Last Updated on Thursday, 31 October, 2024 at 9:16 am by Andre Camilleri
All in all, Budget 2025 is very much in line with what has been dished out in previous budgets. The government continues to drive economic growth, with real GDP growth projected to reach 4.9% by the end of 2024 and 4.3% in 2025, supported primarily by strong domestic demand (consumption) as the main contributor to this growth. Obviously, the cut in tax rates and increases given in various allowances and assistance are all geared to sustain such domestic demand.
On the other hand, the government forecasts that it will keep running huge budget deficits, with a deficit of around €850m in 2025 and deficits of around €700m annually in 2026 and 2027. The government still forecasts that it will hit the infamous 3% ratio of annual deficit to GDP in 2026 as it forecasts that Malta’s economy will grow from a GDP level of €22bn in 2024 to €25.5bn in 2026 and then surpassing €27bn in 2027. This also means that the government is forecasting that public debt will hit €13.4bn by 2027, but the ratio of public debt to GDP will still remain hovering around the 50% mark due to the GDP growth I mentioned earlier.
One can say that in effect, the announced budgetary changes that will come into effect next year, as outlined in the budget speech, will result in no real changes with regards to our economic growth model. However, there are indications of work on this front that go beyond the strict confines of an annual budget.
One of these is the policy for economic migration that the government is saying that will be published by year end. The government is also clearly stating that it will consult on this but ultimately it will decide the way forward and is ready to take difficult decisions on this front. One word of advice from my end. While I fully understand the issue of overpopulation and that Malta cannot keep getting some 20,000 additional workers per year indefinitely, we must move towards a more sustainable level without creating heavy shocks. To be able to do more with less, heavy investment in digitalisation is needed. Hence it would be wise for the government to balance any restrictive economic migration policy with sensible and attractive incentives for businesses to invest heavily in digitalisation. Otherwise, we could end up in a situation where labour shortages would result in having internally-generated inflation.
On one hand, tax cuts and incentives are boosting consumption, while on the other, there is likely to be a shortage of human resources to meet this increased demand. Another case is the Malta Vision 2050. This column has already expressed its views on this matter. Such a vision requires everyone’s input but as a country we must make sure that beyond a vision we also roll out a strict strategic implementation plan with key milestones to be achieved and by when. We often hear about targets set for 2035, but to ensure a truly effective strategic implementation, we need key milestones to be reached well before then. These early benchmarks will allow us to regularly assess our progress and confirm that we are consistently aligning with the vision at every stage along the way.
This budget also does not shed much light about the international taxation situation. As per recent investors’ attractiveness survey, the top no. 1 reason that makes Malta attractive is tax. With this in mind, there is a lot at stake here. In this budget, the government mentions that negotiations are ongoing with the EU Commission with regards grants and tax credits that Malta would like to introduce as part of the 15% tax system.
In conclusion, what is of value in making sure that Malta’s economic growth is sustainable is well beyond the strict confines of the 2025 Budget. Much remains to be seen if Malta’s political class really has the courage and determination to drive changes and make tough decisions that promote economic growth without compromising our quality of life.
