Malta’s economic transition continues with Budget 2027

On Tuesday, I delivered a speech in Parliament on the Maltese economy, outlining the background and context of our economic history and the fundamental challenge of job creation and labour shortages. Yes, after a decade of strong economic expansion, low unemployment, and consistent private investment, today, the issue for policymakers is quite different.

The debate is no longer simply about creating jobs and expanding sectors. It is about where Malta wants to go as it enters the next phase of its economic development. The question is no longer whether the economy can continue to grow. That’s given. Now the question is how that growth will be generated and sustained in the years ahead.

From labour shortages to additional high-value growth

Over recent years, Malta has achieved unprecedented economic success. The country has registered strong economic growth, maintained one of the lowest unemployment rates in Europe, attracted substantial foreign and private investment, and enabled thousands to enter the labour market, including women and foreigners. Certainly, reforms such as free childcare helped increase workforce participation, particularly among women, while preserving their economic independence. However, what irks me most is that the opposition often argues economic growth was driven primarily by the arrival of foreign workers. However, such non-factual arguments ignore a simple economic reality. People migrate towards employment opportunities. Employment opportunities do not arise merely because people migrate. Indeed, Malta’s history provides a powerful reminder of this economic principle.

In the years before and after Independence, the country’s greatest challenge was the inability to create employment. I reminded parliament that reports from the colonial period reflected widespread pessimism about Malta’s economic prospects, even suggesting emigration would need to increase because the economy could not generate enough employment. Professor Lino Briguglio cites the 1964 Stolper Report, which described an atmosphere of pessimism and argued Malta’s economic absorptive capacity had reached its limits. They even suggested a decrease in income. This explains why so many Maltese emigrated at the time. I do not think they left their homeland because the archpriest recommended them to leave for a better life, amid a socio-religious crisis caused by the archbishop’s interdiction against PL supporters. Well, they left because employment opportunities were limited in Malta and prospects elsewhere were more attractive.

Today, sixty years later, Malta faces an entirely different challenge. The issue is no longer how to create jobs but how to increase growth in more productive sectors and reduce the population growth rate, though for different reasons. It means economic policy must evolve. The measures and priorities that served Malta well during the rapid economic growth that began after 2013, when the PL took office, now need to be reviewed as the country moves towards a more mature economic model.

Why we must focus on technology and high-value-added investment

Several traditional sectors of the Maltese economy have been successful. Investors took risks, committed capital and grew their businesses alongside the country’s expansion. To sustain this growth, Malta relied on additional workers across sectors including healthcare, tourism, accommodation, agriculture and construction. However, Malta today faces finite resources. The country’s territory is limited. Infrastructure, despite significant recent investment, also has capacity constraints. Major infrastructure investments since 2017 have recognised this reality. Significant resources have been allocated to roads, public services, electricity distribution, and other national projects. These investments were necessary because policymakers understood that infrastructure inherited from previous decades would not support future growth. Nevertheless, even substantial investment has limits.

Tourism has grown significantly relative to public services, and additional population growth pressures have further intensified demand on services. While these pressures have occasionally created challenges, they should be viewed within the broader context of Malta’s economic success rather than as evidence of failure. This is why the current discussion around economic policy places increasing emphasis on high value-added sectors. The key question today is not how much the economy will grow. The more important question is how it will grow.

The estimates presented by the Ministry clearly point to the need to enhance an economy driven by high-value-added activities, advanced technologies, capital investment, and innovation. The Ministry’s allocation for 2027 is approximately €163 million, with around €97 million for capital expenditure. This is significant because capital investment helps businesses modernise operations, adopt new technologies, automate processes and improve efficiency. Productivity growth happens when workers generate more value through better tools, sophisticated systems and efficient processes. Automation and digitalisation are not ends in themselves. They are tools that enable workers and enterprises to produce greater economic value.

The Budget’s economic message is clear. Malta must continue to attract investment but also transform how economic growth is generated. Future growth cannot rely only on expanding labour inputs. It must increasingly depend on higher productivity and stronger value creation.

Innovation, Human Capital and the Economy

This transition does not imply that foreign workers are no longer needed. On the contrary, they have made a significant contribution to Malta’s economic success and will continue to play a key role in the country’s future. Demographic realities cannot be ignored. Malta’s birth rate has declined, people are living longer, and the population is ageing. These trends naturally imply a continued need for foreign workers in various sectors of the economy.

At the same time, Malta’s future competitiveness will increasingly depend on sectors that compete through knowledge, innovation and specialisation rather than through labour costs alone. These include digital services, advanced manufacturing, specialised financial services, gaming, artificial intelligence and other emerging technologies. Such industries compete on talent, quality, creativity and efficiency. Strengthening these capabilities should therefore be viewed as an investment in Malta’s long-term prosperity and resilience. Yet technology alone cannot deliver this transformation.

People, not machines, ultimately create productivity. Technology provides tools that enable people to work more effectively. This distinction is crucial. Economic history shows that technological advancement does not automatically solve structural challenges. The Jevons Paradox reminds us that greater efficiency can sometimes increase overall resource consumption. For this reason, investment in technology must always be accompanied by investment in people. I have already mentioned this in the context of traffic and the Jevons Paradox.

The estimates that we discussed reflect an economic vision centred on transformation rather than simple expansion. The objective is not merely to spend more or grow faster. The objective is to build an economy characterised by higher value added, stronger innovation, greater sustainability and a higher quality of life for Maltese and Gozitan families.

That is the economic transition Malta must now embrace. We must move from an economy driven primarily by employment expansion towards one increasingly powered by efficiency, innovation and investment. Such a transition is not only necessary. It is essential if Malta is to maintain its competitiveness, resilience and prosperity in the decades ahead.