Malta is set to maintain a long-term economic growth trend of 4%, Finance Minister Clyde Caruana said during the launch of the public consultation for the government pre-budget document for 2024 on Wednesday.
He said that for 2023, the growth rate stands at 3.9% whereas for the next year it is expected to go up to 4.4%.
The minister said that in comparison to other big countries such as Germany, where the economy is expected to grow by just 1.5% for next year, Malta’s growth rate has been possible thanks to many factors such as the ongoing subsidies on energy and fuel prices, which are currently serving as a cushion for inflation.
Commenting on this, he said that these government subsidies should not be taken for granted, as if “the government were to decide to remove them”, everyone would feel its repercussions, especially on electricity bills.
On the same theme, Caruana also said that the fuel costs are still very high and if the government were to remove the current subsidy “there are going to be ramifications.”
“If we decided to stop the subsidy, you would see the price at the petrol pump go up by 45 cents immediately”.
He said that to cover the high spikes in prices of fuel and energy, the country has spent a total 1.5% of its total gross domestic product for this year. For 2024 it is planning to spend a total of 1.7% of the GDP which amounts to an estimated €100 million.
However, commenting in general he said that these government initiatives cannot be “normalised.”
He said that in 2022, the increase in expenditure reflected the government subsidies on energy, food and Covid-19 support measures, which altogether amounted to 7.2% of the total expenditure for the year.
However he added that now the country needs to change “its attitude with substantial effort”, to combat these “consequences brought by the Ukraine war.”
The minister said that keeping this number is dependent on the employment sector as “it is the motor of it all.”
He said that currently Malta is in third place on a European level when it comes to employment rates.
Presented figures show that the labour market participation rate increased to 80% in 2022, which even surpassed the average European rates.
Commenting on the country’s deficit, Caruana said that despite the several government subsidies, Malta’s deficit percentage decreased from its 2021 7.8% to 5.8% in 2022.
For the upcoming year, Caruana said that in order to adhere with EU fiscal targets, the country is planning to decrease its deficit to 4.5%.
Despite this deficit target the minister said that it the government with its “prudent spending” needs to ascertain that when another economic ‘attack’ hits the country it is “financially stable enough to meet it.”
On debt, Caruana said that nearly all European member states registered a decrease in debt gross domestic output (GDO) ratio over previous years. However, when it comes to European average Malta has managed to keep its percentage ration below the average 60% standing at 53.2% for 2023. Despite this this number is expected to increase by a little over 1% (to 54.5%) for the upcoming year.
Also present for the launch were several stakeholders who raised several other questions especially concerning the cost-of-living adjustment measures for the upcoming budget.
In its pre-budget document, on Tuesday the Chamber of Commerce proposed for there to be no tax on the COLA adjustment.
When asked about this, the minister said that if he were not a politician he would immediately say yes, however “as a politician I have responsibilities and the 4.5% deficit target needs to be reached,” whilst also not excluding it as a possibility as the budget document is still not ready.
Moreover, the minister also confirmed that the upcoming COLA increase will be higher than last year’s, which stood at €9.90. He also warned that the increase is to be paid in full by the employer and that “if any proposal reaches my desk for government to absorb part of this increase it will simply join other papers in the in-tray and remain there.”
Although revealing almost nothing from the upcoming budget document, Caruana said the upcoming budget had to be also taken on a more ‘global’ note.
“The perspective along the years started taking a new facade and from this year continuing on last year, it is going to change because it is not just about changing the money,” he said.
“Microeconomic matters and politics have changed the scene a lot, and as a Minister for Finance I have been focusing along the last few weeks on how this country is going to position itself when compared to other countries on several themes,” he continued.
In giving a wider explanation, he said that the European Union is planning to increase its member states, “ending up with more than 30 member states, by the end of the decade” with a focus on the green economy and energy.
As an example for how rapidly things are changing, Caruana said that unlike previous years, where agreement between members on EU negotiations took several years, “this year in a few months we managed to agree on the new rules governing the fiscal sector.”
“We have to start thinking that the Budget is not only going to affect just us, but we need to prepare it for the upcoming challenges,” he said.