Malta’s fiscal tightrope

On 27 March the NSO published the final 12-month snapshot of Malta’s public finances for 2025. In 2025, the Government’s Consolidated Fund registered a deficit of €823.9 million, a significant increase from the €432.7 million deficit recorded in 2024. This widening of the deficit by €391.2 million was primarily driven by expenditure growth outstripping revenue gains

I believe it is useful to understand how Malta’s public finance progressed in the last six years, from the last year before Covid in which we had a surplus, that is 2019, all the way to 2025.

The government’s revenue grew by roughly €3.18 billion over these six years. The engine of this growth has shifted from corporate tax in the early years to Social Security and VAT in the later years.

Year-on-Year Government Revenue (Millions of €)

Category	2019	2020	2021	2022	2023	2024	2025
Income Tax	1,787	1,612	2,125	2,341	2,628	3,457	3,406
VAT	944	758	1,003	1,189	1,321	1,489	1,578
Social Security	1,010	985	1,124	1,256	1,392	1,536	1,684
Grants	224	212	235	218	412	265	168
Other Revenue	924	829	902	841	1,276	1,112	1,236
Total Revenue	4,889	4,396	5,389	5,845	7,029	7,860	8,072

As can be seen above, Government Revenue plummeted in 2020 due to the pandemic. The 2021 surge was not just recovery, but the start of a massive increase in Income Tax receipts from the financial and gaming sectors. Then in the 2023-2024 period VAT and Income Tax jumped significantly. As wages rose and prices for goods increased, the government’s “cut” grew proportionally.

Now in 2025, for the first time, Income Tax actually dipped (-€51m) while Social Security (+€148m) became the primary growth government revenue driver, likely indicating that while corporate profits may have stabilised (or possibly dipped), the labour market (employment volume) remained strong.

On the other hand, Government Expenditure has scaled more aggressively, rising from €4.88 billion to €8.90 billion. The primary culprit is Programmes and Initiatives, which now consumes nearly half of the entire budget. The Programme & Initiatives expenditure category acts as a “catch-all” for the government’s direct spending on social services, subsidies, and national obligations that are not related to civil service wages or the day-to-day running of a specific department.

Year-on-Year Government Expenditure Shifts (Millions of €)

Category	2019	2020	2021	2022	2023	2024	2025
Personal Emoluments	948	1,032	1,102	1,154	1,241	1,385	1,534
Prog. & Initiatives	2,231	3,015	3,421	3,512	4,215	4,448	4,685
Contrib. to Entities	534	602	645	682	805	967	1,139
Interest on Debt	192	181	185	174	214	261	297
Capital Spending	815	875	1,112	1,023	1,120	1,141	1,114
Total Expenditure	4,879	5,865	6,634	6,747	7,837	8,292	8,896

As can be seen above between 2022 to 2025, the Programmes and Initiatives category exploded. This includes the energy and fuel subsidies and social benefit increases. Personal Emoluments (civil service wages) grew by 62% since 2019. In 2025 alone, this rose by €149m due to new collective agreements across health and education. While Interest payments stayed flat or fell until 2022, but as debt crossed the €10 billion mark in a higher-interest environment, the cost to simply service that debt (interest) has jumped 70% in just three years (2022 to 2025). In 2019, the government spent roughly €13.4 million per day. By 2025, that figure rose to €24.4 million per day.

The government finance 2025 data released on 27 March shows a worrying trend as total overall government revenue growth is slowing (+2.7%) while Expenditure growth is accelerating (+7.3%), as Income tax revenue has not grown in 2025. In 2025 government revenue has grown almost entirely dependent on Social Security contributions from a growing workforce and VAT.

Now some analysis of the sustainability of Malta’s public finances, in 2025 and in the near future, considering the present geopolitical scenario.

Malta’s economic reporting is characterised by significant GDP upward revisions as initial quarterly estimates are replaced by more comprehensive annual data. For 2023, the nominal GDP was initially reported at approximately €19.37 billion, only to be revised upward by 6.6% to a final figure of €20.65 billion. A similar pattern emerged for 2024, where the first provisional estimate of roughly €21.5 billion was eventually adjusted to €23.10 billion, representing a 7.4% increase.

As of the March data release, the provisional GDP for 2025 is estimated at €24.53 billion. If we apply the average revision rate from the previous two years (approximately 7%), the final GDP for 2025 is likely to be revised toward €26.25 billion by the time the final accounts are settled. Based on the NSO’s reported Consolidated Fund deficit of €823.9 million, this adjusted economic denominator would result in an annual deficit of 3.14% of GDP. This figure is particularly significant as it brings Malta remarkably close to the 3% threshold mandated by the EU’s Stability and Growth Pact, suggesting that while the absolute deficit increased in 2025, the sheer scale of economic expansion continues to provide a crucial buffer for national fiscal sustainability.

Looking forward, one has to consider that it is very likely that government expenditure would have to increase further in 2026, as it will have to pay higher fuel and energy subsidies as international oil and gas prices have soared due to the Iran war. In the meantime, if Malta has the predicted real economic growth rate of 3.8% in 2026 plus an inflation of 3.5% the nominal GDP for 2026 would be approximately €28 billion. If we were to assume that Malta would hit a higher deficit level of around €1 billion in 2026 (mainly due to increased fuel and energy subsidies), we would hit a deficit to GDP ratio of 3.5%-3.6%, which would delay our trajectory from hitting the 3% level.

Malta’s fiscal narrative between 2019 and 2025 reveals a sophisticated paradox: a government whose daily spending has nearly doubled – from €13.4 million to €24.4 million – yet remains anchored by an economy that consistently outpaces its own preliminary growth estimates. The transition from 2019 to 2025 highlights a shift toward a high-spending, subsidy-heavy model. However, the 2025 data signals a structural pivot that warrants caution. For the first time in this period, Income Tax revenue has dipped, leaving the state increasingly dependent on VAT and Social Security contributions from an expanding workforce to fund its obligations.

With Programmes and Initiatives now consuming nearly half the budget and debt-servicing costs jumping 70% in three years, the margin for error has narrowed. Looking ahead to 2026, rising geopolitical energy costs are expected to strain Malta’s fiscal sustainability, making it increasingly dependent on maintaining strong real growth (projected at 3.8%) to keep pace with mounting expenditure.

The 2026 fiscal outlook suggests that Malta is entering a high-stakes race between economic expansion and exogenous shocks. While a projected €28 billion nominal GDP provides a formidable defence, any further escalation in geopolitical energy costs could push the deficit toward €1 billion, potentially stalling the nation’s trajectory toward fiscal consolidation.