‘Malta’s economy outpaces EU,’ Finance Minister says as pre-Budget 2026 consultation launched

Finance Minister Clyde Caruana has launched the government’s pre-Budget consultation document for 2026, speaking in a tone of pride on Malta’s economic resilience while cautioning that the country faces long-term challenges ranging from demographics to skills gaps.

Speaking at a press conference on Friday morning, Caruana said that the upcoming Budget will again be “a responsible one, fiscally sound, pro-growth, and family-focused,” adding that Malta continues to outperform much of Europe in terms of growth, employment, and fiscal discipline.

“This is not a coincidence but the fruit of the decisions we took in the past, and those we continue to take today,” Caruana said.

Caruana opened with a comparison between Malta’s economy and those of Europe’s largest states. While ‘giant’ countries such as Germany, France and the UK are struggling with negligible or stagnant growth, Malta has consistently expanded at a much faster pace.

Malta’s economy set to grow three times faster than EU

Caruana said that the global economy remains susceptible to external shocks, citing the effects of two ongoing wars, tariff disputes, and trade tensions. Yet Malta is expected to remain on a steady growth path.

In 2024, Malta’s real economic growth hit 6.8%, compared to just 1.1% in the EU and 0.9% in the euro area. For 2025, growth is projected at 4%, three times higher than the EU average, that of 1.5% in the EU.

Caruana attributed this success to earlier decisions, especially the controversial energy subsidies introduced during the war in Ukraine.

He defended the energy subsidies, which he described as crucial to shielding households and businesses from global shocks.

“When the wars broke out, I said our energy policy would not be a sprint but a marathon. If we hadn’t acted as we did, Malta’s story today would be very different, as it is in other countries” he said.

Employment was also described as the cornerstone of Malta’s economic success, Caruana said.

Over the past decade, the country has undergone what Caruana called “a large transformation, a quiet one, one of success”, moving from among the lowest to the highest employment rates in the EU.

The overall participation rate rose from 80.7% in 2023 to 82.1% in 2024, placing Malta 6.8 percentage points above the EU and euro area averages.

By the first quarter of 2025, Malta’s employment rate reached 84.1%, compared with 75.8% in the EU.

Caruana said that unemployment stood at just 2.5% in June 2025, the lowest in the EU, compared with 5.7% in the EU and 6% in the euro area.

“For the first time, Malta has the lowest number of people on social benefits and the highest employment in the EU. This is why, year after year, I can say we don’t need to increase taxes or add new ones,” Caruana said.

Inflation, which spiked across Europe in recent years, has cooled considerably, he said, adding that Malta’s rate stood at 2.5% in 2024, nearly identical to the EU average, and is projected to drop further to 2% in 2026. In 2025, inflation rates stood at 2.3%.

Caruana argued that this reflects government intervention and subsidies, though he acknowledged that social partners are calling for revisions to the cost-of-living adjustment (COLA) mechanism to better protect the most vulnerable.

Revenue collection and tax policy

Caruana said that government revenue rose by €1.2 billion, or 20%, in the past year. This came from across all tax components: customs and excise duties, licences, taxes and fines, income tax, VAT, and social security contributions.

Caruana pledged tougher enforcement, saying that 10 years ago, government pledged for no more abuse of social benefits.

“With the same firmness I say today: the time when one does not pay taxes must end,” Caruana said.

He said that the government has invested in IT systems for tax administration, allowing businesses to receive VAT refunds within a month, while also improving compliance.

Caruana said the IMF and European Commission have recognised Malta’s progress, noting that revenue growth has outpaced GDP growth.

Still, he warned against unrealistic calls for corporate tax cuts. He said that currently, 72% of companies do not pay tax, and half of those that do are foreign-owned.

“It would cost €100 million to reduce the corporate tax rate from 35% to 25%. Be careful what you wish for, you would not necessarily get what you expect,” he cautioned to several business moguls at the conference.

Caruana said that while expenditure has continued to increase, it grew at a slower pace than the revenue collected, helping reduce the deficit. He said that much of the recurrent increases came from collective agreements for workers in various public sectors.

Caruana said that in 2002, Malta spent almost 8% of GDP on these food and energy, but by 2025 that figure has dropped to 0.8%, despite the government spending around €200 million annually on energy subsidies. The forecast for 2026 is 0.7% of GDP.

“For many businesses, those €200 million a year are the difference between staying open or closing. 20 years ago, Malta had the highest energy rates in Europe, now they are the lowest, not by a slight margin, but by a lot,” Caruana said.

Deficit and debt reduction

Caruana said that Malta’s deficit shrank from 4.6% in 2023 to 3.6% in 2024 and is projected to fall below the 3% threshold in 2026 – two years earlier than required under the Excessive Deficit Procedure the country is currently in.

“The EU gave Malta four years to bring its deficit below 3%, but it will be achieved in just two years. Our message to the European Commission is clear: what we are doing is sustainable. I am certain we will reach under 3%,” he said.

Caruana insisted on a gradual, sustainable correction on the disbalance, rather than sudden austerity.

On debt, Caruana said that Malta remains below the EU’s 60% threshold, with a 48.1% debt-to-GDP ratio in 2024, falling to 47.2% in 2025. This compares to 81.8% in the EU and 88% in the euro area.

Caruana said his aim is to lower debt closer to 40%, leaving future governments enough flexibility to respond to global crises.

“This next Budget does not leave room for many interpretations, aside from a country which made a number of decisions in the past, which led to current results, putting us on a strong foundation for tomorrow.

“Despite challenges in several sectors, this budget will continue to ensure citizens’ well-being grows year after year, while strengthening the country’s foundations in Europe,” he said.

“The next Budget needs to be another responsible one, a Budget that will continue helping families, employers, and another Budget which will continue strengthening the country’s foundation and citizens’ wellbeing year after year,” Caruana said.

In the Q&A session at the conference, Caruana addressed concerns on wages, demographics and education.

He was asked about reducing the 40-hour work week, to which he said that time has value, and a work-life balance is needed.

Caruana said that some measures were introduced in certain sectors, but they have not penetrated the whole labour market, and it is something that needs to be pushed further.

Birth rate warning

Caruana also sounded the alarm on Malta’s declining birth rate, with statistics showing that more than 60% of Maltese families have only one child.

“If there is something unsustainable, it is this. The time will come when elections will no longer even be interesting, because the Maltese population will be too small,” he warned.

He stressed that while the effects may only be felt decades from now, action is needed immediately to address Malta’s declining birth rate. Caruana appealed to all politicians to start discussing this matter more openly.

Caruana also spoke about the low minimum wage in Malta, to which he said that the country is behind on the awareness of the importance of investment in education.

He said that Maltese students typically spend 13 years in education, compared with 18 years in Nordic countries.

“Why do the Dutch work the same hours we do yet earn more than double? Because they invested heavily in their skills and education. For Malta to remain sustainable, government does its part, but citizens must do theirs,” Caruana said.

He said that households with higher skills and incomes tend to have more children, adding that there is the need for continuous investment in education and training.

Caruana also noted a drastic decrease in foreign workers through the Labour Migration Policy, but also said that many Maltese are leaving the country, and do not return.

He said that each budget the government has prepared has aimed to balance short-term support with long-term sustainability.

Reflecting on the upcoming 2026 budget, he said it must consolidate past achievements while addressing the challenges that lie ahead.

“Every budget we have prepared has tried to help the country in both the short and long term. We still have challenges ahead, and the next budget must ensure that what we have achieved is preserved. What we want to do cannot happen if we ignore the reality outside our borders,” Caruana said.

The Minister warned that global and European realities are evolving rapidly, and failing to acknowledge these changes would be “like missing the elephant in the room.”

“The Europe we entered 20 years ago is not the Europe of today, nor will it be the Europe of tomorrow. Understanding these changes gives us a sense of urgency, and we are not strangers to it,” he added.

“We need a budget that addresses challenges in our country and ensures we are better equipped than the rest of Europe to tackle inflation, while also safeguarding the welfare of our people,” he said.

He cited Denmark as an example, where a socialist government has gradually reduced social aid in order to prioritise defence spending, highlighting the trade-offs governments elsewhere are making in response to global pressures.

Answering questions by The Malta Independent, Caruana said that the Cost-Of-Living-Adjustment (COLA) will be announced in the days closer to the Budget, and said that the exact Budget date will be announced by the Prime Minister during this weekend.