Fuel subsidies: Opposition removes the risk, government keeps the reward

When Adrian Delia declared that energy subsidies should remain a “national commitment,” he did more than endorse a policy. The intervention reads as a pre-emptive attempt to neutralise the government’s expected campaign line: that only the current administration can guarantee stable electricity and fuel prices.

But this also comes amid global uncertainty triggered by the war in Iran, which has contributed to a spike in oil prices. While Malta still benefits from hedging agreements, any prolonged instability could eventually translate into higher subsidy costs that any incoming government will have to face.

By embracing the principle of subsidies, the opposition reassures voters worried about higher bills under a different government. But consensus comes at a price. Once both sides agree on the policy, the debate shifts from “whether” to “who.” And when the contest becomes one of credibility, incumbency usually wins.

A decade of stability is hard to beat

The government’s advantage lies in experience voters can measure. Electricity tariffs have remained unchanged since 2014, and fuel prices have been fixed since 2020, even during global turmoil following the Russian invasion of Ukraine. This stability is tangible, not theoretical.

Historical memory reinforces this advantage. Past administrations led by the Nationalist Party (Malta) are often associated in public discourse with higher utility tariffs. Whether entirely justified or not, the perception lingers. Delia’s endorsement reduces fear of change, but it does not automatically convince voters that the opposition is better equipped to manage the system.

In times of uncertainty, continuity often trumps promises.

Subsidies and the growth machine

Energy subsidies are not an isolated policy; they are part of a broader economic model built on sustained growth. This model funds subsidies while also allowing tax cuts, expanded welfare, higher pensions and in-work benefits. The fact that all these measures coexist reinforces the sense that the system works.

Yet the arrangement depends heavily on continued economic expansion. Growth finances subsidies, subsidies support consumption, and stable prices reinforce political support. The loop is self-sustaining — and politically addictive.

The side effects, however, include increased construction, higher population densities and infrastructure pressure. Delia himself a foremost critic of Labour’s economic model now finds himself endorsing a policy sustained by the same model.

Despite mounting inequalities, more direct redistribution through taxation remains politically taboo. Instead of shifting resources from the richest to the poorest through structural tax reform, redistribution relies on growth-fuelled spending. This further entrenches the model and makes any deviation risky.

Central Bank caution meets political reality

Warnings about sustainability have been articulated by the Central Bank of Malta. A July 2025 discussion paper authored by Noel Rapa found subsidies boosted GDP by 1.3% and lowered inflation by about 1.2 percentage points in 2023. Lower-income households benefited most, reinforcing the policy’s social appeal.

But the same study also argues that this came at a cost: a four-percentage-point increase in debt-to-GDP, reduced incentives for renewable investment and increased fossil fuel consumption. The paper recommended a phased exit strategy combining gradual tapering with targeted support and green investment.

Delia echoes the sustainability concern but does not outline how such an exit might work. Without a roadmap, the warning risks sounding theoretical — allowing the government to argue that the opposition is only endorsing the government’s policy for convenience while spinning its justified sustainability concerns as signs of reluctance.  Still by expressing this concern without fully addressing it, Delia is playing with fire.

Opportunity cost — and selective justification

The Central Bank’s report mentioned above, also points to opportunity costs. Funds spent on universal subsidies could be redirected to infrastructure, healthcare or climate investment. Yet broad subsidies are politically powerful precisely because they are universal and visible.

The government has lately responded by emphasising renewable energy investment announcing a solar investment scheme for roofless households and moving on with its plan for floating windfarms, a strategy that promises long-term reduction in subsidy reliance without immediate price shocks. This approach allows it to claim both prudence and continuity.

Still, distinctions exist. Subsidies on electricity can be framed as social protection, but blanket subsidies on petrol and diesel are harder to justify environmentally especially in a country where traffic is one of the major concerns.  

Artificially low fuel prices weaken incentives for conservation and cleaner transport. Yet reform remains politically difficult because fuel costs are immediately felt. The government can also evoke contrasts between Malta and the situation in other countries where fuel costs are skyrocketing.

When consensus favours the incumbent

Surely the opposition is being politically savvy in endorsing the government’s policy. But this is more likely to be seen as a damage limitation exercise than an innovative game changing policy as was the case with Joseph Muscat’s 2013 energy plan.

Moreover, third parties like Momentum and ADPD have an opportunity to present themselves as the adults in the room by advocating a more sustainable long-term plan.

Delia’s intervention ultimately confirms narrowing policy differences. With both parties backing subsidies, the contest becomes a question of trust. And trust tends to favour the actor already delivering stable prices.

The governing narrative is straightforward: subsidies worked during crises, protected households and coincided with economic growth. Long-term sustainability concerns — valid as they may be — struggle to compete with immediate stability.

In uncertain global conditions, voters are unlikely to experiment. When both sides promise the same thing, the safest option often prevails. And in this case, the safest campaign slogan may already have been gifted to the government: why risk change when the devil you trust keeps your bills unchanged?