Morphine, the super bonus and political honesty

When a patient undergoes a major surgical operation, the immediate recovery treatment includes morphine to numb the pain.

Morphine is a powerful drug and in the first couple of days, it gives the patient reprieve, while the body starts to recover. But morphine is addictive, which is why doctors advise low doses and a gradual weaning off, unless the patient is terminal and in great pain.

No doctor would want the successful outcome of a surgical intervention to turn into an even bigger problem because of morphine addiction.

Now, substitute the patient for the Maltese economy; the original medical issue that prompted the surgery with rising international oil prices; and the morphine with energy subsidies.

The government took a principled stand when it used subsidies to cushion families and businesses from fuel-induced inflation when the international energy shock started in 2022 with Russia’s invasion of Ukraine. Malta’s public finances could afford the subsidies and the cushion helped avoid the pain.

Public coffers continue to subsidise petrol and diesel, the liquefied petroleum gas sold in cylinders, and liquefied natural gas used to fuel the power stations. As a result, fuels sold at petrol stations, household gas and electricity prices have remained stationary, providing stability and peace of mind.

But like morphine addiction, the country now runs the risk of becoming totally dependent on subsidies to be able to function normally. What was a crisis intervention measure risks becoming a permanent feature that stifles productive long-term investment elsewhere.

This is not scaremongering but a reality check. Malta’s almost total dependence on imported energy—whether in the form of electricity bought through the interconnector with Sicily or the importation of LNG to fuel the power stations—means that it can never escape the impact of global turmoil. To reduce this dependence, Malta requires a strategic shift towards industrial-scale renewable energy. And here is one of the big dilemmas. The massive outlay on subsidies is constraining expenditure on renewable energy.

The floating offshore windfarm in Malta’s Exclusive Economic Zone remains a distant dream. An initial project off Gozo first floated in 2021 has disappeared from government’s language. Grants to households to invest in solar panels are insufficient and with no fixed timetable for their issuance, making it hard for people and PV suppliers to plan effectively. The policy for solar panels in industrial areas has only just been finalised and INDIS is now preparing a call for expressions of interest—a positive move, but why only now and not more ambitious to include the rooftops of all public buildings, car parks and other spaces?

The government did not make a mistake when it introduced subsidies. But it did make a mistake when it painted a rosy picture that lulled people and businesses into a false sense of security.

It made a mistake when subsidies were introduced indiscriminately. Somebody filling their motorboat with diesel to travel to Ragusa or Crete in summer is benefitting from the same subsidised rate of €1.21 per litre as the ordinary person filling their car to go to work. Somebody living in a spacious villa with swimming pool is benefitting from the same uncapped subsidised electricity rates as a pensioner living in a small apartment.

Since 2022 there was no hint of a concerted educational effort to make people aware on the need to conserve energy and counter the logic that because electricity is cheap it can be wasted.

And now that reality is coming home to roost, Finance Minister Clyde Caruana brazenly turns to businesses and tells them not to come to him with wish lists and voters to calm their expectations on the super bonus election pledge.

Energy subsidies this year will have reached almost €400 million, more than double originally forecast. He expects a similar outlay next year. As a result, Caruana warned that his priority for Budget 2027 is energy stability, while keeping the deficit below the 3% threshold. He called it responsibility.

But, maybe, the finance minister should have turned to his own Cabinet members first, including the prime minister, asking them to be more responsible. He should have told them not to continue lulling people into a false sense of safety and to cut unnecessary fat in government departments, agencies and authorities, such as the number of persons of trust, lavish press conferences, unneeded employment of constituents with public agencies.

The implication of Caruana’s strategy is that expenditure elsewhere in government will have to be tightened. He did not say how it will be tightened, what projects will be put on hold, what agencies and authorities will be given fewer funds. The numbers he unveiled related to a scenario that would result if subsidies were to be removed altogether. The result would be catastrophic, he warned.

But the issue was never removing subsidies at one go. Nobody has made that argument. But in a situation where the pain is likely to continue increasing, rather than adding more morphine into the system to numb it, it might be better to start taking the treatment that reduces the ailment causing the hurt. By making targeted adjustments to the subsidy, Caruana can redirect expenditure to renewable energy investment and measures to help households and businesses become more energy-efficient.

Economist JP Fabri, writes in MaltaToday that Malta needs to “treat the subsidy as a bridge between vulnerability and resilience”. The economic windfall created by the protection afforded so far should create the space within which the country reduces its exposure to external energy shocks.

But to do so requires politicians whose behaviour and words reflect the urgency and seriousness of the situation. Those in government who continuously paint a flowery picture cannot turn to voters and tell them with a straight face the super bonus will have to wait. In this sense, the problem is not just a fiscal one but a matter of political honesty.