Last Updated on Tuesday, 31 October, 2023 at 12:55 pm by The Malta Business Weekly
In 2024, Government will be spending another €350m on energy and fuel subsidies
Government aims to keep public debt below 60% threshold
COLA for 2024 will be €12.81 per week
In the coming years, the challenges brought about by climate change, energy and inflation will continue to affect global affairs, which is now exacerbated by what is happening in the Middle East, Finance Minister, Clyde Caruana, said in the budget speech.
Experts are predicting a weak global economic increase when compared to the past. According to the International Monetary Fund, economic activity is forecast to decrease from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024.
This reflects a moderate increase in global trade. It is anticipated that advanced economies such as the US, Japan and the UK will be facing a drop in their growth because of inflation and monetary policy. In these economies, the IMF is predicting a reduction in growth from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024.
In the EU, the economy grew by 1.3% in the first quarter of 2023, while that in the Eurozone grew by 1.4%. No growth was registered in the EU in the second quarter, while in the Eurozone it peaked by just 0.2%.
In spite of all that is happening, and this also includes the war in Ukraine, Malta registered a steady economic growth, a decrease in the poverty rate, an increase in employment, a decrease in unemployment and a stronger participation in the employment sector, Caruana said. For the first time, the rate of women in employment is higher than the EU average.
In 2022, Malta’s economy grew by 6.9%, with domestic demand being the main contributing factor. This was 3.5% higher than the EU average. In the first half of this year, the Gross Domestic Product grew in real terms by 4.4%, while the nominal GDP rose by 10.3%. The rate of participation in employment rose to 78.8% in June 2023, while the number of jobs rose by 6.7% and the unemployment rate went down to 2.7%. The rate of people at risk of poverty decreased by 0.2% between 2021 and 2022.
Caruana said that the Government had given the country a strong direction. A smaller world crisis between 2008 and 2009 had led to an increase in employment to 7% and had left a stagnant Maltese economy, throwing a bigger burden on businesses and families. The difference the Labour Government has made is that it is doing all it can to reduce the load carried by families and businesses.
Caruana referred to the wage supplement and vouchers that were given to one and all during the Covid-19 at a cost of €976 million. The Government had also subsidised energy and fuel in the last two years to keep prices stable. It has also given assistance on cereals while stimulus cheques were handed out, income tax on overtime and part-time work was reduced and an additional COLA was introduced for a total of €672 million.
Next year, the Government will be spending another €350 million on energy and fuel subsidies, Caruana said. This means that the Maltese public will not see any rise in the cost of energy and fuel until the end of 2024. If the price of fuel is not subsidised, the price of diesel would be €1.91 per litre instead of €1.21. A driver who spends €20 a week would have to spend €32 if the subsidy was not given, for a total of €624 per year. The price of petrol would be €1.94 per litre instead of €1.34. A driver who spends €20 a week on petrol would be spending €468 more per year, without the subsidy.
With regards to electricity, Caruana said that on average a household with two persons spends €403 (excluding service charges and meter renting) every year. Without the subsidy, this would go up to €822. A couple with two kids spends €672 per year; without the subsidy, the cost would go up to €1,275. This is why we believe in such a measure, Caruana said, adding that this is the kind of stability that the Government is building on.
The Government will continue to invest in sectors which it believes are a priority. It is estimated that the economy in Malta would have grown by 4.1% in real terms. The main contributor to this is net exportation, Caruana said, adding that the number of jobs is expected to rise by 4.7% by the end of the year, whilst unemployment stands at 2.7%.
Inflation is set to reach 5.7% primarily because of an increase in the prices of food and services. If the Government had not subsidised energy and fuel, the inflation rate would have been much higher. Next year, Malta’s economy is set to grow by 4.2% in real terms, and 7.4% in nominal terms. Private consumption is forecast to grow at a more moderate rate, 4.5%, while investment will grow by 5.5%. This should lead to a 4.4% growth in employment, while the unemployment rate is expected to remain the same.
Next year, inflation is projected to go down to 3.7%, as the increase in the price of food and services will continue at a more moderate pace. The Cost of Living Adjustment will be €12.81 per week.
During this year, the European Commission proposed legislation to implement an extensive reform of economic governance in the EU. Malta has always sustained that a one-size-fits-all approach is not commendable, and the Commission has realised that the fiscal, challenges and economic prospects of different countries vary.
The proposals seek to move towards a surveillance platform that aims to put the sustainability of public debt at the centre, while promoting sustainable and inclusive growth. With this in mind, the 3% deficit and 60% debt will remain as the fulcrum of common safeguards.
Caruana said that countries will be allowed to benefit from an extensive period of adjustment, but this will be countered by having the public debt proportion at a lower rate at the end of the extension period. The minimal fiscal adjustment of 0.5% of GDP per year will remain as a reference point until the deficit remains higher than 3% of GDP, Caruana said.
Countries that will benefit from this extension must ensure that their fiscal arrangement is not delayed by many years. The Government will continue to give assistance in spite of EU pressure to stop such measures. This, of course, has an impact on Government finances. Having said this, discipline enabled the Government to achieve good results: the deficit was reduced from 7.8% in 2021 to 5.7% in 2022, and is expected to drop further to 5% this year and 4.5% in 2024.
The Government is committed to reduce the deficit by 0.5% per year over the next four years, so as to put Malta in conformity with EU regulations. If this happens, Malta would have been able to reach the 3% deficit goal by 2027.
Public debt will be 52.8% in 2023, and will rise to 55.3% in 2024, which is still lower than the 60% criteria. The Government is committed to keep public debt below the 60% threshold.