Brussels says Malta must wind down energy subsidies to keep deficit down

The European Commission has asked Malta to wind down its energy support measures to reduce its government deficit, instead recommending means-tested support measures for energy price increases.

A Commission Opinion on Malta’s Draft Budgetary Plan warned that, as a result of hefty energy support measures, Malta has no related savings to be used to reduce the government deficit.

“Overall, the Commission of of the opinion that the Draft Budgetary Plan of Malta is not fully in line with the Council Recommendation of 14 July 2023,” the opinion report reads. “Therefore, the Commission invites Malta to wind down the energy support measures as soon as possible in 2023 and 2024.”

The previous council recommendation, published in May this year, had recommended that the government wind down its energy support measures by the end of 2023, and to use the related savings to reduce the government deficit.

In the event that increased energy prices necessitate fiscal support measures, the Council instead suggested using targeted measures to protect vulnerable households and firms.

The Commission’s 2023 Autumn Forecast predicted that Malta’s net budgetary cost of energy support measures at 1.6% of GDP in 2023. This will increase to 2% in 2024 and 1% the year after.

“The energy support measures are not projected to be wound down as soon as possible in 2023 and 2024. This risks being not in line with what was recommended by the Council.”

Budgetary projections have indicated that the government will spend around €320 million in fuel subsidies every year until at least 2026, or until Malta fixes its electricity supply.

Finance Minister Clyde Caruana has committed to maintaining the fuel subsidies until necessary to keep energy prices stable.

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