An article authored by economist Clint Azzopardi Flores

This week, the minister for finance, presented the 2025 Budget. While I was listening to finance minister’s speech, a word struck me. The word I am referring to is context.

Unless we understand the context in which the 2025 budget was presented, we can’t appreciate the efforts undertaken by the PL government to address problems, that were foisted on us, either by reckless decisions pushed from abroad, or other institutional decisions aimed at reaching geopolitical or green transition goals.

The global economic outlook is giving a completely different picture relative to what we are dealing with here in Malta. Whereas in Malta we retained the energy subsidies, thereby providing economic stability, in the EU’s largest member state, and economy, the opposite is indeed happening. In Germany, there are warnings that not all the social services will be provided in 2025. In fact, Germany’s coalition government is planning to slash citizen’s income social services by €5.5 billion, which is roughly 12%. Certainly, not a socialist move for the Social Democratic Party of Chancelor Olaf Scholz. The same is true for France. France presented its draft budget plans to the EU Commission. Clearly, the figures are under scrutiny due to the Excessive Deficit Procedure. France is experiencing a relatively high deficit reaching almost 6% of its GDP in 2024, thereby eclipsing all other EU member states for negative statistics. The French government’s target is to reduce it to 5% in 2025, which means that around €59 to €60 billion euros would need to be slashed in public spending cuts.

An excerpt from the BBC. Chancellor Rachel Reeves yesterday delivered next year’s budget.

Au contraire, in Malta, the PL government, widened the tax bands, incr. eased the children allowance, promoted free gym services to the youth segment, improved the public sector employees’ benefits, increased the minimum wage, and pensions, as well as other socially just benefits to ease the inflation pinch that hit the world, including Maltese families, in the past years. Indeed, I can carry on comparing statistics. While in Malta, the Maltese government is providing these benefits, the deficit is on a downward trend to 4% of GDP, and the debt to GDP ratio is under 50% of GDP. Personally, I think that at an EU level Eurocrats did not understand how certain economies function. As an economist, I can predict, or at least my intuition tells me, that ceteris paribus, Malta’s economy will once again reach a higher economic growth than it is being forecast. This would then translate into a lower deficit, and debt to GDP ratio, thereby allowing the government to provide additional services.

I was not going to be political in my analysis, however, the reality is that the geopolitics played at EU level, by the former defence minister of the largest member state, imposed so much pressure on the German economy, that will obliterate the chances of the Social Democratic Party of Chancellor Olaf Scholz perhaps to win another term, and subsequent elections, in the future. I think a former EPP defence minister, who is now leading the EU commission managed to destroy the Social and Democratic Party in Germany for the years to come.   

Back to Malta’s economy, we understand that there are difficulties emanating from the economic success of the past decade. Let’s not forget that hadn’t it been for such accelerated economic growth we would be eating ourselves. The Maltese government provided financial benefits to the private sector, and Maltese families both during the pandemic, and during the negative economic and energy shocks of the past 3 years, since the invasion of Ukraine. And with all the financial benefits that the government provided to all, the deficit is in control, and the debt to GDP ratio is also on a downward trajectory, under the 50%.

What I mean is that it is understandable to whinge about traffic and other negative economic effects on the infrastructure. However, I prefer to deal with the negative economic effects as a result of high economic growth, rather than the opposite. I do not picture a situation where the PL government would need to go the public with a plan, reducing welfare benefits, including the removal of the energy subsidies.

Those who are falling for the narrative of the populists, including that of the PN’s, who are saying that economic growth is bad, just think about what would happen in the absence of economic growth. Sincerely, what is currently happening in the largest member states, that is France and Germany, would need to be replicated here in Malta.

And who will be suffering most? Those who are in the lower middle, upper lower, and low-income earners. So, before you rush to agree with the populists on social media, stop for a minute and think about the implications of no or negative economic growth.

Lastly, I look forward to seeing the Malta Vision 2050 long term plans, as well as the economic migration policy, and other regulations that will be easing the pressure on the Maltese infrastructure.