Social to the core

Malta's 2025 Budget brings a distinctly pro-social redistribution socialist approach, designed to increase disposable income and boost consumption through a combination of tax cuts and targeted social handouts.

This budget prioritises redistribution, with particular attention given to vulnerable groups, signalling a commitment to immediate socio-economic support. However, there was not enough focus on addressing long-term challenges such as productivity which are crucial for economic resilience and competitiveness. 

The budget’s core focus is on economic stabilisation and supporting domestic demand. Tax cuts and social benefits form a significant part of the fiscal approach, with notable attention to specific cohorts such as low-income families and pensioners. The announced tax cuts will inflate disposable income by €140 million which will further support and already buoyant consumption. While these measures offer essential relief, they need to be accompanied by structural improvements to Malta’s productivity and economic fabric. 

Social handouts, though necessary, are not sufficient to address the systemic challenges the economy faces in a competitive global landscape. An over-reliance on short-term consumption-driven growth needs to be accompanied by parallel efforts to strengthen Malta’s productivity and capacity for inclusive, sustainable growth. 

Productivity remains a key pillar for economic resilience, providing the foundation for high-quality, well-paying jobs and enabling funding for public services. Yet, this budget is light on measures to tackle Malta’s declining productivity rates. Unlocking productivity potential is essential for a sustainable economy. While there are schemes and incentives mentioned, they lack a dedicated focus on enhancing productivity. One hopes that Vision 2050 will be the needed anchor for future policies, strategies and budgets. 

The budget introduces initiatives in educational infrastructure, teacher packages and increases in stipends. While commendable, the educational strategy requires a stronger focus on outcomes, particularly addressing early school leavers and aligning curriculums with industry needs. Infrastructure improvements alone will not suffice to prepare Malta’s future workforce for a rapidly evolving economy. 

In the coming years, a strategic shift is needed in Malta’s education system to prioritise skill development that aligns with both national and global economic demands. STEM investments should be matched by efforts to reform curricula, emphasise critical thinking, and prepare students for real-world challenges. Building a resilient and attractive economy hinge on future-proofing Malta’s educational approach to create a workforce that can sustain economic growth and adapt to global shifts. 

The budget’s allocation for healthcare largely centres around infrastructural improvements, continuing a pattern of investments in acute care rather than preventive measures. Prevention-based healthcare is essential for improving the overall well-being of the population and reducing long-term healthcare costs. Countries that have successfully transitioned toward preventive healthcare frameworks have observed enhanced health outcomes, cost reductions, and improved public satisfaction. 

In this regard, I would like to see the budgetary process embrace more fully the concept of impact assessments and performance-based budgeting. By linking funding to programme performance, performance-based budgeting aims to improve the effectiveness and efficiency of public function implementation by allocating more funds to programmes that work and less funds to those that do not.

This approach also delivers a higher quality of public services, a reduction of general government expenditure and staff costs, and more flexible and less bureaucratic management of the government sector. This will support the discussion on public expenditure, its efficiency, and effectiveness. These are all elements that are required within Europe’s new budgetary governance mechanism. 

Malta’s economic performance seems to defy the global economic environment. Indeed, compared to its European peers, Malta had the highest economic growth rate in 2023 (7.5%), significantly outpacing EU average growth (0.4%). As an economist I am concerned with the growth composition for 2024 and 2025. Although exports are expected to increase by around 5% in both years, GDP growth primarily emanates from domestic demand increases, mainly from private consumption expenditure.

As we need to build a sustainable economic, I need to emphasise the importance of export-led growth and the need to improve competitiveness through labour productivity increases for sustainable medium-term economic growth. To this end, I would have liked to see more structural reform efforts and promote productive investment, particularly in the areas of digitalisation and green transition, research and innovation, physical and social infrastructure, addressing skills gaps and shortages in the workforce and improving education outcomes. 

In essence, Malta’s 2025 Budget offers valuable social support. However, to position Malta for long-term success, it is essential to complement redistribution with investments that build resilience, foster competitiveness, and elevate productivity. 

Future budgets should strive to balance immediate economic stabilisation with a forward-looking vision that addresses Malta’s structural weaknesses. By focusing on productivity-enhancing measures, aligning educational reform with economic needs, and prioritising preventive healthcare, Malta can build an economy that is not only sustainable but also inclusive and robust. 

As Malta looks towards Vision 2050, a comprehensive, cohesive approach to fiscal policy and economic planning will be key to ensuring Malta’s success on the global stage.