Finance Minister Clyde Caruana addressed stakeholders during the launch of the public consultation for the government’s pre-budget document for 2024 on Wednesday.
In his address, Caruana gave an economic snapshot of the country, but also a warning of what is potentially to come in the future.
The minister said that in comparison to other big countries such as Germany, where the economy is expected to grow by just 1.5% for next year, Malta’s growth rate has been possible thanks to many factors such as the ongoing subsidies on energy and fuel prices, which are currently serving as a cushion for inflation.
Commenting on this, he said that these government subsidies should not be taken for granted, as if “the government were to decide to remove them,” everyone would feel its repercussions, especially on electricity bills.
On the same theme, Caruana also said that the fuel costs are still very high and if the government were to remove the current subsidy “there are going to be ramifications.”
“If we decided to stop the subsidy, you would see the price at the petrol pump go up by 45 cents immediately.”
He said that to cover the high spikes in prices of fuel and energy, the country has spent a total 1.5% of its total gross domestic product for this year. For 2024 it is planning to spend a total of 1.7% of the GDP which amounts to an estimated €100 million.
However, commenting in general he said that these government initiatives cannot be “normalised.”
He said that in 2022, the increase in expenditure reflected the government subsidies on energy, food and Covid-19 support measures, which altogether amounted to 7.2% of the total expenditure for the year.
However he added that now the country needs to change “its attitude with substantial effort”, to combat the consequences brought by Russia’s invasion of Ukraine.
The minister said that maintaining Malta’s economic growth is dependent on the employment sector as “it is the motor of it all.”
A lot of emphasis was placed by the Minister on the fact that the government’s subsidies and financial assistance is not some bottomless pit that will keep on being sustained forever, and there is going to be a point where the country is simply going to have to come to terms with the product of the rise in inflation of the last year or so.
Another clue of this is Caruana’s own statement that inflation rates will remain above the quite average 2% rate for a long while yet – something he said a couple of weeks ago as if to set the stage for the inevitable time that these subsidies will have to be phased out.
An interesting remark was also that maintaining the government’s strong economic performance is contingent on the employment sector – something which also needs to be taken against the backdrop of public pressure on the country’s increasing population and on the government’s decision to clampdown on the mass arrival of foreign workers.
There are several interesting implications to take from Caruana’s speech – but chief amongst them is a warning for the future that the times of the government directly subsidising inflation may not last as long as some might be hoping.