The government unveiled its budget for 2026 yesterday, and it is clear that the major measure is targeted at supporting parents and incentivising the growth of families.

The biggest measure was the introduction of new tax computations, from which tens of thousands of parents will benefit. The measure will be spread over three years.

The move will widen the tax bands for parents. Among the changes, the threshold of income which is not taxed will rise. For example presently, the income threshold before tax is applied is €13,000 under the Parents computation, but this will rise to €30,000 in 2028 for the Parents with two or more children computation.

The new computations will apply for parents who have one child or more under the age of 18, or 23 if they continue in education.

In a policy note earlier this year, the Central Bank of Malta said that the share of native Maltese in the total and working age population has continued to decline. It also pointed out that the total fertility rate in Malta has been declining since 2015 and stood at 1.06 in 2023, below both the European Union (EU) average of 1.38 and the required replacement rate of 2.1 children per woman.

From a financial point of view, this Budget measure will be of great help to parents and prospective parents.

The Budget also included other supportive incentives, such as the bonus parents receive when giving birth to a child being increased by €500.

The message the government is sending is clear, it wants to increase the local birth rate. There is no doubt that financial issues are a factor stopping families from having children. The tax measure aims to help alleviate financial issues that parents or prospective parents have. But the effectiveness of the measure will need to be seen in the years to come. It is not the only factor affecting the birth rate. Other factors could include not having enough time to spend with children due to the workload which both parents may have for example, the size of accommodation, etc. The government had introduced measures such as free childcare, but there are other problems that might also need addressing.

This year’s tax computation measure is expected to cost €160 million over three years. It is not a small amount.

But one must mention that the government has introduced two measures in recent years, aside from this, which have a recurring impact on government finances. The tax cut in last year’s budget, and the energy subsidies.

The Finance Minister said that the deficit will reduce this year, and will reduce even further next year. Undoubtedly, all these measures are able to be introduced and upkept due to Malta’s economic growth which is good. And one hopes that long-term, these tax cuts can be kept. But that would depend on the future financial situation in the country.

Malta is currently going through changes. It is a time when the country is suffering the impacts of an economy that was built on rapid population growth without adequate infrastructural planning. And while some moves are being made to shift the economy to more high paying sectors which are less human resource heavy, which must happen, Malta’s success will depend on many future factors in that regard.

The government should also address the country’s debt. The reduction in deficit shows that the country is moving in that direction, and one hopes that this does not change. The country pays hundreds of millions each year in interest on the debt. Yes, it stands at well below the Maastrich threshold, but it is still millions and millions of euros being wasted each year on interest payments. If that can start reducing, that would also mean more funds in the government’s chest.