More than just a social budget | Steve Ellul

The Maltese economy continues to grow at an above average rate supported by historically low unemployment levels. On the other hand, inflationary pressures are taking a toll on citizens' wallets.

Last Monday, the finance minister delivered his budget speech against this economic backdrop, with a keen focus on striking a balance between reining in public spending, maintaining the economic momentum and alleviating the effects of the rising cost of living on the population. 

This budget undeniably aimed to bolster the purchasing power and income of a substantial portion of our working population and pensioners. It achieved this goal by increasing disposable income and promoting a fairer distribution of wealth, particularly among the most vulnerable members of our society. 

Stability first 

The retention of the energy subsidy that has supported the economy for the past two years is a critical measure, offering stability and peace of mind to businesses and families alike. These subsidies significantly reduce the cost of living pressure on the middle class and lower-income families. Discontinuing these subsidies would leave some families €2,000 worse off, a scenario avoided by Malta while other larger economies grapple with recessionary challenges due to similar decisions not being made. 

Direct increase in disposable income  

The budget specifically addresses pensioners and lower-income earners who mostly bear the brunt of inflation. The most significant measure in this budget is the substantial increase in weekly pensions, equivalent to an extra month's pension annually for some.  

Additionally, the long-overdue boost in the minimum wage is a very positive step which many other countries cannot take into consideration given the financial and political constraints they would face should they opt for such social measures.  

The extension of the COLA+ mechanism together with the increases in children's allowance and cash grants provided for families with children continuing their education beyond the age of 16, further enhance disposable income and contribute to reducing the issue of early school leavers. 

Incentivising longer careers 

A crucial measure in the budget is the improvement in the pension income for senior employees who choose to keep on working instead of opting for early retirement. Reducing the tax burden on working pensioners also encourages experienced individuals to remain in the labour force. 

Planning for a stronger economic fabric 

Whilst many focused their attention on the most visible social measures, the budget speech also emphasised the need to elevate Malta's economic model.  

Notably, investments in specialised manufacturing, particularly in the semiconductor industry, are forward-looking initiatives. Malta's participation in a strategic European programme for semiconductors and the investment in a competence centre for this industry positions the country as a potential centre of excellence in a niche sector, boosting the manufacturing industry and economic model. 

Sustainable finance and the green economy 

The budget paves the way for clearer guidelines on the allocation of financial capital in the coming years. Fiscal incentives for Maltese investors to support green projects over conventional ones could be transformative, unlocking the €24 billion euros currently held in deposit accounts for investment in a greener economic model. These incentives might include tax reductions on interest paid on green bonds and guarantees on such investments.  

The budget also underscores Malta's commitment to greener and cleaner energy sources, including offshore renewables, green energy from waste, battery storage investment, and a strategy for using hydrogen as an industrial fuel, all while maintaining energy subsidies and modernizing the electricity distribution infrastructure. 

Through the 2024 Budget the government has skilfully balanced the immediate needs of workers and citizens whilst presenting a framework on which the economic model can evolve in the years to come.

Steve Ellul is a financial analyst