It is pertinent that when comparing our economy to Ireland that one keeps in mind the huge disparity in per capita income.
For 2024, Ireland reached a per capita income of $106,456 compared to $43,992 earned in Malta. In 2025, Ireland has a GDP of approximately $382.5 billion driven by high-tech industries and foreign investment, while Malta's economy is significantly smaller, with a GDP of $26 billion and a GDP per capita of around $43,992, focusing on tourism, gambling, manufacturing and financial services.
Ireland's economy is more robust and diversified compared to Malta's, which is more reliant on specific sectors. The Irish Government has described 2026 as an exemplary year when the economy will protect jobs, notwithstanding an uncertain global economy. The 2026 Irish budget has introduced smart ideas to help industry to thrive (amid Trump's new tariffs). In fact, multinational companies will be some of the biggest benefactors from the R&D tax credit increase.
Let us examine how Paul Sweetman, chief executive of American Chamber (AmCham), representing US companies in Ireland, has commented on this matter. He states that such increases in R&D tax credit will be beneficial to attract high-value research investment and enable Ireland to remain a top-tier location for research, development and innovation in the long term.
As can be expected, some Opposition members have described the budget as "very disappointing", with "ordinary people left in the cold" given a lack of a distinct cost-of-living package and no changes to personal income tax for workers. Either way, Budget 2026 is a more constrained package compared to other budgets delivered in recent years, with one-off measures replaced by more targeted and permanent supports. Let us delve deeper in the measures so introduced.
To start with, welfare gets a generous social protection package worth €27bn. There will be a €10 increase across the weekly social protection payments, including the State pension with an enhanced Christmas bonus for long-term social welfare recipients.
Again, more goodies pop out of the bag concerning increases in child support payments. Working family grants to increase by €60 for all families, while a carer's allowance will increase to €1,000 for a single person and €2,000 for a couple. Sadly, as expected, there were no changes to personal income tax for workers. Yet minimum wage is to reach €14.15 per hour (much higher than Malta).
VAT rate for food and catering businesses and hairdressing services reduced from 13.5% to 9% from 1 July next year, but no change for hotels that provide just accommodation. The jewel in the crown, that always shines is the reform in housing and rents. Good to observe how finance minister Paschal Donohoe announced €200m of additional external funding for Home Building assistance.
Donohoe also announced the extension of the Living City Initiative to the end of 2030. Having analysed the Irish economy, now let us compare what our local budget will offer. Quoting sources like big Four audit firms and NSO, one can reach an understanding how Malta fares. Prime Minister Abela recently promised that the upcoming budget would be "the best budget in the country's history", saying it would strengthen those who need help, support the middle class and improve workers' conditions. The budget speech outlines various social measures for 2025.
The cost-of-living adjustment is set at €5.24 per week (still taxed), with proportional increases for students' stipends and full adjustments for pensioners and social benefit recipients. The minimum wage will rise by €8.24 per week. Occupational pensions will be available for new employees without mandatory employer contributions, and government employees will receive matching contributions up to €100 per month.
As is customary in a pre-election budget there will be a tax reduction for corporates - the lifeblood of the country's revenue. Rate goes down from 35% to 25% on the first €250,000 of profit. In his forecast, real GDP growth rate shall decline over the next two years, from 6% in 2024 to 4% in 2025 and 3.6% in 2026. In 2025 Q2, NSO reports that Gross Domestic Product (GDP) rose by 2.7% in volume terms. This was mostly due to domestic demand which contributed positively to GDP growth in volume terms (2.0 percentage points). Not equally promising was the increase in foreign trade which only reached a lower GDP growth in volume terms (0.7 percentage points).
The debt-to-GDP ratio is anticipated to be 49.5% in 2024, rising slightly to 50.1% in 2025, as the government maintains its extensive energy subsidies. Inflation (a fly in the ointment) is projected to drop to 2.5% in 2024 from 5.7% in 2023, while unemployment is expected to remain stable at 3.5%. The government debt is projected to be €11.7bn in 2025, with interest annual payments increasing to €263m.
Budget 2025 includes several sustainability and environment-related initiatives. An interesting PMC for offshore floating wind turbines and solar farms, was issued four years ago and offers are expected to be evaluated next year.
So far, Malta holds the distinction in Europe of being the laggard in generating energy from renewable sources, but further projects for the regeneration of public and green spaces are planned, and a new financial incentive will help reduce food waste. Waste management measures by a government-owned authority called Wasteserv, aims to start transforming organic waste into clean energy and soil additives, and a new plant will separate bulky refuse for recycling. More tax refund cheques to individuals earning less than €60,000 are in store.
These "pennies from heaven", ranging from €60 to €140 per taxpayer, will once again be landing in our mailboxes. A novelty this year, is how pension income will gradually be excluded from taxable income, with 80% of pension income not considered taxable for 2025.
There will be top-ups for pension benefits for those aged 61, while parents with children in private schools will benefit from increased deductions against their chargeable income. The Highly Qualified Persons rules will be extended to entities providing back-office services. Sanitary products and medical accessories for women will be zero rated.
Other generous measures include increased allowances for fostering and extra paternity leave for self-employed individuals.
In conclusion, Malta performed well last year but now needs a strong push to catch up with the exceptional growth of Ireland's booming economy.
George M. Mangion is a senior partner at PKF Malta
gmm@pkfmalta.com