The increase in Malta's debt from €10.05 billion in August 2024 to €11.13 billion at the end of August this year raises concerns, the Nationalist Party's Shadow Minister for the Economy and Enterprise Jerome Caruana Cilia said. "Where is the money going," he asked.

In an interview with The Malta Independent on Sunday, Caruana Cilia said that Malta is still in the Excessive Deficit Procedure, and that the Finance Minister has said Malta would exit from this procedure early. "We should have never gone into it, but until today we are still in it."

One dimension which emanates from this level of national debit is the interest that accrues on it, "burdening us further", the PN MP said. "From January to August, the interest we paid on the debt was higher than €192 million."

He said that this was just payment for the interest and is therefore "the stark cost of servicing the debt" and not the cost of its actual repayment. "We still need to see the figures, but if we keep going with this rhythm it would mean we would have paid more than a quarter of a billion euros in a year just in interest on the country's debt."

"Naturally a measured and controlled national debt taken in order to give the right impetus into the economy as a motor to generate more national wealth and increase the level of public services and the quality of life for all, is in itself acceptable. But this certainly does not seem to be the reality here."

"The government says that the subsidies, and we are in favour of subsidies and support given to families and businesses, over the period of a year cost around €200 million. That is not a billion euro. Public funds should be spent wisely, not squandered on inefficiency, incompetence and corruption. Furthermore, borrowing to cover expenses without improving productivity can deepen the problem."

Questioned about the upcoming budget, the PN MP said that over the past days the party held meetings with constituted bodies. He said that a number of proposals by the PN were already issued this year, adding that more will be made. The PN will be issuing specific proposals, but will also speak about its vision of where it wants to take the country in terms of macro-level proposals, Caruana Cilia said.

He mentioned two particular challenges the country currently faces. "The first is the cost of living, where not only the vulnerable are impacted. People who are middle class say they are barely coping," he said.

The other is the issue of fertility, he said.

"One of our proposals is to remove the tax on the COLA increase which, while helping everyone, will help those struggling even more. We also proposed a tax exemption on the first €10,000 earned from overtime and part-time." He mentioned the PN's proposal to introduce a new tax band for parents with more than one child, saying it will leave around €8,500 annually in the pockets of those eligible.

Level of productivity has to increase

Turning to the economy, he said: "We are talking about a sustainable economic model. The problem is not the rate of economic growth, which is good, but the way the economic growth is being brought about." 

In Malta, the level of productivity has to increase "as currently the real labour productivity per person is below countries like Cyprus and Italy", Caruana Cilia said.

"In the most densely populated country in the EU, reasoning tells you that you need to increase productivity levels so that we can produce the same amount with fewer resources, which would mean less of a strain on infrastructure, on hospitals, on education, and other services."

One of the causes, he said, is the lack of government investment in research, innovation and digitalisation. He added that the government needs to be more ambitious and increase its investment in these sectors. "An EU country report working document shows that the government in 2023, the last full year in the report, spent 0.64% of GDP on Research and Innovation (R&I) while the EU average is 2.24%." He compared the situation to 2012, saying that it was 0.79% at the time, "which means we are worse than in 2012".

He quoted from the report, saying that Malta's underperformance in research and innovation is further exacerbated by a shortage of skilled workers, particularly in science, technology, engineering and mathematics subjects. "So, we are facing overpopulation that was clearly poorly planned for, along with all the consequences that come with it. Had infrastructural investment been made etc., then maybe the problem and crises we see today in terms of traffic, drainage and waste management would not be as big. The conscious option for an economy based on anticipated higher consumption driven by massive importation of labour was unwisely weighted upon an infrastructure, which was not planned to cater for the anticipated population level."

He said that such infrastructural investment did not occur and there was no planning. "This is a serious problem, and the Quarterly SME Barometer by the Chamber of SMEs shows that while one of the challenges it identified was overpopulation, one of the other top three challenges is the lack of skilled individuals. So we have the impact of overpopulation without planning, but then we don't have people with the needed skills," he said. 

This is something he believes the government really needs to focus on solving. 

AI can be implemented in different sectors

Asked if there is something in particular that he strongly believes should be addressed in the budget, he spoke of the need to be more ambitious when it comes to Artificial Intelligence (AI). "We've heard a lot about it, and it has almost become a buzzword today."

He said that AI can be implemented in different sectors in Malta, saying this is something he wants to see the government use more. "I'm not saying that the government is not doing anything with AI, but it is not being ambitious enough." 

"In the coming years it will drastically change the world of work, that is the reality. While the EU has adopted the AI Act, discussions on AI safety and related issues remain limited at national level. Apart from engagement by certain private sector stakeholders and academic institutions, the topic has not yet been widely addressed in broader public or policy debates in Malta."

In the tourism sector, he said that with the use of AI, predictive analytics could help operators to anticipate and optimise demand and resources. "AI-driven personalisation can enhance visitor experiences, and so tourists would benefit while operators would be able to refine their resources."

"In the financial services sector there is already good use of it in terms of fraud detection. He said AI can be used for fraud detection, and in a number of tools such as onboarding, streamlining compliance processes, leading to more efficient services for customers."

Regarding iGaming, he said that technology that uses AI can increase security, detect irregularities, offer tailored offerings for customer preferences, "and so ensure that the industry remains innovative, competitive and reputable".

In the European context of manufacturing, he said: "AI-powered predictive maintenance is used to minimise the downtime by identifying potential failures in equipment. There is also the concept of advanced robotics that streamline production lines."

In terms of the aviation sector, which he said is growing in Malta, AI can be used for scheduling, predictive safety systems, smarter fuel optimisation.

"I would like to see the government help the private sector invest more in these systems," he said, by encouraging the private sector through measures and initiatives.

"We are also behind in the educational aspect," he said, adding that he wants to see more government incentives for training.

Regarding concerns about loss of jobs that can be brought about by AI, he stressed the need to "train people so that they can shift in sectors that would have a higher value added, be better for them, and would improve productivity in the country".

He said that this has happened in the past, giving the example of when computers began to be used.

"This is where I think the government is falling short; it needs to anticipate challenges and invest more (in AI). Again I'm not saying it is not doing anything, but it is not being ambitious enough."

He said that there are countries that are running forward on AI, and that Malta cannot fall behind.

'We don't intend to raise the effective tax burden of foreign investors'

PN Leader Alex Borg had said that the corporate tax would be harmonised at 15% in certain sectors. Caruana Cilia said: "We have to protect both local and foreign investors and incentivise them. We don't intend to raise the effective tax burden of foreign investors because we are aware how sensitive this issue is and any increase in tax burden may disincentivise them from making further investment into Malta. We also need to ensure that local investors, especially small and medium-sized enterprises, do not pay a disproportionate level of tax. Thus, as the Leader of the Opposition stated, we intend to find innovative ways of lowering their tax burden gradually and in a sustainable manner, especially in certain sensitive sectors of the economy and particularly where they re-invest their earnings in their business. In this manner, our aim is to incentivise both foreign and local investors to continue to grow our economy."

Asked about the need to shift the economy to less human resource heavy sectors, and how that could be achieved, he spoke of the importance of moving towards sectors that raise productivity levels. "When looking at what the PN and other governments had done, they looked at sectors like gaming, financial services, the high-end manufacturing sector, aviation, the maritime sector, which are sectors that create jobs with good wages and had higher productivity levels than many other sectors."

He spoke of identifying the unique selling point of Malta for every vertical industry. "Take esports for example, which the government is working on building, but we can be more ambitious in doing so." Another example he gave was about the maritime sector, saying that "there are many sub-sectors which we have not tapped".

"We now have Vision 2050. Finally, after years of us and various stakeholders emphasising the need for a long-term vision for the country, the government understood that the vision was needed. But I hope that the fiscal incentives that will be given in this budget will start to be in line with Vision 2050. I understand that it is still being drawn up, but the principles that the government already announced are there, and I hope the measures will be in line with that direction."