Employer bodies reject minister’s claims cheap labour growth was their choice

The Malta Employers (ME), the Chamber of Commerce and the Chamber of SMEs have rejected claims made by Finance Minister Clyde Caruana implying that the increase in population is the private sector’s fault.

Employers share the objective of a more productive Maltese economy, and that objective is exactly why the Association has consistently argued for investment, efficiency and higher-value activity rather than continued reliance on an expanding workforce.

In this context, ME contested the characterisation that Malta’s population growth is the product of employers preferring cheap imported labour to capital investment. That is not what employers have been saying and it is not what the evidence shows.

Malta’s own figures bear this out. Gross value added per worker grew by just 1.4 per cent in 2025, against employment growth of 3.9 per cent, while GDP per capita rose by only 1.6 per cent. The economy added people, added output, and delivered almost nothing per individual. The Association has said plainly that this model has reached its production possibility limit. Employers are not the obstacle to capital investment, they are the ones asking for it, the association said.

However, labour is not always interchangeable with capital. In sectors such as tourism, care, transport and construction, capital complements workers rather than replacing them. No machine waits tables, drives a delivery round, lays tiles or provides personal care. And Maltese workers are no longer seeking many of these roles: where technology offers no assistance such as waiters, drivers, builders, tilers, shop attendants, carers, cleaners, and the list continues, there is no domestic queue to draw from and no alternative source. The shortage is sharpest in qualified trades where essential trades are disappearing and the gap is being filled from abroad. Employers are not choosing cheap labour over expensive machinery; they are filling posts that must be filled.

Government’s own choices deepen the shortage.

The national strategy to generate growth through an unprecedented increase in population and construction was never agreed to, nor discussed, with the social partners. Government acted unilaterally and it cannot point fingers towards employers because of its consequences.

In addition, public sector employment has risen, partly to service a larger population and more so through recruitment that drains the private sector of people it cannot replace, competition for the same workers, but on unequal terms.

Successive new leave entitlements, introduced without any assessment of labour supply, mean absent workers must be replaced by others who cannot be found. Productive time lost in the ever-increasing traffic compounds the same loss. Each is a policy decision.

Malta Employers said it has repeatedly set out what it believes is needed: a decisive shift from a growth model based on population expansion, imported labour and domestic consumption towards one driven by export competitiveness, productivity and higher value added. We have called for incentives that reward capital investment, technology and automation, the upfront costs and uncertainty of which deter smaller enterprises from taking the first step. We have argued that Malta cannot indefinitely absorb the strain of a rapidly growing foreign population. We have asked for fair competition and for a national effort against tax evasion and money laundering, which would itself generate revenue for government to invest.

Malta Employers said it does not accept that the workforce model Malta now has was chosen by employers. It was arrived at, over years, in the absence of the capital incentives, skills pipeline and infrastructure that would have made the alternative viable. We will continue to engage constructively as social partners. A serious national conversation about productivity is one worth having, and it should rest on an accurate reading of the workforce model we now have and of who is responsible for it.

In a separate statement, The Malta Chamber of Commerce said it shared Minister Clyde Caruana’s concern that population growth is placing unnecessary and unsustainable pressure on Malta’s infrastructure and quality of life, but begs to differ on the Minister’s claim that the private sector prefers low-cost third-country nationals (TCNs) to capital investment.

It misdiagnoses the root cause of Malta’s economic bottlenecks. The Finance Minister is well aware of how the current labour market framework was built – it was a PL administration that pushed for economic growth based on foreign labour, the chamber said. Businesses are currently operating within a regulatory and administrative environment that was designed for volume-driven growth, and that model has not been reversed in any way, even though there have been multiple calls over the years to move from quantity to quality and more value-added. It is neither fair nor accurate to place the full burden on employers now that physical and infrastructural limits are being reached.

Furthermore, recruiting TCNs is also far from a cheap or easy option for employers, as it comes at a steep cost in terms of HR administration and time.

Over the last decade, Malta’s Gross Value Added grew by 81.9%. Of that growth, 68.9% came purely from expanding the labour force. Shifts towards higher value-added sectors contributed only 9.9%, and actual productivity gains, meaning output per worker, accounted for a mere 3.1%. This volume-driven model was encouraged by state policy, and it is unrealistic to expect private enterprises to single-handedly undo a decade of state-backed workforce expansion, even more so when one takes into consideration that Government has repeatedly ignored implementing proposals which would help improve productivity.

Through the Malta Vision 2050, Government itself acknowledged the imperative to pivot away from labour-driven growth towards higher productivity. We must now ensure that its outlined KPIs are rigorously tracked and achieved, rather than merely remaining aspirational talking points.

If the government had truly been pushing in a different direction, we would have seen a decisive increase in capital and targeted expenditure to avoid the recurring electricity disruptions, to address the traffic gridlock, to address the disruptions brought about by abusive planning and construction, to support effective digitalisation across the public sector and private industry, and to support reskilling and upskilling. We have not seen any of this, the chamber said.

In its statement, the Malta Chamber of SMEs said it is concerned by comments made by Minister Clyde Caruana, attributing Malta’s productivity challenges primarily to employers choosing cheaper labour over capital investment. While businesses undoubtedly have a responsibility to invest, innovate and improve efficiency, it is unfair and overly simplistic to place the burden of Malta’s productivity challenge predominantly on employers. Productivity is also heavily influenced by the environment in which businesses are expected to operate.

As highlighted in the Malta Chamber of SMEs’ Budget Proposals 2027, improving productivity requires more than investment in technology. It also depends on efficient regulation, accessible skills, effective workforce management and public services that support businesses rather than burden them. The proposals specifically identify traffic, skills mismatch, unfair competition and over-regulation as factors contributing to lower productivity. Every hour spent dealing with duplicated paperwork, unnecessary administrative procedures, regulatory delays or a lack of coordination between public entities is an hour taken away from productive business activity.

Rather than merely pointing towards the problem, the Malta Chamber of SMEs said it has put forward a comprehensive set of proposals for Budget 2027 aimed specifically at improving productivity. These include a Mandatory SME Test for new laws, regulations and major administrative procedures, a Regulatory Stocktake, implementation of the Once-Only Principle so that businesses are not repeatedly asked for the same information by different public authorities and a Productivity Tech Kit to help micro and small businesses adopt digital tools and more efficient systems.

The SME Chamber has also proposed measures to encourage productive investment and reinvestment, together with policies aimed at fair competition, improved enforcement, energy efficiency, transport and mobility. The overall objective is to create the conditions that allow businesses to invest, innovate and grow sustainably.

The SME Chamber said it has also proposed the establishment of a cross-party taskforce on Malta’s long-term priorities to identify the country’s main challenges, agree on a common way forward and provide greater continuity on reforms extending beyond a single electoral term. This is the type of mature and coordinated approach that Malta’s productivity challenge requires. Businesses must play their part, but productivity is a shared national responsibility. If we genuinely want to invest more in technology, automation and capital, we must also remove the regulatory, administrative and infrastructural obstacles that consume productive time and discourage investment, the statement said.