 and 2019, Malta experienced significant economic growth, with increased earnings and a general sense of optimism regarding wealth creation, particularly in contrast to the stagnation of previous administrations. Such an approach allowed the PL in government to swiftly implement civil liberties until a Black Swan event occurred. In 2020, the global pandemic fundamentally altered public perceptions of daily life and even the way people think and behave. Extended periods of lockdown led to a renewed appreciation for time and outdoor spaces, and perhaps boats, too. Increased income contributed to higher demand for boats and mooring buoys. Ironically, mooring buoys was one of the issues encountered when campaigning on the ground.

Certainly, the pragmatic approach adopted by Dr Robert Abela during the pandemic was instrumental in mitigating the negative impacts on livelihoods and well-being. During the pandemic, road traffic evaporated, economic activity declined, and many third-country nationals returned to their home countries due to a lack of employment opportunities. Despite these challenges, individuals continued to receive salaries, including those in the private sector. The retail sector benefited from government funding to maintain operations, fostering a degree of dependence on state support and increasing fiscal strain during a period of economic contraction. The PL in government implemented unique measures to safeguard lives and livelihoods.

The consequences of a laissez-faire approach in certain sectors

To facilitate rapid recovery, the government invested in healthcare, financed vaccine procurement, administered vaccinations, and prioritised economic revitalisation, particularly in the wholesale and retail sectors. Subsequently, the Maltese government adopted a laissez-faire market approach, characterised by retailer reinvestment, the importation of workers through temping agencies with limited or no regulation, and an assertive tourism promotion campaign. This strategy yielded positive economic outcomes, with tourism rebounding and Malta recovering more rapidly than many other countries. However, the accelerated pace of economic activity and the substantial influx of foreign workers made it challenging for the population to assimilate, especially compared with the relative calm of the pandemic period.

Surely, the continued emphasis on retail-related sectors, including accommodation, led to positive market responses, with increased investment in properties for short-term rental. Digital platforms and low-cost airlines further enabled this business model. However, this approach introduced some disturbances. Laissez-faire tendencies and inadequate regulation permitted certain operators to disrupt residents’ quality of life. It is essential to differentiate between facilitating market operations and addressing market failures. When evidence indicates that economic operators are negatively impacting the broader community, regulatory intervention must be robust. And by regulatory robustness, I do not mean sounding the alarm in a panic clampdown.

Well, profit generation should not come at the expense of collective well-being. Sustainable growth requires policy tools that support expansion in sectors such as food and accommodation without adversely affecting residents or distorting the market. It is inappropriate to disturb residential areas with commercial activities, and property ownership does not confer the right to disrupt others. Consistent application of these principles across Malta is necessary to prevent unfair competition, where powerful entities exploit the system while smaller operators are disadvantaged.

Accelerating growth in higher-productivity sectors

The next phase should prioritise quality growth, as the marginal benefits of increased activity in low-productivity sectors are increasingly counterbalanced by social and infrastructure pressures. Public support for growth has diminished due to the associated strain and the declining marginal utility derived from these sectors. The core issue lies not in economic growth itself, but in where growth is derived. When asked about policy design, I advised prioritising sectors such as finance, insurance, gaming, information and communications technology (ICT), family offices, regulated crypto funds, payment institutions, and advanced automated manufacturing. Emphasis should be placed on professional and knowledge-intensive services, supported by a robust promotional campaign for these sectors, particularly finance, with ambition comparable to that of the Malta Tourism Authority.

Certainly, rapid growth should be pursued in high-value sectors. In contrast, expansion in lower-productivity sectors should proceed at a more measured pace, thereby increasing the share of gross value added generated by high-value activities. Upon reviewing the Fiscal Council’s statements, I found the narrative surrounding productivity to be unclear, not in terms of technical details, but in the broader approach to productivity enhancement. Although productivity is quantifiable, its calculation and interpretation remain subject to debate. While supporting wage fairness also in view of the pay-transparency directive, it is reasonable to contend that the economic structure must be adjusted so that productivity gains are not achieved solely by increasing employment in low-productivity sectors. The transition period I am referring to must be a strategic shift toward more productive sectors and a reduced reliance on importing labour into Malta.

 A sustainable economic way forward

An economy comprises both human and capital resources, and there is a current need to strengthen technological and natural capital. In the local context, there is limited scope to expand natural capital. What we need to do is preserve what we have, unless land reclamation for natural reserves is pursued while mitigating acute physical climate risks. The gap between economic growth and productivity has been partially bridged by increased employment, though this occurred before the widespread adoption of artificial intelligence. This is what the Fiscal Council failed to mention. The ICT sector is expanding rapidly and requires further acceleration to sustain momentum. While public discourse has centred on public-sector borrowing and yield curves, the primary focus should now be on output and employment metrics. Addressing productivity requires examining the relative costs of labour and capital, as well as the impact of artificial intelligence. The objective should be to maximise technological efficiency.

Labour costs can sometimes be offset by increasing employment, but it is essential to balance wage growth with investment in and effective utilisation of technology. Continued reliance on imported labour is unsustainable, as it places mounting pressure on infrastructure. The solution lies in prioritising high-productivity sectors, curbing the expansion of low-productivity activities, and initiating a gradual transition. This twin-effect approach may yield dual benefits. Artificial intelligence could enhance output and efficiency in certain sectors, while employment gradually shifts toward higher-value activities. The impact of artificial intelligence is indirectly highlighted in the PwC report on sectoral productivity, which identifies ICT as an outlier demonstrating rapid growth, higher gross value added (GVA), and improved productivity relative to other high-productivity sectors. Efforts should be directed toward increasing GVA in these sectors and their growth.

Crucially, reducing employment should not be viewed as the primary objective. Instead, the focus should be on increasing output and value added per worker through enhanced skills, technological advancement, and targeted investment. Artificial intelligence is only one component of this strategy, and its deployment can be challenging outside of automated systems and robotics in the wholesale and retail sectors. Advancements in high-quality manufacturing also have the potential to improve productivity significantly.

Economic management should be approached from this perspective rather than framing economic growth itself as problematic.

The post A transition period toward higher-productivity sectors is necessary first appeared on The Malta Business Weekly.

Additionally, based on reader feedback, I will begin using subtitles to improve article clarity.

Age-restricted short lets and residential quality of life

Tourism is a relevant example. It is positive that tourists enjoy Malta’s attractions and that locals benefit from short-term rentals. However, our priority should be quality growth in tourism, rather than simply increasing visitor numbers. Excessive short-term rentals in residential areas are diminishing residents’ quality of life. While I support individuals earning income from short-term lets, property owners must ensure they do not disturb their neighbours. It is unacceptable to profit by permitting disruptive groups, such as rowdy teenagers, to compromise the peace of residents who have invested in their homes.

To address issues in busy areas, one solution is to restrict short-term rentals based on age. For instance, regular bookings could be prohibited for groups with an average age below 23 or 25. Authorities and rental platforms are aware of which age groups tend to cause disturbances. Private short-term rentals in these hotspots should be restricted for groups under 23 or 25, with exceptions for verified families, business travellers, licensed hotels or hostels, and longer stays. Long-term students under the age threshold would be considered separately. Platforms should require identity verification at booking and check-in, block non-compliant bookings, and display license numbers. Young tourists would still have access to hotels, which provide their own security away from residential blocks.

Furthermore, trained civilian teams are needed to address noise complaints, antisocial behaviour, and waste issues in busy neighbourhoods, and to issue prompt penalties when necessary. These teams should collaborate with the police, local councils, and rental platforms, and be funded through special levies in affected areas. Public reporting and robust oversight are essential. The Malta Tourism Authority has established occupancy rules, including lower limits in residential zones. We should also consider mandatory quiet hours and update existing regulations. While some residents have suggested military involvement out of frustration, it is important to maintain a clear distinction between military and civilian responsibilities.

Polluter Pays Principle for noise pollution

Pollution extends beyond the environment; noise pollution is a significant concern. The Polluter Pays Principle should be applied to noise in residential areas, recognising it as a genuine social harm and making it a priority. Excessive noise in densely-populated neighbourhoods with many short-term rentals should be treated as an environmental issue with tangible social costs. Efforts should begin in high-tourism areas such as Swieqi and surrounding zones. Other countries use sound sensors on streets and buildings to monitor noise during nights and weekends. Although these are not airport zones, a minimum decibel standard should be established to ensure residents’ peace. We should pilot sensor based thresholds and adopt a provisional residential night time decibel standard, to be refined after pilot results. While the government has previously increased revenue through economic growth rather than new taxes, it is now necessary to consider the polluter-pays principle. High-risk areas should impose additional noise charges on frequent short-term rentals and the platforms that facilitate them. Funds collected should support soundproofing grants, improved sanitation, and enforcement teams.

Tax policy can influence outcomes. Establishing special zones and implementing higher short stay surcharges in high-risk areas, particularly in the ninth and tenth districts, would support these neighbourhoods. Revenue should be allocated to neighbourhood improvements, soundproofing, community services, waste management, and security. Oversight should occur at the EU level, as platforms often disregard local data requests. Platforms must be required to remit payments, report transparently, and face penalties for non-compliance. A transition period until 2029 is recommended: the first year for mapping and registration, the next two years for sensor testing and age rule enforcement, and by the third year, full implementation of hotspot taxes and removal of non-compliant listings if necessary. Exemptions should apply to long-term stays, workers, families, and students, with additional support for residents such as soundproofing grants and accessible complaint processes.

Quality growth and sectoral priorities

When discussing growth, it is important to understand the key measures and principles of economic development and their broad application. Our current focus should be on quality growth, which involves evaluating each sector individually. Malta, for example, can prioritise its top 60 main sectors, ranging from services to manufacturing. Authorities must determine which sectors to prioritise for future support. I am not suggesting we close any industries but rather pause expansion in sectors that do not deliver high-quality growth and concentrate on those that achieve better outcomes with fewer resources. As reiterated last week, when discussing growth, it is important to understand the main measures and principles of economic development and their global application. Credit rating agencies and the European Commission primarily use debt-to-GDP and deficit-to-GDP ratios.

Lastly, if we want to be serious, noise pollution in crowded residential streets must be addressed as both an environmental and social issue. People are not against such measures. Certainly, people want us to measure, charge for, and enforce noise regulations, as well as implement age-based booking limits, apply hotspot taxes, and ensure dedicated enforcement. Residents in these areas are requesting these changes to protect their communities and promote higher-quality tourism.

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When one considers that the article is in English and that I am reaching these numbers during a period when most people are supposedly in holiday mode, it signifies something. This is the same pattern I observed before the general election when writing about current issues and humbly offering alternative solutions to deter and solve problems. People were closely following what I was writing. Something different was happening in the run-up to the general election. It is understandable to receive messages of encouragement from Labour supporters to submit my name for the general election with the PL. However, there were also PN supporters asking me to consider submitting my name for the general election with the PL. It is at times unexplainable and perplexing. But I got the gist of why. I did not just receive a few messages. Several persons even gave me their mobile numbers to keep in touch.

You might ask why I am writing this article, which might not have anything to do with the title. I will arrive at that point later. Besides the messages I receive on social media, I also engage with people in person – at village festas, community events, and even during home visits. The same pattern is emerging when people talk to me. Many tell me that they follow what I write, be it on social media or in the local newspapers, because I have kept consistent arguments over the past four years. One of them even told me that I am not a facsimile of others, and my brand is distinctive from the rest. The reason is that when I write about something, I criticise constructively in a way that does not harm anyone, and I humbly try to provide solutions. Perhaps this is why I was elected. People voted for me because they wanted consistency, as well as someone who doesn’t bend under pressure.

Now, when I speak about consistency, as you may all recall, I always reiterated that economic growth isn’t the problem. The problem, as it stems, is a planning and implementation problem. And this is not symptomatic of the PL government. It has always been, and it will take courage to change it, including bipartisan principles that should be inalienable, whoever is in government. Let’s take the environment. What we must do is keep more oversight so as not to allow chaotic conditions to thrive. Also, we have situations where we have more people on these islands not just permanently but also seasonally. Indeed, those who write about economic growth can’t understand the underlying positive effects. Alas, many of those writing and expressing their opinions are not economists.

An article written by a lawyer or a medical doctor doesn’t give the reasons why growth is bad. They argue that growth is not yielding the expected results. Firstly, we need to see what results they are talking about. Let me break this down. The starting point must be the understanding that the metrics provided universally, and those used by credit rating agencies as well as the European Commission, are the debt-to-GDP ratio and the deficit-to-GDP ratio. Indeed, there are other indices, but the starting point is economic growth. Because the lower the denominator, the bigger the ratio, and hence why we need economic growth.

Now, if economic growth means that we have additional tourists, additional seating capacities and services at our restaurants and hotels, and additional people living here to service our hospitals and medical care, then we need to manage the country with high precision, without hindering economic growth. And this means that whatever we do must be operationally efficient and implementable. At times, it must harshly punish those who are not complying with the current regulations to use it as a deterrent. We do not afford to relax, and we do not afford to start a political discourse that harms rather than helps facilitate our day-to-day work. Thumbs up to those involved in increasing the on-the-spot fines.

Also, we need to understand that people are indeed generating income. The only problem is that our political discourse has become one in which politicians either sweep issues under the carpet or avoid addressing them altogether for fear of stepping on others’ toes, and in the meantime, the Opposition fuels and foments a narrative that doesn’t paint the reality. We indeed have a situation where some areas need to be badly managed, with strict protocols. And here I must congratulate Minister Glenn Bedingfield for the good work he’s doing in several areas in Malta, including the increased surveillance in the ninth and 10th districts, which badly needed the on-the-spot fines and the suspension of accommodation licenses of those not complying with regulations and disturbing residential areas. Other districts are affected, too.

Certainly, economic growth is good as the country advances. Besides, we economists strive to distribute wealth more justly, and we also think of those who are really in need. What needs to be done is the right distribution of wealth, and this is a separate argument from economic growth, although intrinsically linked. And the problem we currently have is that some economic activities are indeed impinging on the quality of life of some residents, not least overdevelopment. I already stated this in a preceding article. I don’t understand the reason why piles of construction debris must sit next to an office and a residential area. Piles of construction waste are sprouting everywhere. The level of pollution and its consequences, including bad air quality, have reached an obnoxious level. And this is why those who do not understand what growth brings are linking everything to economic growth, rather than the sector itself, lack of implementation, lax policies, and the mischievous young tourists.

We need to step up our control and increase the penalties, as has already been done, and if need be, deploy additional human resources to address these challenges. That would represent truly productive employment and meaningful work.

The post The problem is not economic growth but those who don’t understand economics first appeared on The Malta Business Weekly.