As NSO has recently published the Q4 2025 GDP figures, we can perform an analysis of Malta’s GDP by the income approach for the period 2022 to 2025. Under the income method, GDP is the sum of three primary subcomponents: Compensation of Employees, Gross Operating Surplus & Mixed Income, and Net Taxes on Production.
Compensation of Employees is the total remuneration, payable by an employer to an employee in return for work done and includes gross wages and salaries, plus the social contributions (NI) paid by employers.
Gross Operating Surplus & Mixed Income, represents the “leftover” value after labour costs and taxes are paid. It measures the return on capital and the productivity of businesses, whereby the gross operating surplus refers to the profits of business whilst mixed income is a special term for the income of unincorporated enterprises—basically, the self-employed, small family-run shops and small farmers. It’s called “mixed” because it’s a mix of a “wage” for their labour and a “profit” for their business.
Net Taxes on Production and Imports is the portion of the economic value that goes directly to the state. It is calculated as Taxes minus Subsidies. Taxes includes VAT, excise duties on fuel/tobacco, and various licenses or permits, whilst subsidies are payments from the government to businesses to keep prices low or support specific industries.
Annual Percentage Change by GDP Income Subcomponent (Nominal)
| Subcomponent | 2022 | 2023 | 2024 | 2025 (Full Year) |
| Compensation of Employees | +10.1% | +11.2% | +13.4% | +8.4% |
| Gross Operating Surplus | +15.2% | +9.8% | +6.2% | +5.8% |
| Net Taxes on Production | -18.4% | +8.5% | +12.1% | +10.3% |
| Total Nominal GDP | +12.6% | +10.5% | +9.4% | +7.8% |
The development of Malta’s GDP by income between 2022 and 2025 highlights a shift from a profit-led recovery to a wage-led expansion, ending with a tax-driven normalisation in late 2025.
In 2022, compensation of Employees grew at +10.1%, whereby this growth was primarily driven by the return of the hospitality sector. As hotels and restaurants reopened fully, headcount increased significantly. Additionally, the iGaming and ICT sectors began a “war for talent,” pushing up entry-level salaries. On the other hand, Gross Operating Surplus grew by +15.2% in 2022, whereby businesses in tourism and retail saw a massive spike in demand. Crucially, many firms maintained higher price points established during the pandemic while global supply chain costs began to ease in the second half of the year, leading to record profit margins. On the other hand, in 2022, Net Taxes on Production dropped by -18.4%. This sharp decrease was not due to lower tax collection, but rather the government’s massive energy and grain subsidies. Under the income approach, subsidies are “negative taxes.” The hundreds of millions spent to freeze utility prices at 2021 levels mathematically cancelled out much of the VAT and excise revenue.
In 2023, compensation of Employees grew by +11.2% as inflation became the primary driver here. The high Cost of Living Adjustment (COLA) and the upward revision of the minimum wage contributed to a double-digit increase in the national wage bill. Other the other hand, in 2023 Gross Operating Surplus grew at a slow pace by +9.8% as profit growth began to moderate as the “easy gains” of the 2022 post pandemic reopening faded. Rising labour costs for businesses started to squeeze the margins of small and medium enterprises (SMEs). Finally in 2023, Net Taxes on Production grew by +8.5% as the recovery in this component was seen as private consumption hit new highs. Even with energy subsidies still in place, the sheer volume of VAT collected from record-breaking tourist numbers and local spending turned this figure positive again.
In 2024, compensation of employees grew by +13.4%. This was the highest growth rate in this category for decades. It was fuelled by two factors, the Public Sector Collective Agreements through new deals for nurses, teachers, and civil servants and a continued shortage of labour in the private sector, which forced “off-cycle” pay raises. On the other hand, the Gross Operating Surplus grew by an even slower pace of +6.2% as profits continued to slow. The “wage-push” inflation meant that a larger share of the GDP “pie” was going to workers rather than business owners. On the other hand, in 2024, Net Taxes on Production grew by +12.1% driven by the Digital Economy with the iGaming and Financial Services sectors contributed heavily to tax revenue through corporate taxes and gaming duties, while the government began a very slight tapering of certain non-essential subsidies.
In 2025, the Compensation of Employees grew by +8.4%, whereby Growth returned to a more sustainable level. However, the labour market remained very tight. Gross Operating Surplus in 2025 grew by an even slower pace of +5.8% and this could have been smaller hadn’t business profits experience a resurgence in Q4 2025 as the “Wholesale and Retail” and “Transportation” sectors outperformed expectations during the final quarter, helping this component recover from a sluggish start to the year. On the other hand, Net Taxes on Production in 2025 grew by +10.3% as this saw a massive jump in Q4 2025 (+€201.5 million year-on-year). This was largely a technical and fiscal shift: VAT revenue remained buoyant, but more importantly, the total value of energy subsidies decreased relative to GDP as global energy prices stabilised, causing “Net Taxes” (Taxes minus Subsidies) to shoot upward.
The three-year trend (2023–2025) where Compensation of Employees consistently outpaced Gross Operating Surplus marks a fundamental shift in the Maltese economy as we have moved from a “Profit-Led” model to a “Wage-Led” one. As businesses need to contend with fast rising wages costs, wages are fast eating into profits (Operating Surplus) meaning that Malta’s competitiveness is now under fire. To survive, firms must either innovate (productivity) or raise prices—the latter being difficult to maintain competitiveness. With unemployment at record lows, the “balance of power” has shifted to the worker. Even as the economy “slows” to more normal levels, wage bills remains high due to the tight labour market. This is great from a social perspective, but it creates a “Margin Trap” for SMEs who cannot easily absorb these costs.
When Compensation of Employees consistently outpaces Gross Operating Surplus, it signals a “profit squeeze” that can create a challenging paradox for future economic health. In the short term, this redistribution of wealth boosts private consumption, as workers have more disposable income to spend, which props up domestic demand. However, from an investment perspective, it can be a red flag. Lower corporate margins mean businesses have less retained earnings to reinvest in new technology, infrastructure, or R&D. If this trend persists without a corresponding leap in labour productivity, Malta risks a “competitiveness trap” where the high cost of doing business deters Foreign Direct Investment (FDI) in favour of cheaper jurisdictions. For future growth to remain sustainable, the economy must transition from being “labour-intensive” to “capital-intensive,” ensuring that high wages are backed by high-value output rather than just a tight labour market.
The recent US & Israel military strikes in the Middle East act as a direct threat to this delicate balance of the mentioned three subcomponents. If Oil prices sustain a leap upwards due to a Strait of Hormuz blockade, Maltese businesses would see an immediate spike in “Intermediate Consumption” (the cost of doing business), as amongst various cost inputs shipping costs will rise. Since, such business would likely not be able pass these costs to customers instantly, their Operating Surplus (Profits) would shrink further. Moreover, higher aviation fuel prices could lead to more expensive flights to Malta and a drop in tourist arrivals effecting negatively the profits of the hospitality sector, which was the main driver of the Q4 2025 gross operating surplus. With regards, Net Taxes on Production, Malta’s “Net Taxes” by end 2025 where high because energy subsidies were tapering off. If global energy prices explode and government maintains its 100% energy subsidy policy, the net taxes could turn negative as the outlay on the energy subsidies increases.
As Malta moves toward the next general election, the above economic analysis serves as a critical warning for policymakers. While the temptation is to enact popular, worker-centric policies is high in a pre-electoral climate, the structural reality of the 2022–2025 period suggests that the “easy” growth of the past is hitting its limits. Politicians must therefore keep in mind that the compensation of employees is already consuming a larger share of GDP growth than corporate profits and further burdens on businesses could stifle the very private investment needed to modernise the economy. Moreover, policies that increase labour costs without giving enough time for businesses and the economy to benefit from the push for digital and technical upskilling risk trapping the country in a cycle of high costs and slow down value-added growth.
Ultimately, while “giving to the workforce” wins votes today, failing to protect the “surplus” that allows businesses to innovate will lead to a slower, less competitive economy tomorrow. Sustainable prosperity requires a balance where labour is fairly rewarded, but capital remains motivated and capable of reinvesting in Malta’s future.
