My proposal or set of proposals are less costly and more targeted.

As many of you know, I work a lot with family businesses. Family businesses remind me of the infamous speech given by late Sergio Marchionne at the Confindustria Young Entrepreneurs Conference in Santa Margherita Ligure, Italy, on June 9, 2012. In this speech, he famously discussed the balance between “the epoch of rights” and the “sense of duty”. In a family business the “right” to a salary or a position is often secondary to the “duty” of ensuring the business survives for the next generation.

The family business owners are frequently the first to arrive, the last to leave, and the ones who forgo their own “rights” during lean times to protect their employees. Marchionne’s warning that “if we live of only rights, we will die of rights” resonates deeply with family business entrepreneurs because they know that a business cannot be sustained by what it demands from the market, but by the sacrifices and commitment it pours into the business. It is this background and reality I see on a daily basis through various family businesses, that inspires my proposal.

The transition of the ownership of the family business and assets used in the family business, from one generation to the next, often poses a significant financial threat, particularly when substantial fiscal burdens are involved. Recognising this, government has extended a pivotal fiscal incentive, even in the 2026 Budget, allowing for the transfer of business ownership and related property at a significantly reduced stamp duty rate of 1.5%.

This measure aims to bypass the standard 5% duty that typically applies to the transfer of immovable property and the 2% or 5% duty (trading company vs property company) on marketable securities (shares), ensuring that capital remains within the business to fuel growth rather than being diverted to the taxman during a sensitive transition.

Where a business is transferred during the owner’s lifetime (Inter Vivos), the law provides a pathway to this reduced rate under the Duty on Donations of Marketable Securities and Immovable Property used for Business (Exemption) Order.

The 1.5% rate is not universal; it is a targeted incentive for intra-family succession. Qualifying recipients include Spouses and partners in a civil union and descendants in the direct line (children, grandchildren) and their spouses.

With regards qualifying assets for the 1.5% rate, there are two primary asset classes that benefit from this stamp duty reduction i.e. the shares in the family-owned business and the real estate used specifically for the business (e.g., a factory, retail outlet, or office). To qualify, the property must have been used by the business for at least three years preceding the transfer.

To prevent abuse of the system, the law mandates that the recipient must not sell or transfer the family business or property for at least three years following the donation. In the case of property, it must continue to be used for the business for a minimum of three years post-transfer.

Based on all the above, my proposal is made of a number of fine tunings to ensure that family businesses are preserved in the critical juncture of succession. Moreover, whilst I personally preach and advise family businesses to prepare and plan for succession at an early stage, I am aware that there will always be cases whereby succession needs to happen because the unexpected has happened, like the unexpected, sometimes early, death of a family business owner and leader.  Ultimately there is an element of family business continuity that is a public good, regardless of the specific degree of kinship or minor administrative delays. Thus, the goal of my proposals is to ensure that when coming to the legitimate family business transfer there is an established safety net rate for scenarios that currently fall through the cracks.

Currently, if no ‘inter vivos’ succession transfer has taken place and, hence, a ‘causa mortis’ type of family business transfer has to be done, this would not qualify for  the reduced 1.5% stamp duty, but the standard 5% stamp duty rate would apply. My proposal is to have a safety net rate which is higher than the reduced 1,5% stamp duty rate for ‘inter vivos’ transfers and lower than the 5% standard rate. This, in my opinion, would spare  family businesses passing through a tragic situation from being ‘punished’ unnecessarily, without taking away from the more favourable reduced rate of duty for family businesses to plan ahead and go for an ‘inter vivos’ type of succession which, in the end, can bring more benefit to the family business and its future prospects.

Throughout Europe, tax relief for causa mortis (upon death) family business transfers is designed to prevent the fragmentation of small and medium enterprises and ensure operational continuity. Most jurisdictions recognise that high inheritance taxes or stamp duties can drain a company’s working capital, potentially forcing a liquidation or sale to external investors. For instance, Germany offers a robust “business succession” exemption where heirs can receive up to 100% relief from inheritance tax if they continue the business for seven years and maintain specific payroll levels. Similarly, the Netherlands utilises the Bedrijfsopvolgingsregeling (BOR), which provides substantial exemptions—often exceeding 80% of the business value—to ensure that tax liabilities do not jeopardise the company’s liquidity. The United Kingdom recently updated its Business Property Relief (BPR) to provide 100% relief on the first £2.5 million of combined business and agricultural assets, with a 50% relief thereafter. These measures collectively yield significant positive effects: they encourage long-term investment, protect local employment, and foster generational stability. By lowering the fiscal barrier to succession, European states effectively incentivise the survival of the family-owned model, which serves as a cornerstone for economic resilience and social cohesion across the continent. These reliefs ensure that the successor’s focus remains on strategic growth rather than servicing a sudden, massive tax debt during an already difficult period of transition.

Another issue that should also be addressed relates to the transfer of immovable property from the family business to a family member. As a practical example, let’s assume that a family business acquires a new warehouse but as part of the succession plan inter vivos, the owner chooses to pass that warehouse to one of his descendants. Should he choose to transfer the warehouse out of the business and to a family member, such a transfer would be subject to the full 5% duty because they missed the 3-year “pre-transfer usage” window by a few months. My proposal is to at least allow for a pro-rata reduction. If the property was used for less than 3 years but more than 1 year, the duty should be capped at a lower rate of 2.5%, provided the heirs commit to using it for the business for the subsequent 5 years.

In conclusion, the survival of a family business is important as these businesses are the bedrock of our economy, fuelled by family business owners who are fully committed to their business, often sacrificing everything to ensure the security of their employees and the future of their kin. By refining our tax laws to include this reduced duty safety net, we can ensure that we do not dismantle decades of hard work, by supporting the actively trading family businesses who pour their commitment into our community, ensuring that when the torch of leadership is passed, it is not extinguished by a tax burden, but remains a guiding light for the next generation.

The post My proposal first appeared on The Malta Business Weekly.

With the published accrual-based Government Deficit figure for 2025, the cash based Consolidated Fund Deficit figure published a few weeks ago has shrunk from €824 million to €545 million. How is this possible? The transition from the cash-based Consolidated Fund deficit to the accrual-based General Government deficit involves several significant accounting adjustments required by European methodology (ESA 2010). While the cash figure focuses on the timing of actual payments, the accrual figure reflects when the underlying economic activity occurred.

As can be seen in the below table, the primary and most significant adjustment was the so called “Time-adjusted cash transactions” that added €391.6 million back to the balance by aligning the recording of taxes and social contributions with the period they were earned rather than when they were collected. This large positive adjustment in 2025 indicates that while cash flow can be volatile, the underlying “accrued” revenue—what the government is legally owed—is growing more consistently than cash receipts might suggest. In fact Government revenue as a share of GDP has increased from 33.1% in 2022 to 34.8% in 2025. This indicates that revenue is currently outperforming the general growth of the economy.

Also, as can be seen in the below table also this is the first time since 2022, whereby the accruals based deficit ended up much lower from the cash based consolidated fund deficit, when the accruals adjustments where made. In previous year i.e in 2022, 2023 and 2024, this was never the case.

Thus, so far so good. With a final public deficit of €545 million and a 2025 provisional GDP at 24.53 Billion, we get a GDP to deficit of 2.2%. If the usual revisions are made to the 2025 nominal GDP, the GDP to deficit level could even go further down to around 2%.

As I had been repeating in my articles, considering the constant shocks the global economy is facing, resilience is key. Which is why beyond celebrating this excellent result, I believe we would do well to ensure that this can be preserved whatever comes our way.

The trajectory of Malta’s public finances from 2019 to 2025 illustrates a dramatic shift from a pre-pandemic surplus to a high-expenditure “crisis mode,” followed by a period of aggressive revenue-led consolidation.

Actually, the fiscal landscape can be divided into three distinct phases based on the data. There is first the pre-pandemic 2019 baseline. The period was when we had  a surplus of €67.1 million. Revenue and expenditure were closely matched at approximately 37% of GDP.

Then came the pandemic. As a response, Government expenditure surged to mitigate COVID-19 risks. In 2020, expenditure rose to €5,977.9 million (46.6% of GDP) while revenue fell to €4,677.8 million (36.5% of GDP). By 2021, expenditure peaked at €6,614.9 million.

Post 2021, the government entered a phase of rapid revenue growth. By 2024, revenue increased by €1,216.0 million in a single year to reach €7,784.2 million. By 2025, revenue reached €8,553.8 million, allowing the deficit to narrow to 2.2% of GDP, down from a peak of 10.1% in 2020.

The sustainability of this model depends on the relationship between revenue growth and the cost of maintaining a larger state apparatus. The data confirms that government revenue has, at times, grown faster than the economy itself. For example, in 2024, government revenue as a percentage of GDP rose to 34.6% from 32.0% in 2023. This rose slightly further to 34.8% in 2025. This suggests that revenue increases are not just coming from a larger economic “pie,” but also from more efficient tax collection. While the deficit-to-GDP ratio is shrinking, the absolute level of government expenditure has established a new, much higher “floor.” In 2019, the government spent €4,985.2 million. By 2025, expenditure had ballooned to €9,099.1 million. This 82% increase in spending over six years creates a structural dependency. If revenue growth slows while expenditure remains high due to social obligations or interest payments the fiscal position could quickly deteriorate.

In reality, continuous revenue growth at this velocity is unlikely for several reasons. Government Revenue remains heavily linked to GDP. While Malta’s GDP grew from €13.4 billion in 2020 to €24.6 billion in 2025, any cooling of the economy would immediately slash tax receipts. In 2025, government revenue boosts include “time-adjusted cash transactions” (an adjustment of €391.6 million in 2025) and surpluses from Extra Budgetary Units (EBUs) like the National Development and Social Fund. These may not be permanent fixtures of the revenue stream.

From an economic perspective, no economy can maintain high-percentage growth indefinitely without encountering structural limit. Growth requires labour and infrastructure. This puts the emphasis on productivity growth. If economic growth drops below 4% while spending stays high, the debt-to-GDP ratio will begin to climb again, potentially breaching the 60% limit in the long run. In conclusion, the current fiscal trajectory is sustainable as long as the economy avoids a slowdown or a recession. The larger, higher-spending public expenditure requires a high-octane economy just to maintain its current GDP-to-deficit and GDP-to-debt levels.

The Minister of Finance may be hesitant to commit to massive, multi-year capital projects because the current fiscal stability is built on a “high-expenditure/high-revenue” dependency. If the government locks into long-term, multi-billion-euro infrastructure commitments, it permanently raises the expenditure “floor” even further. Because the current revenue model is so tightly linked to high GDP growth, any cooling of the economy would immediately slash tax receipts while those infrastructure costs remain fixed. This creates a true chicken and egg situation. On one hand, it could be that the Minister of Finance fears that without constant high economic growth, the debt becomes unsustainable while on the other hand without infrastructure investment, the very economic growth required to fund the state’s current size will eventually hit a structural ceiling.

The post Time adjusted cash transactions first appeared on The Malta Business Weekly.

For Malta, the “downside risks” highlighted by the IMF are not merely theoretical – they represent immediate structural challenges.

The IMF notes a critical difference between this crisis and the 2022 energy shock. While 2022 saw a “steep supply curve” where prices could be brought down without a major slowdown, the 2026 supply curve appears much “flatter”. The IMF “reference forecast” now sits at 3.1% for 2026, a downward revision caused largely by the conflict. However, the IMF clearly outlines that if energy infrastructure is significantly damaged, global growth could plummet to 2%, bringing the world close to a recession.

Malta’s economy is fundamentally tied to its “connectivity”. The IMF identifies the direct effect of commodity price increases as a “textbook negative supply shock” that raises the costs of transportation and energy.

For Malta, which relies heavily on imported goods and international connectivity, the following global trends are most concerning. The closure of the Strait of Hormuz and damage to production facilities threaten an energy crisis on an “unprecedented scale” with global headline inflation projected to rise to 4.4% in 2026.

The IMF warns that “energy-importing countries” and those with “weaker tourism and business activity” will suffer most from the conflict’s spillovers. As a Mediterranean island, Malta is highly sensitive to the price of aviation fuel. The IMF notes that the direct effect of commodity price increases raises the cost of transportation. Sustained high fuel prices will lead to increased airplane ticket costs, potentially dampening the tourism boom Malta has been experiencing. Things could get worse if flights get cancelled due to the lack of aviation fuel from certain European airports. Moreover, higher inflation reduces the purchasing power of tourists from Malta’s core European markets, likely leading to reduced “discretionary spending” abroad.

A significant portion of the IMF report focuses on the urgency of rebuilding fiscal buffers. So far Malta has adopted a broad-based energy subsidies to protect households. However, the IMF explicitly warns that such measures are often “poorly designed and very costly for the public purse”. The IMF urges governments to shift from broad caps to support that is “temporary, targeted, and preferably delivered through existing social safety nets”.

To navigate this “profoundly changing economic and geopolitical landscape”, the IMF advocates for policies that are robust across multiple scenarios.

1. Aggressive Energy Diversification: The IMF emphasises that “accelerating energy transition” is a key pillar for energy security. For Malta, reducing dependence on global hydrocarbon transit routes is no longer just a green initiative – it is a national security priority.
2. Rebuilding Fiscal Buffers: Governments are urged to mobilise revenues and reprioritise expenditures to “replenish fiscal buffers for future shocks”.
3. Preserving Price Signals: The report argues that preserving price signals is essential to “transmit a critical market signal of scarcity” and encourage demand reduction.

I was recently following an interview with Economics Professor Steve Keen and I could not stop thinking on economic growth in Malta. Too often, we operate on the assumption that projected economic growth will occur regardless of external developments. However, this insightful interview clearly highlights several global macroeconomic forces that will shape the economic reality of any nation heavily reliant on international trade and energy imports. In this interview Professor Keen emphasises that our global production systems are far more fragile than economists realise. With the closure of the Strait of Hormuz, you have not only an energy choke point but also fertilisers. A war that cuts off a substantial amount of fertiliser supplies doesn’t just raise prices but it creates a physical shortage of food.

Malta, as an island nation, is particularly vulnerable to all this and no local policy can fully insulate a country from this magnitude of global contraction. So while macroeconomic growth may be externally dictated, Professor Keen suggests two ways to regain some degree of local control, for any country. He strongly advises moving away from oil dependency and investing in local solar power to insulate against energy price shocks and shortage and he also suggests that nations should look for ways to produce their own food to create a “bit of insulation” against global chaotic events.

In the view of Professor Keen, economic growth is currently at the mercy of geopolitical stability and resource availability. For a nation to have more control, it must shift away from a “fragile” globalised system towards a more self-sufficient model of energy and food production.

In conclusion, I believe the message is clear. Malta, like any country, needs to move beyond emergency responses toward a “comprehensive policy package”. By focusing on fiscal sustainability, labour upskilling and targeted support to create more supply resilience, Malta can mitigate the “acute macroeconomic trade-offs” that the IMF predicts will haunt the global economy for the remainder of 2026.

The post The 2026 IMF World Economic Outlook first appeared on The Malta Business Weekly.

In our collective psyche, the troubles of the distant Middle East often feel like a digital noise, filtered through the blue haze of our surrounding sea.

However, the luxury of distance has evaporated in today’s world as we have experienced even in recent years. The geography of our islands no longer grants immunity from global tremors.

The escalation of the Iran War, from the initial joint strikes on 28 February to the catastrophic closure of the Strait of Hormuz, has proven that while we may live on an island, we do not live in a vacuum. News coming in is not encouraging. The negotiations between the US and Iran in Pakistan have yielded no concrete way forward and Trump is now moving ahead to implement a total blockade in the Strait of Hormuz. This means that things are escalating further and it is very plausible to expect negative economic effects for at least the medium-term as a short-term solution is now rather difficult to envision.

The ripple effects of the conflict are no longer theoretical. They are manifesting in data points that are, or shortly will, directly impact everything and everyone.

The latest developing risk is the Jet Fuel shortage. Industry analysts warn of a systemic jet fuel shortage hitting the EU by May. For a tourism-dependent island, the threat of flight cancellations (already being considered by major carriers like Ryanair) is a direct hit to our connectivity. Without jet fuel, our vital “bridge” to the mainland effectively vanishes, also disrupting the supplies we rely on from air transport.

On the other hand the Maltese government remains the only one in the EU to have frozen fuel and energy prices through subsidised administered pricing, meaning that the fiscal cost is very likely to keep mounting, straining further our public finances. The recent DBRS credit agency report on Malta also highlight this point when saying: “Furthermore, potentially higher-for-longer global energy prices are a risk factor for the government’s fiscal balance given its fixed price energy policy. Maintaining the current freeze on domestic energy prices would necessitate higher energy subsidies, thereby adding to budgetary pressures.”

Malta is an import-dependent economy. The disruption of the Strait of Hormuz and the diversion of shipping routes around the Cape of Good Hope have added weeks to transit times and spiked freight costs. This isn’t just about delays, it affects fertilizer inputs for agriculture and raw materials for our manufacturing sector.

Despite subsidies, “imported inflation” is leaking into the local market. As shipping and production costs rise globally, the price of food and essential commodities in Maltese supermarkets will be felt. The European Central Bank has already revised its 2026 inflation projections upward, warning that a prolonged conflict could tip the overall Eurozone economy in recession.

In my humble view, in a world going from one crisis to another, we can no longer afford the “business as usual” approach where we assume the state will always be the ultimate shock absorber, which is the downside of subsidies beyond the peak time of a crisis.

Beyond dealing with the immediate Iran war induced crisis at hand we need to look ahead and take resilience more seriously. True resilience requires a fundamental shift in how we live, work, and plan for the future.

We must accelerate the transition from “subsidised fossil fuels” to “sovereign renewables”. Resilience means having a grid that isn’t tethered to the volatility of a Middle Eastern strait. Similarly, supporting local vertical farming and boutique agriculture isn’t just a “green” trend; it’s a national security imperative to ensure our food supply is not 100% at the mercy of global shipping lanes.

Malta’s implementation of the EU’s Critical Entities Resilience (CER) Directive must be prioritised. This involves “all-hazards” planning – meaning every major provider of water, digital services, gases and transport must have a redundant strategy for “Black Swan” events, such as a total cessation of shipping for 90 days.

Resilience also starts at home. In a world of volatile prices and “just-in-time” supply chains, the “business as usual” mindset is a liability. We must move from a culture of consumption to one of conservation, treating water and energy as precious, finite assets.

At a national and industrial level, we need to understand if and how we can beef up our dedicated strategic reserves of jet fuel and essential commodities to bridge any supply gaps created by global conflicts.

Our historic insular mindset was about looking inward to stay safe. The resilience mindset is about looking outward to stay prepared. By acknowledging that the smoke over the Persian Gulf eventually reaches our runways and our dinner tables, we can stop reacting to crises and start out-planning for when the next one will hit us. Many times I get the sensation that our baseline is based on the hope that our business-as-usual mindset will somehow carry us through – that by doing nothing, things will resolve themselves while we ride out the storm, hoping that our war chest will be enough to see us through and that nothing will derail our economic growth.

The post Resilience first appeared on The Malta Business Weekly.

Chapter 2 documents the development and implementation of a new analytical framework designed to strengthen the Council’s monitoring toolkit. In a small, highly open economy like Malta’s, where market dynamics shift rapidly, the MFAC identified the need for a structured instrument to synthesise diverse indicators into a coherent assessment. The resulting “heatmap” serves as both an early warning system and a monitoring tool to detect emerging macroeconomic and sectoral imbalances.

The methodology involves evaluating 27 distinct indicators across five thematic blocks – Prices and Competitiveness, Labour Market, External Balances, Credit and Financial, and Business Trends – against their long-run averages from 2010 onwards. By utilising Z-scores (measuring standard deviations from the mean), the Council can visually identify “heat” in the economy; large positive deviations appear in shades of orange, while negative deviations appear in blue. This iterative tool allows for a timely, quarterly assessment of whether the economy is operating at, above, or below its historical norms.

So far, the critical insights developed from this tool are that the Maltese economy continues to operate above its long-term historical average, but the “heat” of the rapid post-pandemic expansion is visibly cooling. This suggests a natural transition toward a more mature stage of the business cycle where growth rates align more closely with historical norms. Moreover, indicators signal persistent and extreme structural tightness in the labour market. Most importantly, while nominal wages increased by 4.1% in 2025, labour productivity growth has remained subdued. This has pushed Nominal Unit Labour Costs (ULCs) above their long-term average, posing a direct threat to Malta’s international price competitiveness. Finally, while house price inflation remains above historical norms, it is showing signs of deceleration. Crucially, building activity in Q3 2025 stood below its long-term average, indicating a property market transitioning toward more moderate expansion.

Chapter 3 provides a comprehensive examination of the evolution and composition of general government expenditure in Malta using the Classification of the Functions of Government (COFOG) framework. This international statistical classification groups spending by purpose such as, health, education, and social protection, rather than just administrative categories, offering deeper insight into how public resources are prioritised over time.

The analysis spans the period from 2000 to 2024 and applies a three-effect decomposition framework to disentangle the drivers of spending growth. This framework distinguishes between the GDP effect (spending increasing in line with economic scale), the government size effect (changes in the overall fiscal footprint relative to GDP), and the structural allocation effect (deliberate shifts in spending priorities across different functions). Additionally, the chapter categorises expenditure by its economic nature – rigid (salaries and pensions), operational (intermediate consumption), and discretionary (capital investment) – to assess the government’s flexibility in responding to future fiscal pressures.

The critical insights derived include that social protection, health, and education collectively accounted for 52.1% of total expenditure in 2024. Within social protection, old-age spending (pensions) is the dominant component, totalling €1,366.4 million in 2024 – a reflection of Malta’s demographic shift and a 49% increase in pension beneficiaries since 2010. Moreover, the economic affairs category recorded the fastest growth over the period, reaching 20.3% of total expenditure by 2024. This surge was primarily driven by transport infrastructure investment and energy price subsidies introduced from 2022 onwards.

A three-effect decomposition analysis revealed that the vast majority of spending increases were simply proportional to the expansion of the economy. Interestingly, the overall “size of government”, relative to the economy, actually declined over the period, with the expenditure-to-GDP ratio standing at 37.4% in 2024 compared to earlier years where it fluctuated between 40% and 42%. One has to see if this trend will continue in 2024, as 2025 has seen a steep acceleration of government spending.

Another insight is that intermediate consumption (the cost of running the day-to-day business of government) surged from 12.2% of the budget in 2000 to 19.8% in 2024. This suggests a growing portion of the budget is becoming “locked-in” to operational demands and outsourced contracts.

Finally, unfortunately government R&D expenditure remains a systemic weakness, hovering at less than 0.2% of GDP, drastically trailing the EU average of 0.7%.

In conclusion the MFAC warns that Malta’s current fiscal health relies heavily on strong revenue growth fuelled by domestic demand. As the new EU economic governance framework introduces stricter limits on net expenditure growth, the Council emphasises two strategic imperatives. First, the need to rebalance the growth model by transitioning away from population-driven growth toward a high-value, export-led, and productivity-driven model. Secondly, by enhancing the quality and efficiency of government spending, fiscal space can be preserved by ensuring that expenditure-based consolidations prioritise productive capital investment rather than non-productive recurrent expenditure.

The post Macroeconomic surveillance and fiscal evolution in Malta first appeared on The Malta Business Weekly.

I believe it is useful to understand how Malta’s public finance progressed in the last six years, from the last year before Covid in which we had a surplus, that is 2019, all the way to 2025.

The government’s revenue grew by roughly €3.18 billion over these six years. The engine of this growth has shifted from corporate tax in the early years to Social Security and VAT in the later years.

Year-on-Year Government Revenue (Millions of €)

As can be seen above, Government Revenue plummeted in 2020 due to the pandemic. The 2021 surge was not just recovery, but the start of a massive increase in Income Tax receipts from the financial and gaming sectors. Then in the 2023-2024 period VAT and Income Tax jumped significantly. As wages rose and prices for goods increased, the government’s “cut” grew proportionally.

Now in 2025, for the first time, Income Tax actually dipped (-€51m) while Social Security (+€148m) became the primary growth government revenue driver, likely indicating that while corporate profits may have stabilised (or possibly dipped), the labour market (employment volume) remained strong.

On the other hand, Government Expenditure has scaled more aggressively, rising from €4.88 billion to €8.90 billion. The primary culprit is Programmes and Initiatives, which now consumes nearly half of the entire budget. The Programme & Initiatives expenditure category acts as a “catch-all” for the government’s direct spending on social services, subsidies, and national obligations that are not related to civil service wages or the day-to-day running of a specific department.

Year-on-Year Government Expenditure Shifts (Millions of €)

As can be seen above between 2022 to 2025, the Programmes and Initiatives category exploded. This includes the energy and fuel subsidies and social benefit increases. Personal Emoluments (civil service wages) grew by 62% since 2019. In 2025 alone, this rose by €149m due to new collective agreements across health and education. While Interest payments stayed flat or fell until 2022, but as debt crossed the €10 billion mark in a higher-interest environment, the cost to simply service that debt (interest) has jumped 70% in just three years (2022 to 2025). In 2019, the government spent roughly €13.4 million per day. By 2025, that figure rose to €24.4 million per day.

The government finance 2025 data released on 27 March shows a worrying trend as total overall government revenue growth is slowing (+2.7%) while Expenditure growth is accelerating (+7.3%), as Income tax revenue has not grown in 2025. In 2025 government revenue has grown almost entirely dependent on Social Security contributions from a growing workforce and VAT.

Now some analysis of the sustainability of Malta’s public finances, in 2025 and in the near future, considering the present geopolitical scenario.

Malta’s economic reporting is characterised by significant GDP upward revisions as initial quarterly estimates are replaced by more comprehensive annual data. For 2023, the nominal GDP was initially reported at approximately €19.37 billion, only to be revised upward by 6.6% to a final figure of €20.65 billion. A similar pattern emerged for 2024, where the first provisional estimate of roughly €21.5 billion was eventually adjusted to €23.10 billion, representing a 7.4% increase.

As of the March data release, the provisional GDP for 2025 is estimated at €24.53 billion. If we apply the average revision rate from the previous two years (approximately 7%), the final GDP for 2025 is likely to be revised toward €26.25 billion by the time the final accounts are settled. Based on the NSO’s reported Consolidated Fund deficit of €823.9 million, this adjusted economic denominator would result in an annual deficit of 3.14% of GDP. This figure is particularly significant as it brings Malta remarkably close to the 3% threshold mandated by the EU’s Stability and Growth Pact, suggesting that while the absolute deficit increased in 2025, the sheer scale of economic expansion continues to provide a crucial buffer for national fiscal sustainability.

Looking forward, one has to consider that it is very likely that government expenditure would have to increase further in 2026, as it will have to pay higher fuel and energy subsidies as international oil and gas prices have soared due to the Iran war. In the meantime, if Malta has the predicted real economic growth rate of 3.8% in 2026 plus an inflation of 3.5% the nominal GDP for 2026 would be approximately €28 billion. If we were to assume that Malta would hit a higher deficit level of around €1 billion in 2026 (mainly due to increased fuel and energy subsidies), we would hit a deficit to GDP ratio of 3.5%-3.6%, which would delay our trajectory from hitting the 3% level.

Malta’s fiscal narrative between 2019 and 2025 reveals a sophisticated paradox: a government whose daily spending has nearly doubled – from €13.4 million to €24.4 million – yet remains anchored by an economy that consistently outpaces its own preliminary growth estimates. The transition from 2019 to 2025 highlights a shift toward a high-spending, subsidy-heavy model. However, the 2025 data signals a structural pivot that warrants caution. For the first time in this period, Income Tax revenue has dipped, leaving the state increasingly dependent on VAT and Social Security contributions from an expanding workforce to fund its obligations.

With Programmes and Initiatives now consuming nearly half the budget and debt-servicing costs jumping 70% in three years, the margin for error has narrowed. Looking ahead to 2026, rising geopolitical energy costs are expected to strain Malta’s fiscal sustainability, making it increasingly dependent on maintaining strong real growth (projected at 3.8%) to keep pace with mounting expenditure.

The 2026 fiscal outlook suggests that Malta is entering a high-stakes race between economic expansion and exogenous shocks. While a projected €28 billion nominal GDP provides a formidable defence, any further escalation in geopolitical energy costs could push the deficit toward €1 billion, potentially stalling the nation’s trajectory toward fiscal consolidation.

The post Malta’s fiscal tightrope first appeared on The Malta Business Weekly.

In economic theory, subsidies are primarily viewed as shock absorbers. When a sudden, exogenous shock (like a war or a pandemic) hits, the “Temporary vs. Permanent Shock” framework suggests that governments should intervene to prevent a “price cliff”. By absorbing the initial blow, the state prevents a downward spiral of reduced consumer spending and business insolvency.

However, subsidies are not intended to remain in perpetuity. According to the Principle of Market Signals, prices serve as essential information. When the state permanently masks the true cost of a resource:

• Incentives vanish: Consumers have no reason to conserve energy;
• Innovation stalls: Businesses feel no pressure to pivot to more efficient technologies; and
• Fiscal drag: What was meant to be a temporary bridge becomes a permanent weight on the national debt, reducing the country’s ability to respond to the next crisis.

Malta’s commitment to price stability has come at a significant fiscal cost. Below is the breakdown of the estimated expenditure on energy and fuel subsidies alongside the average spot price of Brent crude oil for those years.

This means that over four years we have spent €1.17 billion in energy and fuel subsidies.

Which brings about the important point of resilience. We are living in an era of “polycrisis”, where the world appears to hop from one geopolitical or environmental catastrophe to another. In this reality, a country’s greatest asset is resilience. Resilience is not just the ability to spend; it is the ability to have a deep and large enough “war chest” available exactly when the peak of a crisis hits.

To maintain this fiscal firepower, a strategic shift based on sound economic principles is needed. Both the IMF and the Central Bank of Malta have advocated for an “exit strategy” – moving away from universal, untargeted subsidies toward a more flexible model. This involves limiting or reducing subsidies during “peace” periods – times when energy prices are lower or the crisis is not at its peak.

Reducing the subsidy during milder periods serves two critical purposes:

1. Fiscal replenishment: It allows the government to reduce the deficit and build reserves, ensuring that when a massive shock (like the 2026 Iran war) occurs, the state has the financial strength to protect the most vulnerable while still managing to keep fiscal sustainability.
2. The inducement for change: Removing the “artificial safety net” during stable times acts as a powerful economic inducement. When businesses and households face even a gradual return to market-reflective pricing, the Return on Investment (ROI) for renewable energy and energy-efficient retrofitting becomes far more attractive.

The economic sense of subsidies lies in their timing. Using them to blunt the sharpest edge of a war-induced spike is sound social policy; using them to hide the reality of a changing energy landscape during periods of relative calm is a missed opportunity. By tapering support when the pressure is lower, Malta can build a more resilient economy – one that is both financially prepared for the next storm and equipped to outrun it.

The post The economic sense of subsidies first appeared on The Malta Business Weekly.

The central takeaway for any local entrepreneur is the remarkable strengthening of Maltese household balance sheets in the post-pandemic era. The survey reports that median net wealth has surged to €376,350, nearly doubling since 2010.

For businesses, this indicates a domestic consumer base with significantly more “staying power.” Despite global inflation, Maltese households have seen their gross worth rise, largely driven by the appreciation of real assets, which account for nearly 90% of total household wealth. This solid asset base provides a buffer against external shocks, suggesting that while global wars may disrupt supply chains, the local appetite for quality goods and services remains backed by substantial equity.

The present Iran war and wider Middle Eastern tensions typically send shockwaves through energy markets. However, the HFCS reveals a unique “Maltese Advantage” that businesses can leverage. The study notes that Maltese households were largely shielded from European energy price surges due to fixed domestic tariffs. In 2022, median monthly energy expenditure stood at a modest €60.

This price stability is a double-edged sword. While it protects current disposable income, the study highlights a proactive shift: households are planning a median investment of €6,700 in energy-efficient measures, with 68.4% of those planning to invest focusing on new energy sources like solar panels and heat pumps.

The war in the Middle East will likely accelerate the global transition to renewables. Maltese businesses should align with this “Green Pivot.” Whether you are in construction, retail, or consulting, the data shows a clear, funded intent among consumers to decouple from volatile fossil fuels. Adapting your business model to support, supply, or integrate energy-efficient solutions is no longer a niche strategy – it is a response to a documented national trend.

Perhaps the most significant strategic insight for Maltese businesses from the HFCS lies in the structural divide revealed between Maltese-born and foreign residents. The survey notes that foreign-headed households now represent 10.5% of the sample – a segment that is younger, highly educated (43% tertiary attainment) and predominantly renters (82.3%).

While their median income is comparable to locals (€35,532 vs €37,868), their wealth profile is radically different. Maltese households are asset-rich and often debt-sustainable, whereas the growing foreign population has a median wealth of just €22,994, compared to the local median of nearly €400,000.

Businesses must recognise that they are serving two distinct demographics. One is an older, asset-wealthy cohort looking for wealth preservation and energy upgrades. The other is a younger, mobile, and educated workforce with good income but low assets, likely seeking premium consumer experiences, rental-friendly services, and digital-first solutions.

With nearly 95% of foreign households reporting employee income, this group is the backbone of the private sector labour force. In a time of war and global instability, ensuring the retention of this highly educated talent pool is vital for business continuity.

The HFCS study notes that while real estate remains the king of Maltese wealth, financial asset portfolios are becoming more skewed toward the wealthy. For the broader population, bank deposits remain the primary saving vehicle.

In a world where war can lead to currency fluctuations and market volatility, Maltese households’ reliance on domestic real estate provides a form of “forced stability.” However, for businesses, this concentration of wealth in property means that liquidity can sometimes be tight. The survey shows that while overall debt is sustainable (debt-to-asset ratio of 13.7%), lower-wealth households are more financially constrained.

The “forced stability” provided by real estate creates specific structural challenges for businesses. The HFCS study reveals that while Maltese households have grown significantly wealthier, this wealth is heavily “trapped” in non-liquid assets. Real assets account for nearly 90% of total household assets. The main residence alone constitutes 61.8% of net wealth. Because such a vast portion of wealth is tied up in property, the “wealth effect” (where people spend more because their assets have increased in value) may be more psychological than liquid. Businesses, particularly in retail and high-end services, must recognise that their customers are “asset-rich but cash-constrained.” In times of global market volatility, consumers may hesitate to spend disposable income, fearing that their primary store of wealth – their home – is not easily accessible for emergency funds. In fact the HFCS study provides a stark metric for the financial constraints mentioned: the Net Liquid Assets-to-Income ratio. For the wealthiest quintile, liquid assets represent 131.6% of their annual income, giving them a massive buffer against shocks. In contrast, for the least wealthy households, this ratio drops to just 25.1%.  This means the bottom 20% of the population has only about three months’ worth of income held in liquid forms. For businesses, this segment is highly vulnerable to “inflationary shocks” caused by war or supply chain disruptions. Any increase in the cost of essential goods will almost immediately translate into a total cessation of discretionary spending for this group.

Moreover while the overall debt-to-asset ratio is low at 13.7%, the income-based indicators tell a more cautionary story for business strategy. The median mortgage debt-to-income ratio for the population is 194.8%. However, for the lowest wealth quintile, this surges to 308.6%. This high leverage among less wealthy households means that even small increases in living costs or a minor downturn in the labour market (which can happen during global unrest) could force these households into “survival mode.” Businesses catering to the middle and lower-wealth segments should prepare for high sensitivity to pricing and an increased demand for credit-based purchasing or instalment plans.

The HFCS provides a rare regional breakdown that Maltese businesses should use to optimize their footprint. The Western region and Gozo/Comino emerged as the wealthiest areas, with median asset values exceeding €500,000. Conversely, the Southern Harbour region reports the lowest median wealth, roughly half that of the top regions.

This means that expansion and high-end service offerings should gravitate toward the West and Gozo, where the “wealth effect” of property appreciation is most potent. Retail and essential service businesses may find more volume but lower margins in the southern harbour regions.

Overall, the 2023 HFCS paints a picture of a nation that has used the post-pandemic period to fortify its financial house. Maltese businesses are operating in a landscape where consumers are wealthier and interested in investing in renewable energy. Moreover, there is a rising shift in demographics toward a younger, professional foreign cohort that values services over ownership.

The present Iran war may threaten global supply chains, but the Maltese business that adapts – by leaning into the green transition, catering to the diverse “two-speed” consumer base, and targeting regional wealth – will find itself operating from a position of relative strength. The data shows that the Maltese household is ready to invest in its future; the question is whether Maltese businesses are ready to lead that journey, by being strategically driven and well invested in digitally based efficient processes.

The post Building resilience in an age of global unrest: Lessons from the 2023 Maltese HFCS first appeared on The Malta Business Weekly.

Compensation of Employees is the total remuneration, payable by an employer to an employee in return for work done and includes gross wages and salaries, plus the social contributions (NI) paid by employers.

Gross Operating Surplus & Mixed Income, represents the “leftover” value after labour costs and taxes are paid. It measures the return on capital and the productivity of businesses, whereby the gross operating surplus refers to the profits of business  whilst mixed income is a special term for the income of unincorporated enterprises—basically, the self-employed, small family-run shops and small farmers. It’s called “mixed” because it’s a mix of a “wage” for their labour and a “profit” for their business.

Net Taxes on Production and Imports is the portion of the economic value that goes directly to the state. It is calculated as Taxes minus Subsidies. Taxes includes VAT, excise duties on fuel/tobacco, and various licenses or permits, whilst subsidies are payments from the government to businesses to keep prices low or support specific industries.

 Annual Percentage Change by GDP Income Subcomponent (Nominal)

The development of Malta’s GDP by income between 2022 and 2025 highlights a shift from a profit-led recovery to a wage-led expansion, ending with a tax-driven normalisation in late 2025.

In 2022, compensation of Employees grew at +10.1%, whereby this growth was primarily driven by the return of the hospitality sector. As hotels and restaurants reopened fully, headcount increased significantly. Additionally, the iGaming and ICT sectors began a “war for talent,” pushing up entry-level salaries. On the other hand, Gross Operating Surplus grew by +15.2% in 2022, whereby businesses in tourism and retail saw a massive spike in demand. Crucially, many firms maintained higher price points established during the pandemic while global supply chain costs began to ease in the second half of the year, leading to record profit margins. On the other hand, in 2022, Net Taxes on Production dropped by -18.4%. This sharp decrease was not due to lower tax collection, but rather the government’s massive energy and grain subsidies. Under the income approach, subsidies are “negative taxes.” The hundreds of millions spent to freeze utility prices at 2021 levels mathematically cancelled out much of the VAT and excise revenue.

In 2023, compensation of Employees  grew by +11.2% as inflation became the primary driver here. The high Cost of Living Adjustment (COLA) and the upward revision of the minimum wage contributed to a double-digit increase in the national wage bill. Other the other hand, in 2023 Gross Operating Surplus grew at a slow pace by +9.8% as profit growth began to moderate as the “easy gains” of the 2022 post pandemic reopening faded. Rising labour costs for businesses started to squeeze the margins of small and medium enterprises (SMEs). Finally in 2023, Net Taxes on Production grew by +8.5% as the recovery in this component was seen as private consumption hit new highs. Even with energy subsidies still in place, the sheer volume of VAT collected from record-breaking tourist numbers and local spending turned this figure positive again.

In 2024, compensation of employees grew by +13.4%. This was the highest growth rate in this category for decades. It was fuelled by two factors, the Public Sector Collective Agreements through new deals for nurses, teachers, and civil servants and a continued shortage of labour in the private sector, which forced “off-cycle” pay raises. On the other hand, the Gross Operating Surplus grew by an even slower pace of +6.2% as profits continued to slow. The “wage-push” inflation meant that a larger share of the GDP “pie” was going to workers rather than business owners. On the other hand, in 2024, Net Taxes on Production grew by +12.1%  driven by the Digital Economy with the iGaming and Financial Services sectors contributed heavily to tax revenue through corporate taxes and gaming duties, while the government began a very slight tapering of certain non-essential subsidies.

In 2025, the Compensation of Employees grew by +8.4%, whereby Growth returned to a more sustainable level. However, the labour market remained very tight. Gross Operating Surplus in 2025 grew by an even slower pace of +5.8% and this could have been smaller hadn’t  business profits experience a resurgence in Q4 2025 as the “Wholesale and Retail” and “Transportation” sectors outperformed expectations during the final quarter, helping this component recover from a sluggish start to the year. On the other hand, Net Taxes on Production  in 2025 grew by +10.3% as this saw a massive jump in Q4 2025 (+€201.5 million year-on-year). This was largely a technical and fiscal shift: VAT revenue remained buoyant, but more importantly, the total value of energy subsidies decreased relative to GDP as global energy prices stabilised, causing “Net Taxes” (Taxes minus Subsidies) to shoot upward.

The three-year trend (2023–2025) where Compensation of Employees consistently outpaced Gross Operating Surplus marks a fundamental shift in the Maltese economy as we have moved from a “Profit-Led” model to a “Wage-Led” one. As businesses need to contend with fast rising wages costs, wages are fast eating into profits (Operating Surplus) meaning that Malta’s competitiveness is now under fire. To survive, firms must either innovate (productivity) or raise prices—the latter being difficult to maintain competitiveness. With unemployment at record lows,  the “balance of power” has shifted to the worker. Even as the economy “slows” to more normal levels, wage bills remains high due to the tight labour market. This is great from a social perspective, but it creates a “Margin Trap” for SMEs who cannot easily absorb these costs.

When Compensation of Employees consistently outpaces Gross Operating Surplus, it signals a “profit squeeze” that can create a challenging paradox for future economic health. In the short term, this redistribution of wealth boosts private consumption, as workers have more disposable income to spend, which props up domestic demand. However, from an investment perspective, it can be a red flag. Lower corporate margins mean businesses have less retained earnings to reinvest in new technology, infrastructure, or R&D. If this trend persists without a corresponding leap in labour productivity, Malta risks a “competitiveness trap” where the high cost of doing business deters Foreign Direct Investment (FDI) in favour of cheaper jurisdictions. For future growth to remain sustainable, the economy must transition from being “labour-intensive” to “capital-intensive,” ensuring that high wages are backed by high-value output rather than just a tight labour market.

The recent US & Israel military strikes in the Middle East act as a direct threat to this delicate balance of the mentioned three subcomponents. If Oil prices sustain a leap upwards due to a Strait of Hormuz blockade, Maltese businesses would see an immediate spike in “Intermediate Consumption” (the cost of doing business), as amongst various cost inputs shipping costs will rise. Since, such business would likely not be able pass these costs to customers instantly, their Operating Surplus (Profits) would shrink further. Moreover, higher aviation fuel prices could lead to more expensive flights to Malta and a drop in tourist arrivals effecting negatively the profits of the hospitality sector, which was the main driver of the Q4 2025 gross operating surplus. With regards, Net Taxes on Production, Malta’s “Net Taxes” by end 2025 where high because energy subsidies were tapering off. If global energy prices explode and government maintains its 100% energy subsidy policy, the net taxes could turn negative as the outlay on the energy subsidies increases.

As Malta moves toward the next general election, the above economic analysis serves as a critical warning for policymakers. While the temptation is to enact popular, worker-centric policies is high in a pre-electoral climate, the structural reality of the 2022–2025 period suggests that the “easy” growth of the past is hitting its limits. Politicians must therefore keep in mind that the compensation of employees is already consuming a larger share of GDP growth than corporate profits and further burdens on businesses could stifle the very private investment needed to modernise the economy. Moreover, policies that increase labour costs without giving enough time for businesses and the economy to benefit from the push for digital and technical upskilling risk trapping the country in a cycle of high costs and slow down value-added growth.

Ultimately, while “giving to the workforce” wins votes today, failing to protect the “surplus” that allows businesses to innovate will lead to a slower, less competitive economy tomorrow. Sustainable prosperity requires a balance where labour is fairly rewarded, but capital remains motivated and capable of reinvesting in Malta’s future.

The post The profit squeeze: The needed rebalancing act first appeared on The Malta Business Weekly.

The human cost of this endurance has been staggering. As of this month, conservative estimates indicate that combined military casualties have reached a haunting two million, with Russia alone believed to have suffered more than 1.25 million killed and wounded. On the ground, the state of play is one of brutal, high-tech attrition. The 1,200-kilometre front line remains a scene of various assaults and relentless drone warfare; while Russia has recently claimed marginal gains in the north, Ukraine has successfully pushed back in the south, recently liberating hundreds of square kilometres. Yet, neither side has found the decisive blow.

This is no longer a localised dispute. It is a systemic rupture. It has evolved into a total war on information, where algorithms are as lethal as artillery and mind manipulation has become a tool of statecraft. We have lived through four years of unprecedented geopolitical tension, where the very architecture of global stability has been set ablaze.

If these four years have taught us anything, it is that the European Union had been living in a fool’s paradise. For decades, the EU treated security as a given rather than a responsibility. Europe outsourced its warmth to Russian gas and its safety to the United States. By relying on the NATO umbrella, while simultaneously underfunding its own sovereign capabilities, Europe became a continent of consumers in a world of predators.

The reality of 2026 is uncompromising. The prolonged agony of the Ukraine-Russia war, coupled with the return of a Trump’s presidency, with its scepticism toward traditional alliances, has left the EU with its back against the wall.

The argument against increased defence-spending is well-known: the opportunity cost. Every euro spent on a tank is a euro taken from a classroom, a hospital, or a green innovation lab. Yet, as the Draghi Competitiveness Report starkly highlighted, without security, there is no prosperity. To remain competitive and sovereign, the EU has no real alternative but to integrate further.

The path forward is no longer a matter of “if”, but “how”. To remain relevant in the new geopolitical situation the EU must inevitably look at the birth of a Federalised Europe, moving forward. This would likely mean the removal of unanimity with a shift of Qualified Majority Voting (QMV) to prevent single member vetoes from paralysing the continent and common defence funding, with joint debt issuance to fund a European military industrial base, among others.

This shift toward “Pragmatic Federalism” was the centrepiece of the recent European Industry Summit in Antwerp and the subsequent leaders’ retreat this month. Heads of state from the EU’s core, led by Germany and France, met to negotiate an ambitious Competitiveness Agenda that effectively seeks to transform the EU from a confederation into a federal power. Under this new vision, the Single Market would undergo its most radical evolution since 1992. This includes the creation of a “28th Regime”, a unified legal framework allowing innovative companies to operate across all member states without navigating 27 different sets of national rules. Furthermore, it envisions a fully integrated Energy Union and a Savings and Investment Union, centralising the supervision of financial markets to ensure that European capital stays in Europe to fund European defence.

This drive toward integration is increasingly carving out the possibility of a two-tiered European Union. The recent “E6” summit comprising Germany, France, Italy, Spain, Poland, and the Netherlands, signals the formalisation of a “core” Europe that is willing to bypass the slow-moving consensus of the 27. This first tier would operate as a federal state in all but name, sharing a common defence budget and harmonised fiscal rules. The second tier, consisting of states that cannot or will not follow this pace, would essentially remain in some sort of glorified free-trade area. While this “multi-speed” model prevents the entire bloc from being held hostage by a single veto, it risks turning the EU into an “onion” of varying layers of influence, where those in the outer rings have little to no say in the strategic direction of the continent.

For Malta, the EU’s smallest member state, this federalist shift introduces a radical new dynamic. From an economic perspective, a federalised Europe offers Malta a high-stakes trade-off between stability and competitive edge. On the advantage side, the “28th Regime” and a unified Capital Markets Union would be transformative for Malta’s thriving startup and fintech sectors, allowing local firms to scale across the entire continent without the prohibitive legal costs of navigating 27 different regulatory systems. However, the disadvantages are existential. The shift toward Qualified Majority Voting (QMV) in tax matters – a cornerstone of federalisation – threatens Malta’s sovereign right to set its own corporate tax rates.

For a small, peripheral island that uses fiscal flexibility to compensate for its lack of natural resources and high transport costs, the loss of this “tax tool” could jeopardise the financial services and iGaming industries that underpin a great chunk of its current prosperity. In essence while federalisation may save the European project, for Malta, it risks trading a unique competitive niche for a more stable, yet potentially less lucrative, role as a small cog in a massive federal machine.

As we approach our own General Election, the focus remains a race of who offers the greatest immediate electoral benefits.

Meanwhile, the tectonic plates of the world are shifting beneath our feet. This developing reality leading to the birth of a Federal Europe, will surely affect us all. Yet, our political class continues to “ignore” these existential questions, preferring the safety of local squabbles over the hard truths developing around us.

The post Four years… first appeared on The Malta Business Weekly.