Addressing traffic congestion and the high emissions from road transport are crucial in order to improve competitiveness, quality of life, and support vulnerable segments of the population in Malta, the European Commission stated while going over key policy challenges ahead of listing its recommendations on the economic, social, employment, structural, and budgetary policies of Malta.
The European Commission stated that the 2025 European Semester Spring Package analyses the key economic and social challenges across the EU and offers policy guidance to member states with the aim of strengthening competitiveness, prosperity, and resilience, in part by promoting reforms and investments aligned with EU priorities. It continued that the policy guidance presented in this instance comes at a time of “a particularly volatile trade and security environment”.
The European Commission said that, beyond economic and social challenges addressed by the recovery and resilience plan and other EU funds, Malta faces several challenges related to aggressive tax planning, education and skills, energy and decarbonisation, road transport, as well as research and innovation. On the matter of transport, it commented that the transport sector is the biggest emitter of greenhouse gases in the country.
Detailing its recommendations, the European Commission stated that Malta should accelerate the deployment of renewable energy by promoting large-scale projects as well as small-scale investments in direct energy production and consumption. It continued that Malta should reduce energy demand through improved energy efficiency in buildings, and reduce emissions from road transport, along with addressing traffic congestion by promoting quality and efficient public transport, increasing investments in active mobility infrastructure, and discouraging car usage. It added that the country should phase out fossil fuel subsidies, including energy support measures.
The European Commission said that during 2025 and 2026, Malta should take action to reinforce overall defence spending and readiness in line with the European Council conclusions of March 6th 2025. It continued that Malta should adhere to the maximum growth rates of net expenditure recommended by the European Council on January 21st 2025 with a view to bring an end to excessive deficit, wind down the emergency energy support measures, and to address remaining aggressive tax planning risks, introduce a withholding tax on outbound payments or equivalent defense measures, as well as amend rules on non-domiciled companies.
The European Commission continued that in view of the applicable deadlines for the timely completion of reforms and investments under EU regulations, Malta should ensure the effective implementation of the recovery and resilience plan. It said that Malta should accelerate the implementation of cohesion policy programmes in addition to building upon the opportunities offered by the mid-term review, wherever appropriate. Furthermore, it recommended that Malta should make optimal use of EU instruments, including the scope provided by the InvestEU and the Strategic Technologies for Europe Platform, as a means of improving competitiveness.
Continuing with its recommendations, the European Commission recommended that Malta promote investment in research and innovation, including by increasing public research and development investment and stimulating private investment, such as by implementing tax incentives.
Additionally, it recommended that Malta should strengthen the quality and labour-market relevance of education and training in order to address low educational outcomes, “as well as the severe shortage and mismatch of skills”. It added that the inclusiveness of education and training should be strengthened.
Concerning fiscal sustainability, the European Commission stated that this European Semester package concludes the first full year of macroeconomic surveillance under the revised governance framework. It continued that this framework assesses the progress of the member states in implementing their medium-term fiscal-structural plans which were submitted last autumn. The European Commission commented that it evaluates compliance by comparing projected net expenditure growth with the ceilings set by the European Council or outlined in the national plans.
With that said, going over the fiscal surveillance section of the report, the European Commission said regarding member states under excessive deficit procedure, the countries Malta, France, Italy, Hungary, Poland, and Slovakia need no further steps to be taken under the procedure at this stage.
Ten member states selected for in-depth reviews were assessed concerning the existence of macroeconomic imbalances, with those ten countries being Estonia, Cyprus, Germany, Hungary, Greece, Italy, the Netherlands, Slovakia, Sweden, and Romania.
The European Commission said that Estonia is not experiencing imbalances, as vulnerabilities relating to deteriorating price and cost competitiveness and house prices seem to be contained. It continued that Cyprus has been reclassified as experiencing no imbalances due to vulnerabilities related to external and private debt receding partly as a result of strong economic growth. It added that Germany has also been reclassified as experiencing no imbalances.
However, the European Commission said that Hungary, Greece, Italy, the Netherlands, Slovakia, and Sweden continue to experience imbalances as their vulnerabilities remain relevant. In regard to Romania, it said that the country continues to experience excessive imbalances as its fiscal and current account deficits widened whilst cost competitiveness deteriorated in 2024.